Apple Music, Spotify Boost US Music Sales to Best in Two Decades

The growing popularity of Spotify and Apple Music is nursing the music industry back to health after years of declining sales.

In 2016, US music sales grew 11 percent to $7.7 billion (roughly Rs. 49,975 crores), the Recording Industry Association of America said Thursday. That's the biggest jump since 1998, when the industry sold almost six times as many CDs. Streaming, a category that includes Spotify, Pandora and YouTube, accounted for 51 percent, the first time it has contributed the majority of revenue.

Sales for the industry, led today by Sony Music Entertainment, Vivendi's Universal Music and Warner Music Group, are still just half of what they were in 1999. But after years of blaming the internet for its struggles and fighting technology conglomerates in the court and in public, the music industry is now embracing the web. The industry is "leading the digital transition," said Cary Sherman, the RIAA's chief executive officer.

"A year of growth in the US music business is welcome news," Sherman wrote in a post on the website Medium. "It suggests that years of patiently nurturing a nascent streaming marketplace has begun to pay off. But it does not erase 15 years of declines, or continuing uncertainty about the future."

Paid services from Spotify and others contributed the vast majority of the growth in streaming. Almost 23 million people in the US now pay for some kind of monthly service, contributing $2.5 billion - or about one-third of all sales. Other forms of streaming, like Internet radio and services that have ads, accounted for the rest.

Spotify is the largest player by far, with 50 million paying customers worldwide, followed by Apple, which said late last year it has more than 20 million. Pandora Media, Tidal, iHeartMedia and Amazon.com offer paid services as well.

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Initially reluctant to embrace streaming, the music industry changed its tune as the financial benefits became clear. Subscribers spend more on music in a year - about $120 - than the average consumer spends on CDs.

Yet the record labels aren't on sound footing just yet. They need streaming to grow and outpace the slumping market for CDs and digital albums. Sales of albums and singles from stores like iTunes fell 20 percent or more in 2016, as did CDs.

The majority of consumers still listen to free, ad-supported versions of YouTube and Spotify, which contribute far less per stream to artists and labels than pay-only services like Apple Music. While the majority of Spotify's users listen for free, and YouTube has more than 1 billion monthly users, ad-supported streaming contributed $469 million in 2016 - less than a fifth of paid streaming.

The best-selling album of 2016, Adele's "25," was released in 2015 and generated most of its revenue from purchases, not streaming, according to Billboard. Drake's "Views" and Justin Bieber's "Purpose," the No. 2 and No. 3 albums last year, made those artists Spotify's most popular in 2016.

Record labels are negotiating new long-term contracts with Spotify, and are seeking more control of what music is available in the free services. They are also negotiating with Google's YouTube for compensation and rules governing user-generated videos.

"We have achieved this modest success in spite of our current music licensing and copyright laws, not because of them," Sherman said.

© 2017 Bloomberg L.P.