The Music Streaming Economy – Part 1: The International Music Streaming Boom

Twenty years ago, the International Federation of the Phonographic Industry’s (IFPI) Online Music Report first mentioned music streaming as a potentially relevant source of revenue for the phonographic industry, which at the time was still dominated by recorded music sales. However, it was not until 2010 that music streaming became commercially relevant, and in the years that followed it became almost the only source of revenue for the record industry. This blog series traces the history of the music streaming economy and its major players from the 1990s to the present day. In the first part, the revenue boom of music streaming in the international phonographic market is summarised in figures and analysed in more detail.

In January 2004, the International Federation of the Phonographic Industry (IFPI) took a closer look at the digital music business for the first time with its Online Music Report.[1]  This is no coincidence. In 2003, Apple opened its iTunes music download store to the public, first to its Mac customers and later to PC users. The IPFI report therefore focuses on the download business. However, it also mentions music streaming services such as Napster 2.0, Rhapsody, MusicMatch and OD2, which will be discussed in more detail later. However, the technical conditions for mass music streaming did not exist in 2003. Broadband internet was still in its infancy, 3G mobile phone technology had just been introduced and the smartphone would not be launched for another five years.

It is therefore not surprising that the sales figures for music streaming were not even included in the IFPI’s Recording Industry World Sales 2003 Report, which was published in April 2004.[2] In a short paragraph entitled ‘Digital Music Sales’, it was just mentioned that sales of US $30 million were achieved with music downloads in the USA in 2003, which were already exceeded in March 2004 with US $50 million.[3] However, music streaming was not mentioned once in the entire report.

However, the US was the first market for which digital music revenues were available. The 2004 annual report of the Recording Industry Association of America (RIAA) reported for the first time the distributions of the newly formed SoundExchange collecting society, which collects royalties from non-interactive streaming services such as Pandora as well as webcasters and satellite radios, in the modest amount of US $6.9 million. For 2005, the RIAA’s annual report also included figures for on-demand music streaming, which totalled $149.2 million, or about 14 percent of all digital revenues and 1.2 percent of total revenues. The report also included SoundExchange distributions, which rose to $20.4 million.[4]

In the mid-2000s, therefore, the music streaming market was still in its infancy, far from being able to compensate for the downright collapse of sales in the US record industry after 2005. The main reason for this recession in the US music market was the massive slump in CD sales year after year, as shown in figure 1.

Figure 1: Recorded music sales in the US, 2004-2023

Source: Recording Industry Association of America (RIAA), U.S. Music Revenue Database, n.d., accessed: 2024-06-11.

Between 2004 and 2008, the year in which Spotify was launched in Europe, phonographic sales in the USA fell by more than half from US $11.4 billion to US $5.5 billion, because instead of 767 million CDs in 2004, only 385 million – half as many – were sold four years later. A similar picture emerged in the other major music markets: France (- 43 per cent), the United Kingdom (- 25 per cent) and Japan (- 18 per cent). Germany was the only country to escape relatively unscathed with a drop in CD sales of 8 per cent between 2004 and 2008.[5]

In contrast, digital revenues in the US grew rapidly between 2004 and 2008, from $191 million to around $2 billion, driven mainly by the booming download business. Revenues from on-demand music streaming, on the other hand, stagnated at $200 million in the US between 2006 and 2010, accounting for just 3 percent of total recorded music revenues in 2010. Only SoundExchange’s distributions from licensing non-interactive streaming services and satellite radios, totalling $100 million in 2008, improved the balance sheet slightly. Nevertheless, revenues from the download business were five times higher than those from music streaming. This changed dramatically in 2010, when US streaming revenues grew by 28 per cent. This was followed by years of high double-digit growth in on-demand music streaming revenues, plus payments from SoundExchange.

However, the increasing use of streaming services cannibalised music download sales, which peaked in 2012 and then fell sharply. By 2023, album and single downloads together generated less revenue than CD sales in the US.[6]

Figure 2: Digital music sales in the US, 2005-2023

Quelle: Recording Industry Association of America (RIAA), U.S. Music Revenue Database, n.d., accessed: 2024-06-11.

