Music Subscription: The Facts

Music subscription services have surged recently in both usage and overall membership. And that surge has brought with it no shortage of questions, confusion, and controversy over how the model will impact the broader music industry: both labels and artists alike. As the collective voice of the digital music business, digitalmusic.org and its Music Subscription Work Group convened to address this issue directly and drafted the following document to dispel myths and facilitate a balanced discussion on the role of subscription music services in today’s marketplace. This is a complicated issue that, like past innovations in this sector, will take time to fully comprehend and appreciate. We hope this will serve as a useful resource for labels, managers and artists confronting these issues, and welcome continuing the discussion with additional support going forward.

digitalmusic.org Music Subscription Work Group

Download a PDF of Music Subscription: The Facts, by clicking here.

THE FACTS

Myth: Music subscription services cannibalize music sales

Fact: Digital music sales have actually increased along with the spike in on-demand streaming and subscription music users.

  • Nielsen SoundScan reported a 7% increase in overall music unit sales for 2011, including a 1.3% increase in total album sales, a 19.5% increase in digital album sales and an 8.5% increase in digital track sales.
  • In that same year, music subscription services added millions of new paying subscribers, and even more “free” tier users combined (Spotify, Rhapsody, Muve).
  • The NPD Group reports overall music spending is up 2% from 2010, with digital downloads alone increasing 14% over last year.
  • According to Nielsen BDS, on-demand streaming activity rose from 242.6M streams in the last week of November to 494M the week ending March 4, yet digital track sales for the same timeframe are up 7% and remain stable.

Fact: The following albums are just a few of the more notable releases that reached No. 1 on Billboard’s charts, yet also were released day/date on subscription music services, indicating that sales are not harmed as a result.

  • Drake: “Take Care”
  • Blake Shelton: “Red River Blue”
  • Beyonce: “4”
  • Lil Wayne: “Tha Carter IV”
  • Lady Antebellum: “Own The Night”
  • Jay Z: “Watch The Throne”

Fact: Music subscription services reduce piracy:

  • 55% of 18-29 year-olds pirate less because of subscription music services, according to a Columbia University study, as do 40% of 30-49 year-olds.
  • Pirate activity in Sweden, where subscription streaming activity is highest, fell from 47% to 23% last year, according to a study by the Media Vision Group.

Fact: Anecdotes and surveys suggest some subscription music users actually buy MORE music than the average music fan:

  • A recent MOG survey revealed 44% of its subscribers use iTunes regularly as a vehicle to buy music. Here are some of their responses:
    • I actually buy more music because I am free to explore and find albums I really like.
    • I can find an album I’m considering purchasing, listen to it, and if I like it, I’ll buy.
    • I listen to more artists than I used to back when I have to commit to $10 to hear an album. I don’t spend less on music, but I’m happier with what I buy. I may even buy more albums.
  • Rhapsody Case Study: A popular indie rock artist released a new album this past June, and for the first five months did not make that album available to streaming subscribers, limiting it to paid downloads only. Album sales on Rhapsody slowly fell over the course of those five months. In November, the artist allowed the album to be streamed on Rhapsody as well. The following month (December), sales rose 100%, and rose another 50% in January. The band’s combined sales and streaming revenue on Rhapsody in January totaled more than the total sales-only revenue earned when the album debuted in June, nearly eight months earlier.

Myth: Artists don’t earn enough from subscription services for it to be a sustainable model

Fact: Music subscription services collectively pay record labels and rights organizations hundreds of millions in music licensing fees every year. How labels distribute that money to artists differs from service to service and from artist to artist based on their individual contracts. And while confidentiality agreements prohibit discussing the particulars of each deal, it’s accurate to say that per-stream payments are more than:

  • YouTube, which alone accounts for more music streamed a year than all of today subscription services combined
  • Internet radio, which pays a low statutory rate for non-interactive streaming
  • Radio, which pays no performance royalty at all

Fact: Revenue from music subscription services is growing:

  • Warner Music Group reported streaming revenues growing at a rate of 36% from Oct. – Dec. 2011, compared to a 15% growth rate for downloads.
  • IFPI data shows that digital revenues in countries where Spotify is operational increased an average of 43% the year after the service launched there, compared to an increase of 9.3% in other similar countries in the same timeframe.

