It all started in 1999 with the founding of Napster, a peer-to-peer (P2P) exchange system or music file sharing system that, in its golden age, managed to amass 70 million users worldwide. In addition to enabling anyone to share music with anyone, it served as a first warning of what the Internet was capable of in terms of connection and communication. Two years after its launch, Napster ended up losing the legal battle against record companies and artists who complained that the service violated the copyright of thousands of songs.
The creation of Pandora Radio in 2004, the launch of open Spotify in 2011 and the foundation of Tidal and Apple Music in 2015 are some of the milestones in the history of music streaming, which, in 2015, exceeded physical music sales turnover in the United States, the largest market in the world for this industry, for the first time. Figures are similar in other major world markets (Japan, Germany, UK, France, etc.), but is music streaming a sustainable business?
From a culture of ownership to a culture of access
Napster introduced a new form of Internet utilities (shared over the network with anyone in the world), but also introduced users to the idea of getting content without having to pay for it. It was the beginning of illegal downloading, and not just music. Before the Internet, the only way to listen to a song was on the radio or television, or with the corresponding CD, cassette or vinyl. Since Napster, you have only needed a link or connection to another user to get the latest release from your favorite artist. Although music consumption changed gradually from physical products to digital products, the philosophy still involved having a CD, even if the music came from an illegally downloaded file.
However, the increasing popularity of music streaming has led to a transformation in how we consume “the art of the Muses”. Now, for the price of a physical CD, we can get a premium subscription to services like Spotify or Apple Music, with which, in turn, we will have a catalog of millions of songs at our disposal at any time on our smartphones, tablets or computers. It is a new culture of access which has also successfully expanded to audiovisual formats (with platforms like Netflix, Hulu and Amazon Prime as market leaders) and has several implications. The most obvious is that the business model of the pre-Napster music industry, based on physical sales of records, will become increasingly irrelevant. It is a trend seen every year in the majority of income reports from major music markets – with the exception of vinyl, which has been experiencing a resurgence in sales in the last five years, but only accounting for 2% of total net income. Therefore, the traditional business model needs replacing. The question is whether streaming will be that replacement.
According to the RIAA (Recording Industry Association of America), the peak of CD sales was reached in the United States in 2000. 943 million records were sold, which produced total revenues of nearly 14,000 million dollars. Taking the changing value of the dollar and inflation into account, this would be about 19,250 million dollars in 2014, based on the closest data accessible in 2015, when streaming generated 2,400 million dollars in the United States. As mentioned above, this figure exceeded physical sales in the United States for the first time in history. In any case, as shown, it is far from the revenues earned in the golden age of the physical CD.
How much does an artist earn for each stream of a song? It depends on the service, but the figures are, on average, around 0.0012 dollars per stream or playback, of which a record-company artist gets 20%. Crunching the numbers, it would take more than one million streams before the artist makes a profit of 1,260 dollars. And getting that streaming volume is not within everybody’s reach, and definitely not in the long term.
The history of music streaming is being written now, but, as things stand today, it is not a sustainable business model that can replace the traditional one. Perhaps it will never become sustainable and streaming will remain a business that provides access to others within the music industry (merchandising, concerts, copyright, etc.); in other words, it will be part of a more diversified whole.