Meanwhile, revenue from music streaming has exploded. In 2015, paid subscriptions not only surpassed $1 billion for the first time, but also generated almost as much revenue as download sales. When SoundExchange royalties for non-interactive streaming services and satellite radios are added, music streaming in the US has already generated significantly more revenue than the download business. Since 2015, the on-demand streaming segment has grown by an average of US $1 billion per year and, at US $10.2 billion in 2023, was by far the most important revenue driver for the US recorded music industry, followed by revenue from vinyl sales (US $1.4 billion) and SoundExchange distributions at around US $1 billion. CD sales (US $537 million) and download sales (US $396 million) were far behind. A comparison of 2010, 2015 and 2023 shows how dramatically the digital music market has changed.

Figure 3: The digital market in the US, 2010, 2015 and 2023

Source: Recording Industry Association of America (RIAA), U.S. Music Revenue Database, n.d., accessed: 2024-06-11.

While download revenues (albums and singles) together had a market share of almost 70 per cent in 2010, this had shrunk to around 31 per cent five years later and to just 2.7 per cent a further seven years later. Revenues from ad-supported and paid streaming, on the other hand, rose from 6.7 per cent in 2010 to nearly 53 per cent in 2015 and more than 90 per cent in 2023. Only SoundExchange revenues still have some relevance in 2023, with a share of 6.8 per cent. However, they are even more significant at 15.3 per cent in 2015 and 7.8 per cent in 2010.

Record sales in the US reached a record high of $17.1 billion in 2023, well above the historic high of $14.6 billion in 1999. However, when inflation is considered, the US record industry’s inflation-adjusted revenue in 1999 was significantly higher at $26.7 billion.  Nevertheless, music streaming has been responsible for the boom in the US recorded music market since the mid-2010s.[7]

Of course, this boom was not confined to the US, but also affected all other markets for which the IFPI regularly collects sales figures. However, market dynamics varied from country to country. The two charts below show how quickly the music streaming economy took hold in almost every country between 2011 and 2019. For each country, the share of digital sales in the total market and the share of streaming revenues in the digital market segment were recorded. This shows in which countries the music streaming economy has established itself more quickly than in others. In 2011, most countries were still dominated by physical sales, as the digital share of total sales was less than 50 per cent. This means that CDs and vinyl records accounted for more than half of all sales in the recorded music market, including many European countries such as Germany, the UK and France, which were the third to fifth largest recorded music markets in the world in 2011. However, the streaming share of the digital market in France was already at 34 per cent, although almost 80 per cent of total sales were still generated by CDs. This is probably due to the streaming service Deezer, which launched in France in 2007.

The presence of Spotify as a local streaming service also explains Sweden’s leading position in music streaming in 2011, with streaming revenues already accounting for over 82 per cent of the digital market, although the digitisation rate of just under 50 per cent was not the highest in the world. The situation was similar in Norway, where WiMP had been available since 2010 and, alongside Spotify, helped streaming revenues account for around 63 per cent of the digital market in 2011, although almost half of all revenues were still generated by CD sales. Although the world’s largest music market, the US, went digital in 2011 with a share of almost 58 per cent thanks to iTunes, streaming still played a minor role in the digital segment at 18 cent. China stood out in 2011 with the most developed digital market at 73 per cent, excluding the high proportion of illegal sales. And almost 45 per cent of digital revenues were from streaming. Finally, there is an interesting group of countries whose markets were still dominated by physical sales, but where streaming accounted for 60 to 70 per cent of digital sales. These include Spain and Brazil, two comparatively large music markets, as well as small countries such as Finland, Singapore and Taiwan.

Figure 4: The international music streaming markets 2011

Source: After IFPI Recording Industry in Numbers 2011.

Figure 5: The international music streaming markets 2019

Source: After IFPI Global Music Report 2019.

Eight years later, in 2019, the situation was completely different. Nearly 80 per cent of all countries had a streaming share of the digital market above 80 per cent, with markets differing only in the degree of digitisation. Some markets, such as France, Germany, Austria and South Korea, still had a significant share of recorded music sales, while in the Scandinavian countries and many Asian and South American countries there were virtually no CDs sold, with vinyl being the closest thing.

A special case is Brazil, which has rapidly transformed itself from a recorded music market to a streaming market. While the share of physical sales in Brazil was still well over 80 per cent in 2011, it had shrunk to less than 1 per cent eight years later. This is mainly due to streaming sales, which already dominated the digital segment in 2011 with a share of just under 71 per cent. In 2019, 99 per cent of digital sales came from music streaming.