Myth: Withholding new releases from music subscription services (ie: “windowing”) is a good strategy

Fact: Activity on subscription music services now influence positioning on the Billboard Hot 100 chart, and are being measured separately by a dedicated On-Demand Songs chart. Withholding music from these services could negatively impact chart positioning. Click here to see the chart and read more about it’s launch.

Fact: Withholding music from subscription services alienates fans. The following are comments left by users of various subscription music services upon discovering newly released music was unavailable:

  • “I will never BUY this album. However; if Coldplay would like some of my money, they’re more than welcome to make this available for streaming on Rdio.” (Coldplay Forum on Rdio)
  • “This cheap money grab by the Black Keys makes me think they’ve gotten old and out of touch.” (Black Keys Forum on Rdio)
  • “Oh well, Peppers. I was willing to pay you for this, but instead … Robin, to the torrents!” (Red Hot Chili Peppers Forum on Rdio)

Fact: Windowing content contributes to piracy. A 2011 analysis of Hollywood’s practice of windowing movie released by Carnegie Mellon and Heinz College finds that such practices can increase piracy activity by as much as 70%. In the authors’ own words:

  • Based on our analysis of seven large nations, we find that in most countries, every week customers have to wait before they can buy a DVD translates into, on average, 1.8% lower DVD sales. Given that good-quality pirated versions are available close to 14 weeks before the legal versions, the losses can be in the millions of dollars. Not surprisingly, a 14-week delay also translates to a 70% increase in pirated movie downloads in those countries.

Fact: Music subscription services increase the social conversation of participating artists and their music. Withholding music from subscription music services means fewer fans are talking about your music.

  • In May of 2011, several Barsuk artists added their music to subscription music services for the first time. The result was a notable increase in social activity in the months that followed, according to data provided by Next Big Sound. For example:
    • Nada Surf: Combined fan reach increased over 800%
    • Rilo Kiley: Social activity increased more than 300%

Supporting Information

  • Music fans who would rather listen than buy don’t buy more when their listening options are limited.
  • They simply listen elsewhere, via channels that pay less than subscription music services such as: a) YouTube/Vevo or b) pirate sites.
  • The per-stream payouts mentioned in the press do not tell the full story
    • Music subscription services are based on an average-revenue-per-user model. Applying a per-unit metric to a per-user model is not an accurate reflection of the value music subscription services provide.
    • Subscription music services pay different rates for songs streamed under different payment tiers, some at higher rates than others. However, the way labels accounting works at this time, artists only see the average per-stream payout that combines these rates. That’s why the rates published in the press vary so widely.
  • All music subscription services report seeing the following trends:
    • The longer music is available on a service, the more money it makes. Therefore the earlier music is made available, the better it can take advantage of cumulative streaming income.
    • Music added to subscription music services well after their original release date are played far less than those made available immediately. So waiting until a later date before making music available leaves money on the table.
    • When an artist releases a new album on subscription services, their entire catalog sees an uplift in streaming activity, not just the new release.

Labels & Manager Statements

  • Rob Wells, President of Global Digital Sales, Universal Music Group: “The idea that Spotify cannibalizes sales is bogus.”
  • Denis Kooker, President of Global Digital Business, Sony Music: “We don’t see any evidence that any one area is significantly cannibalistic to any other. Ultimately, what we see is that our business is growing in the areas where subscription services are the predominant player in the market.”
  • Mark Piibe, Head of Business Development, EMI: “Services such as Spotify are currently generating more revenue per user to EMI and our artists than the average digital music consumer generated in a world without these services.” – (BusinessWeek 1/5/2012)
  • Simon Wheeler, Beggars Group: “Streaming services are already a key revenue generator for us. I’d certainly say that out of our top five digital partners globally, two of them are streaming services. That says quite a lot.”
  • Scooter Braun (manager for Justin Bieber): “There were a bunch of artists who wouldn’t sell music on iTunes when that first started, and now it’s standard. The same thing will happen with Spotify.” – (BusinessWeek 1/5/2012)

Press Contacts

Download a PDF of Music Subscription: The Facts, by clicking here.