Warner Music sees streaming revenue surpass downloads for first time

Posted:
in iPod + iTunes + AppleTV edited May 2015
In what could be a harbinger of shifting music industry trends, Warner Music Group CEO Stephen Cooper said on Monday that revenue from licensing tracks to streaming services like Spotify outpaced income from digital download sales.




Cooper revealed the recent shift in Warner's digital music business during a quarterly earnings conference call, marking the first time a major record label has crossed the tipping point into streaming. Warner saw streaming income jump 33 percent in quarter two, while downloads from services like Apple's iTunes were down over the same period.

"This is an important milestone, and impressive considering the strong double-digit growth is coming on top of an increasingly significant base," Cooper said. "The rate of this growth has made it abundantly clear to us that in years to come, streaming will be the way that most people enjoy music."

Cooper expects streaming services to pave the way back to sustainable long-term growth for music labels, an elusive goal industry executives have been pining for since iTunes and iPod stormed the gates with digital track sales in 2003. At the time, labels were slow to adapt to the digital revolution, believing the halcyon days of lucrative physical media sales would return.

With streaming now a major movement in digital media consumption, industry players are more willing to take chances on new services for fear of being left behind yet again. Cooper said Warner is looking to boost uptake in streaming by experimenting with multiple platforms. The effort has so far been successful, with artists attached to the label like Ed Sheeran and Wiz Khalifa seeing streaming plays skyrocket into the billions.

Today's news comes amid rumors that Apple is working to launch a redesigned and rebranded Beats Music subscription-based streaming service. The company is supposedly in negotiations with record labels for new streaming license terms that could see cheaper monthly fees, exclusive music and extended free tryout periods.

Apple is expected to announce its branded streaming service alongside a reworked iTunes Radio offering at this year's Worldwide Developers Conference in June.

Comments

  • Reply 1 of 20
    jbdragonjbdragon Posts: 2,124member
    This is because the Myth that services like Spotify don't pay anything is complete B.S.!!! Spotify for example pays out about 70%. Tidal's big deal of 75% really isn't a big deal after all. A 5% difference is almost meaningless for most Artists unless you're one that's making a crapload of money.

    Just like a CD where the Artist gets a tiny fraction of the money of the CD sold, as in a couple cents, where the Label makes most of it, then the producer, and then the Song Writer, and way on the bottom is the Artist, unless you're like Jay Z with your own Label, then you get most of the money you made. That's not most Artists.

    http://www.spotifyartists.com/spotify-explained/
  • Reply 2 of 20
    michael scripmichael scrip Posts: 1,912member
    Warner is making money... but the services that stream their songs, like Spotify, are not.

    Articles like these make me wonder what the future holds for streaming music in general:

    "[I]Spotify financial results show struggle to make streaming music profitable - Its 15m paying subscribers helped Spotify to more than €1bn of revenues in 2014, but its losses are still growing faster than its income[/I]"

    Even if Spotify adds more paying customers... they will end up paying even more in royalties and distribution.

    Will it ever reach a balance?
  • Reply 3 of 20
    genovellegenovelle Posts: 953member
    jbdragon wrote: »
    This is because the Myth that services like Spotify don't pay anything is complete B.S.!!! Spotify for example pays out about 70%. Tidal's big deal of 75% really isn't a big deal after all. A 5% difference is almost meaningless for most Artists unless you're one that's making a crapload of money.

    Just like a CD where the Artist gets a tiny fraction of the money of the CD sold, as in a couple cents, where the Label makes most of it, then the producer, and then the Song Writer, and way on the bottom is the Artist, unless you're like Jay Z with your own Label, then you get most of the money you made. That's not most Artists.

    http://www.spotifyartists.com/spotify-explained/

    What they fail to mention is that Warner and other majors own large shares in these services now and can control where the money flows. The get paid multiple ways by
    These companies but artist smaller labels and independents get next to nothing. Because these are setup like radio on demand you would expect there to be some real compensation to the songwriters. 12 cents on a dollar or 1.20 for each CD sold is a lot more than artist will ever get for the same exposure via this model.
  • Reply 4 of 20
    Warner is making money... but the services that stream their songs, like Spotify, are not.

