Spotify, Apple Giving Music Industry a Boost After Decline of Nearly 20 Years

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After almost two decades of relentless decline caused by piracy and falling prices, the music business is enjoying a fragile recovery thanks to the growth of paid streaming services like Spotify and Apple Music.

Retail spending on recorded music grew 8.1% to $3.4 billion in the first half of 2016, according to a draft midyear report from the Recording Industry Association of America that was obtained by Bloomberg News. That means the U.S. industry is on pace to expand for the second straight year -- the first back-to-back growth since 1998-1999.

The credit goes to streaming -- internet services that give listeners commercial-free access to millions of songs for a monthly fee -- or for free if they're willing to hear ads. U.S. streaming revenue grew 57% to $1.6 billion in the first half of 2016 and accounted for almost half of industry sales, more than countering shrinking purchases of albums and singles. Subscriptions totaled $1.01 billion, according to the RIAA data.

"We're starting to see on-demand music streaming as no longer a thing that hipster college kids and young people do,'' said Larry Miller, a former industry executive who now teaches music business at New York University.

The Recording Industry Association didn't respond to a request for comment.

The results can be seen in the financials of large music companies. Vivendi SA's Universal Music Group reported first-half growth, while through nine months ended June 30, sales at Warner Music Group, owned by billionaire Len Blavatnik, grew 8.5% to $2.41 billion, according to filings. Sony Music Entertainment also reported gains in its latest quarter.

The industry is reluctant to declare victory. Annual sales have hovered around $7 billion for six years, down by half from the 1999 peak, according to RIAA data. Meanwhile the labels are still negotiating new contracts with Google's YouTube and Spotify, two of the largest purveyors of free music in the world.

While sales from ad-supported, on-demand streaming grew 24%t to $195 million in the first half of 2016, according to the RIAA report, those services aren't doing enough to convince people to pay for music and and don't make enough money off their free users, the labels say.

Nor is this the first time new technology has come along to get people to pay online.

Apple co-founder Steve Jobs convinced record labels that iTunes would save the industry from piracy, only to vaporize album sales by selling singles instead.

Yet Apple is no longer the only player in the market for digital music. Spotify operates a larger paid subscription service and has showed no signs of slowing down since Apple Music began competing in that market. Most of the users for Apple Music are people new to paying music, not former Spotify customers, according to label executives.

Meanwhile, purchases of music, whether downloaded or on a CD, continue their steep descent. Physical music sales tumbled 14% while downloads also shrank by a double digit percentage.

The arrival of new competitors complicates the outlook, depending on whether they attract new customers or steal from others. Amazon, the world's largest Internet retailer, is investing in a paid music service to help sell other goods on the e-commerce site. It will introduce a standalone music service by the end of the year, people with knowledge of the matter said in June.

Pandora Media, the largest online radio service in the world, will also introduce a paid, on-demand service by year's end, and aims to convert 10% of its 78 million free users into paying customers by 2020.

-- Bloomberg News

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