KEY POINTS

  • Music streaming — which enables access to, rather than ownership of, music — is becoming increasingly commonplace. By the end of 2016, streaming music will account for 36% of total music revenue, surpassing digital downloads for the first time. By 2020, this share is projected to grow to 67%.
  • Though there is a plethora of music streaming services available, three major players — Spotify, Apple Music, and Amazon Prime Music — comprise the bulk of music streaming revenue. These streaming music services leverage different business models, including freemium, paid, and yearly membership services. Further, they all pay different royalty rates to musicians, which affects their song catalogs.
  • Royalties, which are paid to artists and publishers, are currently generated by the licensing of copyrighted songs. These rates depend on each streaming service's offerings: free with ads, mobile vs. desktop streaming, subscriptions with no ads, etc. As a result, there's no clear, designated pay rate for music artists. However, Apple's proposed restructuring plan could change the way artists are paid by music streaming services.
  • We expect several key trends to play out in the streaming music industry in the short and long term:
    • As more players enter the music streaming arena, and in order to compete and stay relevant, players will diversify their portfolios to increase revenue streams. 
    • With the industry beginning to oversaturate, it's likely that there will be many big-name takeovers of smaller music streaming services.
    • Along with millennials, older generations will present a unique opportunity for streaming services. 
    • Bigger names, like Apple and Amazon, will leverage their music streaming services to build brand loyalty.
    • Exclusivity wars — whereby labels or artists allow a service early access to a release in return for a sum — will continue to heat up. 

Introduction

The once-stagnant music industry is being revitalized through the expansion of streaming music services. As smartphone adoption grows (in 2015, about 64% of the US adult population owned a smartphone, according to Pew Research) and Wi-Fi and cellular networks improve, music streaming — which enables access to, rather than ownership of, music — is becoming commonplace for consumers. For the purposes of this report, a music streaming app is any app that can be downloaded onto a mobile device and stream music through either a Wi-Fi connection or wireless data network.

Music streaming services have been around [...]