    Articles like these make me wonder what the future holds for streaming music in general:

    "Spotify financial results show struggle to make streaming music profitable - Its 15m paying subscribers helped Spotify to more than €1bn of revenues in 2014, but its losses are still growing faster than its income"

    Even if Spotify adds more paying customers... they will end up paying even more in royalties and distribution.

    Will it ever reach a balance?

    I wonder if part of the reason they're having a hard time staying profitable is because they're still expanding, building infrastructure, marketing...
  • Reply 5 of 20
    michael scripmichael scrip Posts: 1,912member
    I wonder if part of the reason they're having a hard time staying profitable is because they're still expanding, building infrastructure, marketing...

    Possibly.

    But I've heard VC people say that services like Spotify might never become profitable. It's just a very expensive business to be in.

    Spotify had €1.08bn in revenue... but they had to pay out €882m just in music licensing. And those costs are continuous... it's not something that you buy once and keep forever like a piece of equipment.

    Their biggest expense is the music itself.... and it's a huge expense.

    And even if they grow and add subscribers... their costs also increase with it.

    They may never outrun it.
  • Reply 6 of 20
    jbdragonjbdragon Posts: 2,124member
    Quote:

    Originally Posted by daveinpublic View Post





    I wonder if part of the reason they're having a hard time staying profitable is because they're still expanding, building infrastructure, marketing...

     

    Most of the money is going out to pay for the Music, there's not a whole lot left for anything else.  Upload Bandwidth required to stream to everyone is not cheap. Same goes with servers and everything else.  There's not  really anything left to make money left and yet it's still not enough.  How Tidal is expected to keep it's doors open when they've giving out 5% more then Spotify?  People aren't going to pay a crap load for Music.   I'm not going to pay $10 a month, let alone $20 a month for music.  I'd rather hear more talk radio, and Blogs and less music these days.  It's one of the issues I had with SirusXM Radio was for streaming you had to pay the full $15 a month for Talk and Music and i didn't want the music which is the most expensive thing and that costs are shooting up.  They split if you get it from the Satellite, but not Streaming.  besides the App really SUCKED!!!  I thought maybe it's just my old iPhone 4, but Nope, just as bad on the iPhone 6.  

     

    Right now I get my Music from Amazon Prime Music.  It's FREE to me since I've been a long time Prime Member anyway, so might as well take advantage of it.  How Netflix can charge so little and make a profit and how Music, even all that OLD stuff is costing so much?!?!?!   They keep driving prices up, and it'll be right back to Pirating, and it's pretty simple to do.  VPN to cover your tracks.  Or just cut way back on Music and the problems get worse and they make less money.  It's like Jacking up taxes.  People think it brings in more money.  It generally doesn't.  People just spend less or don't buy it and the Government brings in less money.  The whole economy goes down because people slow their spending, cut back on going out.   Jack up Music prices, you think they'd be happy and money will just be flowing in and it'll have the exact opposite effect.  Less Money, and so they'll bitch some more and want to jack up prices more and i'll continue to kill business.

  • Reply 7 of 20
    foggyhillfoggyhill Posts: 4,767member
    Quote:
    Originally Posted by Michael Scrip View Post





    Possibly.



    But I've heard VC people say that services like Spotify might never become profitable. It's just a very expensive business to be in.



    Spotify had €1.08bn in revenue... but they had to pay out €882m just in music licensing. And those costs are continuous... it's not something that you buy once and keep forever like a piece of equipment.



    Their biggest expense is the music itself.... and it's a huge expense.



    And even if they grow and add subscribers... their costs also increase with it.



    They may never outrun it.

