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How Online Streaming Changed the Music Industry

Music concert goers support artists

The music industry is vast, subdivided into the main industry we know at surface level, and the other industries that make it up (mostly behind the scenes). Each division has a number of jobs most people are left unaware of – ask just about anybody and they’ll probably only consider the artists and their managers as the entire industry.

Thus, the “death of the album” happened, with album sales declining rapidly, most notably between 1999 and 2009, from $14.6 to $6.3 billion.

However, it involves many more people, including production, distribution, sales, law, event planning, photography, art, video, advertising, and other aspects. There are countless jobs including those in recording, licensing, live touring, merchandise/print design, web design/admin, publishing, marketing, and public relations, video production, music columnists and reporters for newspapers/magazines, and even instrument designers and makers, and music software and hardware creators. Let’s not forget music teachers, both for private lessons and professional classroom instruction.

There’s probably more music industry jobs to mention, and the way we consume music affects each one of them. These days, there are even more jobs – in addition to people working in retail selling physical copies of music as well as merchandise, there’s also the digital equivalent. Today, there are people in the music industry who are working behind desks, operating computers to create and sell digitized versions of music, as well as merch sold online, and performing other computer-based. This mirrors the onset of, and subsequent inclination of people towards legal music and downloads, mainly due to personal convenience.

From Croon to Cloud: How Music Became Intangible

Experts say the first musical instrument was the human voice. It has come a long, long way since – from humble roots as part of prehistoric and ancient cultures, to today’s consumer-based billion-dollar industry.

Recorded music has come a long way from 1877’s invention of the phonograph by Thomas Edison, to present-day innovations. The Recording Industry Association of America (RIAA) reported that as the 8-track became less popular by 1981, the vinyl LP and EP formats were the standards until 1989. The cassette tape and the CD subsequently overpowered them. From the mid-80s until mid-2000s, CDs were trendy, reaching peak revenues of about $70 billion in the late 90s to early 2000s.

Since then, digital formats have taken over. If the Sony Walkman and Discman were all the rage in the 80s, the late 90s and early 2000s saw the rise of the MP3 player and eventually Apple’s famous iPod. Today we have an array of smartphones capable of playing music, whether from internal storage or streaming online. To get music streaming into these gadgets, people needed to either convert the content of their CD collection into MP3s, or download them (often illegally from peer-to-peer software like Napster, LimeWire, and various torrent sites).

people listening in online streaming and people working on music industry

By the early 2000s, sites like allowed legal music downloading. Thus came the popularity of iTunes and the more underground Bandcamp, selling music at roughly $0.99 per song – affordable and convenient for moderate music fans who would rather take a few songs off an album instead of approximately $15 per CD that contains 10-15 songs on average, only a few of which they would probably listen to.

Even when music piracy declined, with the passage of the Digital Millennium Copyright Act (DMCA) that got rid of illegal music sources several web pages at a time, it had still planted the seed in many people’s minds that music is freely available, if you know where to look. Thus, the “death of the album” happened, with album sales declining rapidly, most notably between 1999 and 2009, from $14.6 to $6.3 billion.

With the popularity of the cloud as nearly-infinite storage, online streaming became the norm, in both free and paid versions. Services such as Pandora, Spotify, and Apple Music allow you to subscribe to paid versions of their services, allowing for seamless, ad-free access to thousands of songs. Averaging around $10 a month for practically unlimited music choices, these paid subscriptions are far more affordable with much broader access to artists’ catalogs than anyone could ever grow tired of.

A Look into the Industry’s Future

Recently, the RIAA reported that the U.S. music industry had its best year in about 20 years. Total retail sales of recorded music, the bulk of which came from online streaming, rose 11.4% to $7.7 billion – the industry’s biggest gain since 1998.

The RIAA said that for the first time, streaming made up over half of the music industry’s annual revenues. Streaming platforms like Apple Music, Spotify, Tidal, and many others, amounted to about $3.9 billion in revenue. This is about a 70% increase from the previous year; in the past five years, streaming went up from 9% of recorded music revenues to 2016’s whopping 51%.

Another exciting aspect is that this growth can be attributed to paid subscriptions, more than doubling at $2.5 billion – that is a third of all the increase in recorded music revenue. As such, people are still willing to pay for music, but would rather pay for streaming access rather than physical copies of these albums and singles.

Also, major music companies still dominate the industry’s sales. There are only three major music companies left in the U.S. (EMI Group was absorbed in 2011 by Universal Music Group and Sony Music Entertainment). Today, Universal makes up 32.41% of the industry, plus 6.78% by EMI Music; Sony and the publishing arm of EMI Group has a combined 30.25%; Warner Music Group owns 19.15%; lastly, the combination of all independent labels in the U.S. comprise the remaining 11.42% of the industry.

However, while the stats seem hopeful, there’s still more to it than meets the eye. It should always be noted that while streaming is the leading source of income for the music industry (essentially getting rid of the majority of music piracy), a remarkable number of people are going back to physical copies of records. Vinyl has been making a comeback in recent years, with sales going up 20.4% in 2016. Dubbed the “vinyl revival,” according to Nielsen’s 2016 report vinyl has been growing increasingly popular over the past decade, however slowly.

Business analysis company BuzzAngle, owned by New York-based Border City Media, reported an overall trend of positives for streaming and mostly negatives for physical sales. While CDs are still widely available, and with a few artists with brave marketing moves having cassette tapes available for some or all of their catalog, physical sales have gone down 2.1%. That amounts to only $39.6 million, even though it has accounted for 53.4% of all album sales this year so far, an increase from 46.9% in 2016.

According to BuzzAngle’s latest report, this weird trend in music can be attributed to people preferring individual songs over complete albums. “At one time the album model worked giving you the best value for your money, but that is no longer true in the vast majority of cases,” says Mashable’s Steven Hodson.

As music streaming has gotten more and more popular (Nielsen reports music consumption is “at an all-time high” in 2016), what does this mean for the artists? According to a 2013 report, Pandora pays $0.0012 per play to record labels and $0.0002 to artists. In a separate report from the same year, it was revealed Spotify rights holders received between $0.006 and $0.0084 per play. These stats mean that it would literally take millions of plays for an artist to earn around $200. That’s a bleak future for people who work hard to create their music and get it out there. It’s no surprise a lot of musicians in the U.S. and around the world take on day jobs just to sustain their daily living expenses.

Even with music consumption seemingly steering towards the cost-effective for listeners at the risk of money loss for music creators, there are still other ways musicians (at least, the more established ones) can make money. Concerts, for example, are still more popular than ever, even though many performances are available through free and paid live video streams. U2’s 360° Tour from 2009-11 saw an average audience of 66,110 – enough to earn $736 million in over a hundred shows, making it the top-grossing tour of all time.

Surprisingly, listening to AM and FM radio is still widely popular as well. Even though customizable streaming media sites, whether in their paid or free versions, have been increasingly prevalent, about 91% of Americans still use the radio, allowing an easy listening experience with no need for creating libraries and playlists. If royalties are adequately paid, it’s yet another way for artists to gain passive income (if any at all).

Music consumption has recent advancements in online streaming certainly have its pros and cons. If the past few decades are any indication, the music industry would probably have yet another bold and drastic change within the next 5 to 10 years, both in technology and consumption. One thing is for sure, though: listener convenience will play a significant role. It is, and always has been, a driving force that dictates what direction the entire industry will go.

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