/ 6 July 2015

The music streaming flood can’t be stopped

Apple's acquisition of the Beats brand was an essential part of their music streaming strategy.
Apple's acquisition of the Beats brand was an essential part of their music streaming strategy.

In the first half of 2015, US music lovers listened to 135-billion songs via the internet. That’s around 500 songs for every person over the age of 10. This army of listeners did not download and keep any of these songs – they did not even want to.

This practice, known as “streaming”, has ballooned into one of the biggest distribution channels for the music industry. According to IFPI, an industry body, streaming services like Spotify, Deezer and Rdio attracted an estimated 41-million paying customers in 2014 – five times as many as in 2010. Hundreds of millions of other customers listen for free but must endure frequent adverts. 

Digital music, including both downloads and streaming, will finally edge past sales of physical formats (mostly CDs) this year. Together they account for over 90% of revenues – the balance coming from performance and usage rights. 

This is a huge source of relief for the global music industry, once thought to be in terminal decline. But while many assumed paid downloads would be the industry’s future, streaming looks increasingly likely to dominate. 

Paid digital downloads have been mainstream for around 15 years – essentially since Apple launched its iTunes service. Streaming has been popular for less than half as long, but it already accounts for a third of all digital revenues. 

Combined with steep growth in both smartphone ownership and mobile broadband, streaming has enjoyed a perfect storm of growth this decade. If you wondered why Apple spent $3-billion acquiring Beats, this is exactly why.

But why would people choose to pay fees every month to listen to music rather than download it once and own it? Simple: attitudes towards music are changing. Streaming services connect you to libraries with tens of millions of songs, putting music to suit every mood right at your fingertips.

The number of tracks you could fit on your iPod was once a badge of honour. Now huge personal libraries just seem like a hassle. Music competes for space with photos, videos and apps on mobile phones, which many people now use as their primary listening device. As mobile data has fallen in price, streaming has become an obvious choice.

Most young listeners do not remember a time before the internet and have owned a smartphone for most of their lives. They are as comfortable with streaming as their parents are with CDs and their grandparents were with vinyl. To them ownership of music is largely a non-issue. 

As collectors items, digital downloads have never been particularly compelling. Too ephemeral, too sterile, too easily copied – downloads feel disposable. Streaming has simply taken the next logical step. Why buy when you can pay-as-you-go?

Many young adults are more interested in the physical than the digital. They brew their own beer and fix their own motorcycles. They bake their own bread and cure their own bacon. This explains at least part of the resurgence in vinyl. Sales of LPs, once thought a dead format, grew by over 50% last year. In that context, digital music is viewed as essentially worthless.

Unlike the rest of her generation, Taylor Swift is not a fan of streaming. Case in point: her high profile spat with Apple. The tech giant had planned to give away three month trials on its new music service, and to pay no royalties for songs streamed during those trials. 

Ms Swift objected publicly and threatened to withhold her hit album, “1989”, from the service. Her protest set off a tidal wave of criticism and Apple quickly (and uncharacteristically) relented. Artists will now be paid for songs streamed during trial periods. 

This is not the first time Ms Swift has clashed with the streaming industry. In November last year she yanked her entire back catalogue from Spotify, the market leader. In an interview with Yahoo she said “I just don’t agree with perpetuating the perception that music has no value and should be free.”

But Ms Swift, for all her prodigious talent and business savvy, is swimming against the tide of both technology and culture. After decades of dispersing, computing is now moving inexorably back to the centre. 

The personal computer will be supplanted, in time, by the cloud. Computing will become a utility, like electricity. In that reality local storage of digital files becomes an irrelevance. Besides, streaming does not threaten artists or the music industry anywhere near as much as it does radio. If I were a station manager, I would be worried.

But what happens if giants like Spotify and Apple come to dominate the entire industry? Will they use their market power to squash rivals, drive up prices and milk artists? Perhaps they will. The record companies did so for nearly a century until they were relegated to glorified publicity peddlers.

But if they are smart Spotify and its competitors will set their prices fairly, play nicely with artists and labels and just let the pie grow bigger every year. The streaming boom has only just begun. Why squabble when there is more than enough to go around?