     

    They won't and it will even get worse for them if people like Taylor Swift pull out. Most of their revenues come because people can stream top artists.  The funny thing is that sales revenue collapsing enough for streaming to pass it is NOT a good thing. The music industry is heading for the poorhouse. You may think $800M is a lot of revenue, but when songs like Call me Maybe, I got a feeling, and the like pulled 10-12M in revenues all by themselves, you can see that this won't compensate in any way for this loss. In the recent past, sales from about 250 big hits (say top 20) generated $800M in sales.

     

    Free on demand ad supported is simply not sustainable. Imagine the same thing with video and you'll see how crazy that seems.

  • Reply 8 of 20
    MacProMacPro Posts: 18,260member
    This ongoing streaming versus download debate, be it video or music, is such a point in time thing. If you have the connection speed it is a no brainer. There will be nothing else one day in the not too distant future. It's a bit like having to decide between charging a battery before having power or plugging into the mains. On demand electricity caught on a while back.
  • Reply 9 of 20
    michael scripmichael scrip Posts: 1,912member
    This ongoing streaming versus download debate, be it video or music, is such a point in time thing. If you have the connection speed it is a no brainer. There will be nothing else one day in the not too distant future.

    Streaming will be the future... only if these streaming services figure out how to make money. It's not that they don't know how... it's just that it's very difficult to do.

    Spotify brought in $1.2 billion in revenue... but they had to spend $980 million just for the music rights. And another $200 million to pay their staff... plus marketing and other costs.

    When it was all said and done... Spotify lost $180 million. And that was an even bigger loss than the previous year... despite adding more users.

    Again... they know what to do to make money... but they just can't do it.

    So I wonder how much longer their investors will keep footing the bill.

    I mean... if you make $1.2 billion but you spend $1.4 billion... that can't last forever.

    On demand electricity caught on a while back.

    I can imagine a lot of money was spent to string powerlines to every home. And after that initial infrastructure was in place... then they could begin making money.

    We've seen this before in other industries. If you spend a lot of money on a bigger factory... you'll have increased production which leads to more sales, and more money... which will pay off the investment of the new factory.

    But streaming is different. They will ALWAYS have the cost for the music rights. And that cost is insanely high.
  • Reply 10 of 20
    habihabi Posts: 317member
    Quote:
    Originally Posted by Michael Scrip View Post



    When it was all said and done... Spotify lost $180 million. And that was an even bigger loss than the previous year... despite adding more users.



    Again... they know what to do to make money... but they just can't do it.



    So I wonder how much longer their investors will keep footing the bill.



    I mean... if you make $1.2 billion but you spend $1.4 billion... that can't last forever.

    I can imagine a lot of money was spent to string powerlines to every home. And after that initial infrastructure was in place... then they could begin making money.



    We've seen this before in other industries. If you spend a lot of money on a bigger factory... you'll have increased production which leads to more sales, and more money... which will pay off the investment of the new factory.



    But streaming is different. They will ALWAYS have the cost for the music rights. And that cost is insanely high.

    But you keep forgetting that Spotifys shareholders and music licensing costs holders are practically the same entities! So if they want to keep the sinking ship afloat they need to pump in some money. This will be done via lincensing and/or customer prices. Its unavoidable.

     

    This is why I still keep buying my music. As I  see it Spotify free is not going to be like it is now and premium is not going to be as cheap as it is now, if the labels are going to be as greedy as they are now.

  • Reply 11 of 20
    michael scripmichael scrip Posts: 1,912member
    habi wrote: »
    But you keep forgetting that Spotifys shareholders and music licensing costs holders are practically the same entities!

    I'm not sure I follow. Spotify has investors... and they also pay the record companies for music licensing. Those are two different entities.

    Spotify received tons of venture capital money from investors. There were 17 VC firms who invested in Spotify.

    They previously got $537 million in earlier funding rounds... and they recently received an additional $350 million in funding.

    Those VC firms hope, someday, that Spotify will eventually make money so they will get their money back from their investment. So far that hasn't happened.

    Why? That brings us to part two:

    Spotify is insanely expensive to run! Spotify's whole business is music... but they spend nearly a billion dollars for music rights from the record companies.

