Last year, for the first time, iTunes music downloads fell. Various sources peg the decline at around 14 per cent, a serious drop in sales.
So what’s causing it? There’s one big answer: Spotify and other streaming services. Spotify has been gunning for iTunes music crown, and this is one sign it might be winning.
Late last year Taylor Swift dismissed Spotify as an “experiment” that doesn’t “fairly compensate” artists. I offered a point-by-point rebuttal to her claims, pointing out that Spotify was showing all the signs of being the future of music – but I was wrong. Spotify isn’t the future of music, it’s a huge part of the music industry right now.
Not only are iTunes’ sales falling, but the number of Spotify users is soaring. Since 2011, Spotify has grown from around 10 million users to more than 50 million last October to 60 million today. It’s not that people are listening to less music – they’re just listening to it in different ways.
People are also spending money on Spotify. The streaming service has 15 million paid subscribers — a 2.5 million increase in the last three months — each spending about $10 per month on the service. Spotify also makes money from the ads heard by users who aren’t paying.
Spotify pays out almost 70% of their revenue in royalties to rights holders. They’ve paid out more than $2 billion in total, and that number is only going up. It’s reached the point that, in Europe last year, Spotify paid out 13% more than iTunes in royalties to artists.
The Writing’s On The Wall
Apple has seen the writing on the wall for a while. Their acquisition of Beats was suspected to be, in part, about Beats’ streaming deals. Prior to that, Apple had introduced iTunes Radio in iOS 7 to try and shut down Spotify’s growth.
iTunes Radio sucks 98% of the time
— Harrison Young (@Harry_Young_) January 11, 2015
Neither of these became a success for Apple, but they do show that Apple realizes the future is in streaming music.
Is This The End Of Music Downloads?
Millennials – that is, my generation – are eschewing digital ownership in general. We either subscribe to streaming services or we pirate things. However, we’re largely unique in this.
My personal feeling is that paid downloads are slowly dropping over the edge of a long precipice. I’d be very surprised if iTunes sales grow again. I don’t think iTunes sales are going to drop to zero overnight, but I think that over the next ten years they will continue to fall. At what percentage they bottom out remains to be seen.
A 14% drop is significant mostly because it runs counter to years of rapid growth. It’s unlikely that iTunes downloads will continue to fall at such a fast rate. Even if they fall at 5–10% a year, iTunes still has far more than a decade of being a major player in the music industry. But the fact that iTunes’ growth is down, while Spotify’s is up, says a lot.
Music streaming services like Spotify still attract a lot of ire. Not everyone is as open to the idea that if you stop paying, you lose access to all your music. It requires an attitude to ownership that most who grew up in the times of tapes and CDs don’t have.
Musicians and record companies will continue to push for digital downloads. While the potential revenue is lower in the long term, it is far more lucrative up front. This is especially important for record companies looking to recoup their investment. As the Taylor Swift situation showed, if you want to have a big launch, it pays to make sure as many people as possible buy your album in full, up front. Launching an album with a long-tail streaming strategy aimed at generating revenue over five years just doesn’t make for big headlines or happy executives.
There are also other interest groups who will try to prolong music downloads. The Billboard Hot 100 — which uses data gathered by Nielsen — is based on sales which are now largely digital. Spotify publishes top lists for every country it operates in and for the service as a whole. Their access to data goes far beyond Nielsen’s. If digital downloads cease to be relevant, Nielsen’s business will become pointless.
So What Now?
Despite the articles proclaiming the end of iTunes — including one written by me last year — music downloads aren’t going anywhere fast.
We’ve just reached peak download. Over the next few years music downloads will continue to fall as streaming continues to rise. At some point, streaming will become significantly more popular world wide and music downloads will begin to become a niche thing for luddites and collectors. But that day is still a while a way.