However, there are also countries where the streaming economy is not as dominant, such as Japan, where music streaming accounted for only 28.6 per cent of total sales in 2021. With a whopping 58.4 per cent share, Japan was the world’s largest physical music market in 2021, with $1.8 billion worth of CDs and vinyl sold.[8]

South Korea is also a special case, having moved rapidly towards a streaming economy until 2015, but with a very erratic evolution thereafter. Due to a sharp increase in physical sales, largely driven by the superfan phenomenon in K-pop, the digital market share fell again from 2016 to 2018, only to rise again in 2019, with downloads soaring in that year. A year later, however, physical sales rose again, but downloads were massively pushed back by streaming, catapulting South Korea into the streaming economy from one year to the next. By 2021, CD and vinyl sales as a proportion of total sales were falling again in favour of rising streaming revenues, but the physical market was still comparatively large.

However, the most digitised music market is the People’s Republic of China, which already had a large digital market segment in 2011, initially dominated by music download revenues. The share of music streaming revenues in the total market rose sharply until 2014, before another download boom in 2015. After that, however, China quickly moved into the streaming economy and by 2019 was almost exclusively recording streaming revenues.

Figure 6: Music streaming markets in Brazil, China, South Korea, United Kingdom and US, 2011 to 2021

Source: International Federation of the Phonographic Industry (IFPI), 2022, Global Music Report 2021, London: IFPI.

The development of the streaming economy in the US and the UK has been relatively stable, with the UK’s share of the physical music market always larger than that of the US. However, in 2020 and 2021, there was also a trend towards more physical sales in both countries, which meant that the digital share of the total market fell slightly. Overall, however, it can be said that despite different paths, almost all major markets, with the exception of Japan, have arrived in the streaming economy and have been able to overcome the recession in the recorded music industry. However, the foundations for this rapid process, with streaming as almost the only source of revenue, were laid before 2010, in 2008 to be precise, when music streaming seemed economically irrelevant and Spotify, the eventual undisputed market leader, had started its operations in Sweden and several other countries. This will be the subject of the second part of the series.

Sources

International Federation of the Phonographic Industry (IFPI), 2004a, IFPI Online Music Report, London: IFPI.

International Federation of the Phonographic Industry (IFPI), 2004b, IFPI The Recording Industry World Sales 2003, London: IFPI.

International Federation of the Phonographic Industry (IFPI), 2012, IFPI Recording Industry in Numbers 2011, London: IFPI.

International Federation of the Phonographic Industry (IFPI), 2020a, IFPI Recording Industry in Numbers 2019, London: IFPI.

International Federation of the Phonographic Industry (IFPI), 2020b, IFPI Global Music Report 2019, London: IFPI.

International Federation of the Phonographic Industry (IFPI), 2022, IFPI Global Music Report 2021, London: IFPI.

Wlömert Nils & Dominik Papies, 2015, “On-demand streaming services and music industry revenues – Insights from Spotify’s market entry”, International Journal of Research in Marketing, vol. 33(2), pp 314-327.

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Endnotes

[1] International Federation of the Phonographic Industry (IFPI), 2004a, IFPI Online Music Report, London: IFPI.

[2] International Federation of the Phonographic Industry (IFPI), 2004b, IFPI The Recording Industry World Sales 2003, London: IFPI.

[3] Ibid., p 3.

[4] US figures can be researched from 1973 to the present in the RIAA’s fantastic interactive U.S. Revenue Music Database. In addition to the nominal values, you can also see the inflation-adjusted values: Recording Industry Association of America (RIAA), U.S. Music Revenue Database, n.d., accessed: 2024-06-11.

[5] The calculations are based on the information provided by the International Federation of the Recording Industry (IFPI) in its annual reports for 2005 and 2009.

[6] A study investigating the cannibalisation effect of music streaming on download sales was published by Wlömert and Papies in 2015: “On-demand streaming services and music industry revenues – Insights from Spotify’s market entry”, International Journal of Research in Marketing, vol. 33(2), pp 314-327.

[7] Recording Industry Association of America (RIAA), U.S. Music Revenue Database, n.d., accessed: 2024-06-11.

[8] International Federation of the Phonographic Industry (IFPI), 2022, Global Music Report 2021, London: IFPI, p 161.