    And they've yet to turn a profit.

    So... investors have given Spotify a total of $887 million... and Spotify has nothing to show for it.

    Oh sure... they have user growth... but they haven't figured out how to turn that into actual profit.

    Those VC firms are gonna want their money someday...

    .
  • Reply 12 of 20
    habihabi Posts: 317member
    Quote:
    Originally Posted by Michael Scrip View Post





    I'm not sure I follow. Spotify has investors... and they also pay for music licensing. Those are two different entities.



    Spotify received tons of venture capital money from investors. There were 17 VC firms who invested in Spotify.



    They previously got $537 million in earlier funding rounds... and they recently received an additional $350 million in funding.



    Those VC firms hope, someday, that Spotify will eventually make money so they will get their money back from their investment. So far that hasn't happened.



    Why? That brings us to part two:



    Spotify is insanely expensive to run! Spotify's whole business is music... but they spend nearly a billion dollars for music rights from the record companies.



    And they've yet to turn a profit.



    So... investors have given Spotify a total of $887 million... and Spotify has nothing to show for it.



    Oh sure... they have user growth... but they haven't figured out how to turn that into actual profit.



    Those VC firms are gonna want their money someday...

    Ok, I remembered it was more but its 1/5 stake. But ultimately its a swing of balance. how much can you make the monthly cost higher without users abandoning. The other possibility is how much does the record labels want to boost adoption by not making the monthly fee too high (see cable-tv). The only way is that the service has to make at least even.  Otherwise they can pull the plug but I don't think the record labels will allow this and its not in their interests. If spotify is big enough it will have leverage. You generally dont want to bite the hand that feeds you <img class=" src="http://forums-files.appleinsider.com/images/smilies//lol.gif" />. You all remember what Steve did?

     

    http://royal.pingdom.com/2009/08/07/how-spotify-got-the-big-record-labels-on-board/

     

    "It turns out that Spotify made the record companies shareholders early on. In October 2008 when Spotify was launched, the big five record labels above together got nearly a fifth of the Spotify stock (18% to be exact) for a mere 100,000 SEK (less than 14,000 USD)."

  • Reply 13 of 20
    michael scripmichael scrip Posts: 1,912member
    habi wrote: »
    Ok, I remembered it was more but its 1/5 stake. But ultimately its a swing of balance. how much can you make the monthly cost higher without users abandoning. The other possibility is how much does the record labels want to boost adoption by not making the monthly fee too high (see cable-tv). The only way is that the service has to make at least even.  Otherwise they can pull the plug but I don't think the record labels will allow this and its not in their interests.

    http://royal.pingdom.com/2009/08/07/how-spotify-got-the-big-record-labels-on-board/

    "It turns out that Spotify made the record companies shareholders early on. In October 2008 when Spotify was launched, the big five record labels above together got nearly a fifth of the Spotify stock (18% to be exact) for a mere 100,000 SEK (less than 14,000 USD)."

    Ah... I see. The record labels got some shares of Spotify early on. They bought 18% of Spotify for $14,000. I never knew that.

    That was nearly 6 years ago... and long before Spotify got hundreds of millions of dollars in VC funding.

    My point is... nobody has made money from Spotify yet.

    Not the record labels with their 18% stake.... nor the investors who have pumped in over $800 million.

    Spotify will have to earn a profit someday to pay everyone back.

    There are a few ways Spotify can possibly turn it around:

    1. Try to get lower royalty rates from the record companies
    2. Reduce operating costs
    3. Gain more paid subscribers and/or charge more money

    They've gotta do something, right? They can't keep losing money forever!
  • Reply 14 of 20
    readmereadme Posts: 5member

    Spotify has been profitable in various markets like Sweden & UK for a couple of years, e.g.

     

    http://www.musicweek.com/news/read/spotify-uk-turned-first-profit-in-2013/059791

     

    They heavily invest in growing their user numbers especially in the US which explains their high spendings and overall deficit. But they have double digit growth rates, seems like streaming becomes mainstream.

