Streaming music has finally overtaken the CD in music sales. But can it be the new business model for the music industry? A new report from the Recording Industry Association of America last week shows that, despite strong growth, sales of streaming music still aren't making up for sliding sales of both CDs and digital downloads.
That highlights an uncomfortable fact about the future of music: Streaming music is becoming new default way that people consume and pay for music, but it's far from a slam dunk for the industry when it comes to making money. Streaming, after all, has been the most attractive to power-listeners -- as in, the ones who were probably buying the most music anyway. The RIAA reported that, for the first half of 2014, overall revenue dipped 4.9 percent to $3.2 billion as sales of CDs and digital downloads continue to slide. Last year, the industry reported that streaming sales helped keep industry sales flat at $7 billion for all of 2013.
It's not all doom and gloom. Streaming music does finally appear to be making up for the bite it takes out of digital download sales; total streaming sales rose to $859 million from $673 million at the same time last year, which did mange to offset the $181 million decline in downloads from places such as Apple's iTunes store.
Music business analyst Mark Mulligan neatly outlined the main problems that the music industry as a whole has to address for streaming to take off, including the fact that it's not clear whether streaming services should be treated like a marketing tool and a sales channel. But the most troubling problem Mulligan identifies is that no one yet knows how to make real money off streaming music.
"If streaming is eating into sales then the obvious next step is to drive other spending from streaming music consumers," Mulligan wrote. He suggests that one option would be for streaming services to offer merchandise from popular artists in order to add extra sales revenue to the monthly subscription fees.
That explains why Apple has denied reports that it's shutting down the Beats Music streaming service just a few months after its $3 billion acquisition of the music and headphones company. ("Not true," Apple spokesman Tom Neumayr said to The Washington Post.) But just because Apple isn't killing the service, as it has with previous music acquisitions, doesn't necessarily mean that the firm is going to keep things status quo with Beats, either.
If Apple wants to swoop in with an industry-changing revolution on par with the introduction of iTunes, then it will first have to solve some problems. Generally the company is good at forging partnerships: look no further than the cadre of banks, retailers and credit card companies it got on board with Apple Pay. For the music world, it may be a little harder this time around for Apple, given that the introduction of the iTunes store accelerated the death of the profit-rich CD -- and left some music industry insiders with a bad taste in their mouths.
With Beats's Dr. Dre and longtime music executive Jimmy Iovine now in the company's ranks, Apple could be in a better position to build bridges and crack the problem of modern music distribution before the iTunes model shrinks much more -- as long as it avoids another debacle like its promotion of the U2 album.