In the last year, changes in consumer music consumption have evolved at the greatest pace since the inception of MTV.
Consumers are turning more than ever to subscription-based and ad-based streaming services for their music. They are relying less on YouTube, digital downloads, or traditional album buying.
This is the monumental shift we've been talking about for months.
(*For anyone who doesn't know what MTV is—it was a music channel that once played videos on a regular basis instead of reality shows about fake love interests or insane roommates.)
According to the data analytics group BuzzAngle, since the beginning of 2016, American consumers played 114 billion songs through streaming services like Apple Music, Spotify, and Amazon Prime.
That's far more than the 95 billion music streams on internet video sites like YouTube. This is an important shift for the industry, a year after YouTube represented 40% of the music consumption in the United States, but just 4% of the total revenue.
This is a dramatic shift in how Americans consume music media, but it is welcome by a music industry seeking to boost profitability and revenues.
Let's dive into the numbers from BuzzAngle's latest report.
Then, we'll discuss one of the best ways to tap into the profits from this digital renaissance in the global music industry.
STREAMING SURGES AHEAD
It looks like 2016 is already a banner year for streaming services.
On-demand streaming surged 58.3% (less online radio services like Pandora) in the first six months of 2016 compared to the same period last year, according to BuzzAngle.
The bulk of that growth comes from on-demand audio streaming services. Growth in that subsegment increased by a staggering 108% over the first six months. Meanwhile, video streaming saw strong growth at 23.8% during that period.
Source: BuzzAngle
The market has seen a large surge in subscription services like Spotify and Apple Music. The latter launched its own subscription service in 2015 and helped push a wealth of new listeners through the sales of the iPhone 6. It was no coincidence that Apple's streaming service and iPhone sales helped make Drake's “Views” the top album of the year.
Drake pre-released the album through Apple Music, and the album has been streamed nearly 1.5 billion times.
With numbers like this, the music industry has moved past an inflection point. For two decades, the industry has seen sales and revenues steadily decline. But the turnaround is well underway.
The music industry showed annual growth of 3.2% in 2015. Consulting firm PWC projects growth in the industry through 2020 thanks to a steep rise in music subscription services.
Artists Fighting Back
Physical and digital album sales are still declining. In the first six months, digital sales fell 24.2%, while digital album sales were off 17.7%. And while vinyl continues to see sales growth (+17%), all physical album sales were off 7% during the first six months.
This industry is evolving more with technology, and positive forces favor savvy investors who want to snap up royalty streams before the subscription revolution unleashes profits across the music industry.
In time, we'll see a sharp rise in revenues from subscription services and existing streaming sites. Musicians will continue to drive fans to monthly services as subscription companies like Spotify and Apple jockey for exclusive access to these artists and their work.
But it's more than just exclusivity.
Musicians are finding ways to embargo new content from free music streaming sites, particularly YouTube, for extended periods. They are also targeting the 1998 Digital Millennium Copyright Act (DMCA), which shields YouTube and other streaming sites from any liability when users post intellectual property onto their servers without an artist or copyright holder's permission.
A lobbying effort is being pushed to hold sites that allow users to infringe on copyrighted material more accountable. Meanwhile, advocacy and industry groups are coming together to solve existing problems with royalty payments. The Open Music Initiative is working with participants all across the vertical supply chain to ensure that proper standards and infrastructure exist to fairly compensate artists.
Finally, there is the basic nature of streaming technology, which is extending the catalog life of music and offering a resurgence of profitability to songs that disappeared from the radio waves.
All of this will lead to a resurgence for investors in the royalty business.
Why Invest in Royalty Assets?
Investors should consider buying into royalty streams.
This alternative asset provides a number of benefits that can't be found in other traditional investment streams. A few examples include:
- Consistent Cash Flow: Royalties are generally stable investments, they pay consistent cash flow every year. Each asset listing on our site will include historical financial data. The Copyright Royalty Board increased streaming music rates from 15.3 cents to 17.6 cents. That rate is expected to increase through 2020 in accordance with the consumer price index (CPI).
- Diversification: Royalties from intellectual property, especially music royalties, are uncorrelated assets. Meaning they are not influenced by fluctuations in the stock market. This is a good way to stabilize the income your portfolio generates.
- Longevity: Royalty streams last for the life of the copyright or patent. In many cases, with royalties generated from copyrights, those payments can last up to 75 years. In fact, with so much technological change, experts anticipate that musicians and artists will negotiate more favorable royalty terms.
- Potential Upside: Some royalties, especially in music, experience large spikes in revenue based on increased use. For example, when a song is used in a popular commercial, revenue spikes... or when a popular artist covers an older song, the owners of the copyright enjoy a major boost in royalty payments.
We are just in the second inning of a total renaissance for the music industry.