     

    Finally it might come that the music majors start to embrace streaming. Possibly not because they like to give customers their preferred way of consuming music. But because they understand that this is an impressive money maker in the long run. Just imagine a customer paying 10 $ a month (120 $ per year) for 50 years - just to listen to music, not owning anything. Most people do not spend that amount of money on CDs or downloads in their life. For artists this could mean less immediate profit at the time an album is released compared to direct album/single sales since streaming serves the long tail. Might be a reason for Taylor Swift and others to stay away from streaming (at least for now ...).

     

    Also streaming means the customer does not have anything - no CD, no audio file. One can still sell or give away his CDs. Not so with streaming. Music companies will be in control and also gain better knowledge of what, how and when listeners consume music.

  • Reply 15 of 20
    habihabi Posts: 317member
    Quote:
    Originally Posted by Michael Scrip View Post



    My point is... nobody has made money from Spotify yet.



    Not the record labels with their 18% stake....

    That is not entirely true is it? record labels seem to have gotten heir share via operating costs. I think its the safe way for them but it really undermines the services possobilities to thrive. The record labels dont get it. Everyone knows you should feed your working horse. Whats the use of its if it died of starvation?  Its just pure simple corporate greed. And it is usually the biggest hinder of change and growth.

  • Reply 16 of 20
    michael scripmichael scrip Posts: 1,912member
    readme wrote: »
    Spotify has been profitable in various markets like Sweden & UK for a couple of years

    The latest reports in May 2015 said Spotify had a $197 million loss in 2014 following a $102 million loss in 2013.

    I'm assuming these reports are for the entire company... not just in certain markets.

    habi wrote: »
    That is not entirely true is it? record labels seem to have gotten heir share via operating costs. I think its the safe way for them but it really undermines the services possobilities to thrive. The record labels dont get it. Everyone knows you should feed your working horse. Whats the use of its if it died of starvation?  Its just pure simple corporate greed. And it is usually the biggest hinder of change and growth.

    Sure... the record companies get paid from the music licensing. But that wasn't what I was talking about originally.

    My main point this whole time was the fact that Spotify is not profitable... and that VCs have invested over $800 million so far.

    When do the VCs get their share if Spotify isn't profitable?
  • Reply 17 of 20
    readmereadme Posts: 5member

    Yes, Spotify still loses money over all markets. Nevertheless they have proven that music streaming can be profitable (Sweden, the UK and others). Their actual growth numbers as well as the Warner figures hint that the market is developing quickly and they are on their way to break even in other markets too and thus as a whole eventually. 

     

    Investors have their individual time frame and financial goals when considering investments. Spotify´s worth as a company is currently still growing, showing that investors continue to believe in the business case and the company. Though already a Billion Dollar company it is still sort of a start up in a relatively new market. Took some time until eBay, facebook and others went profitable, Amazon still is not.

  • Reply 18 of 20
    zoetmbzoetmb Posts: 2,449member
    Quote:

    Originally Posted by genovelle View Post





    What they fail to mention is that Warner and other majors own large shares in these services now and can control where the money flows. The get paid multiple ways by

    These companies but artist smaller labels and independents get next to nothing. Because these are setup like radio on demand you would expect there to be some real compensation to the songwriters. 12 cents on a dollar or 1.20 for each CD sold is a lot more than artist will ever get for the same exposure via this model.



    Artists get screwed in almost any model, except the ones in which they own their own record company and are making the deal and also own their own publishing.  Having said that, remember that in traditional analog broadcast radio in the U.S., radio stations do not pay for the performance right as they do in other countries - they only pay fees to ASCAP, BMI and SESAC and those fees go to the writers (actually to the publishers, who then distribute to the writers).

     

    In digital, whether digital broadcast radio or streaming, there are fees paid to the Sound Exchange for performance rights as well as the usual fees to the performing rights societies for the writers/publishers, but the overall streaming revenues are still relatively small, and as I've posted many times before, the overall size of the music industry even including all these new forms of distribution is less than half of its former 1999-2000 peak.

     

    According to the RIAA, in the U.S. in 2014, physical media generated $2.27 billion, streaming generated $2.06 billion (which includes Sound Exchange royalties, paid subscriptions, on-demand ad supported streaming and synchronization royalties) and digital units (which includes downloads, kiosks and ringtones) generated $2.6 billion.    But all that combined is under $7 billion and in 1999, the U.S. industry was almost $14.6 billion (which is $20.5 billion in 2015 dollars), so the industry is still in a pretty sad state.   As physical media continues to erode and downloads decline in favor of streaming, overall revenues will probably decline further, although they were only down half a percent in 2014.   (Note:  the industry calculates physical media at list prices and downloads at consumer prices - actual revenue to labels is smaller.) 

     

    Considering that no artists dominate (Taylor Swift and a few others excepted) and that streaming is free or pretty inexpensive, it's no surprise that streaming is overtaking downloading.   The music is bad enough that few care to own it.   In essence, they're using streaming like they used to use radio, except that for the most part, streaming isn't generating other sales and radio used to.    The music market is so fragmented that we'll probably never again have a Beatles, Stones, Springsteen, Michael Jackson, Eagles, Madonna, Pink Floyd, Garth Brooks, Billy Joel, AC/DC, Metallica, etc. - regardless of the merits, the acts that could sell 10 million units and up of an album in the U.S. alone. 

  • Reply 19 of 20
    SpamSandwichSpamSandwich Posts: 31,135member
    ^^^ Self-publishing and complete ownership over your own material is the only way to go for independent musicians.
  • Reply 20 of 20
    genovellegenovelle Posts: 953member
    zoetmb wrote: »

    Artists get screwed in almost any model, except the ones in which they own their own record company and are making the deal and also own their own publishing.  Having said that, remember that in traditional analog broadcast radio in the U.S., radio stations do not pay for the performance right as they do in other countries - they only pay fees to ASCAP, BMI and SESAC and those fees go to the writers (actually to the publishers, who then distribute to the writers).

    In digital, whether digital broadcast radio or streaming, there are fees paid to the Sound Exchange for performance rights as well as the usual fees to the performing rights societies for the writers/publishers, but the overall streaming revenues are still relatively small, and as I've posted many times before, the overall size of the music industry even including all these new forms of distribution is less than half of its former 1999-2000 peak.

    According to the RIAA, in the U.S. in 2014, physical media generated $2.27 billion, streaming generated $2.06 billion (which includes Sound Exchange royalties, paid subscriptions, on-demand ad supported streaming and synchronization royalties) and digital units (which includes downloads, kiosks and ringtones) generated $2.6 billion.    But all that combined is under $7 billion and in 1999, the U.S. industry was almost $14.6 billion (which is $20.5 billion in 2015 dollars), so the industry is still in a pretty sad state.   As physical media continues to erode and downloads decline in favor of streaming, overall revenues will probably decline further, although they were only down half a percent in 2014.   (Note:  the industry calculates physical media at list prices and downloads at consumer prices - actual revenue to labels is smaller.) 

    Considering that no artists dominate (Taylor Swift and a few others excepted) and that streaming is free or pretty inexpensive, it's no surprise that streaming is overtaking downloading.   The music is bad enough that few care to own it.   In essence, they're using streaming like they used to use radio, except that for the most part, streaming isn't generating other sales and radio used to.    The music market is so fragmented that we'll probably never again have a Beatles, Stones, Springsteen, Michael Jackson, Eagles, Madonna, Pink Floyd, Garth Brooks, Billy Joel, AC/DC, Metallica, etc. - regardless of the merits, the acts that could sell 10 million units and up of an album in the U.S. alone. 

    I agree. The one issue outstanding is that the stream model is more than streams. When you add full on-demand access, it replaces the need to buy the product that would otherwise be purchased but at a far lower return on the investment and cuts out the songwriter altogether.
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