Is Streaming Music Killing Digital Album Sales?

The end of physically owning your music may be coming, but maybe not as fast as you think.

Feb 12, 2014 at 11:28AM

Digital album sales, which passed physical album sales in 2011, declined in 2013, likely due to streaming services making the concept of owning music irrelevant. This might mean the slow end of music ownership as listeners move to a model where users pay a fee (or pay by viewing ads) to borrow songs on a variety of devices.

The market

In 2013, Nielsen's numbers for the U.S. show that digital track sales were down 5.7% and digital albums were down 0.1% while albums as a whole were down 8.4%, according to Music Industry Blog. Nielsen also reported a 103% rise in audio streams.

That shift is good news for streaming services including Pandora (NYSE:P) and Spotify, but bad news for digital music sellers like Amazon (NASDAQ:AMZN) and a mixed bag for Apple (NASDAQ:AAPL), which stands to lose in its iTunes music store, but gain on its iTunes Radio service.

Music Industry Blog calls the shift to streaming a transition of spending much like the download was a transition from buying a CD. The majority of [streaming] subscribers were already digital music buyers before becoming subscribers and the majority of those were iTunes customers, according to the blog. "50% of [streaming] subscribers buy album downloads every month and 26% buy CDs every month." 

In the short term, that shows that streaming services can drive downloads and physical sales (which is especially beneficial for iTunes) but, the blog article explained, this is not likely to be a long-term result. "If streaming services do their job well enough, there should be little or no reason for a subscriber to additionally buy music. They do so because consumers transition behavior gradually not suddenly. The fact that a third of download buyers still buy CDs illustrates the point."

No more ownership

Mark Mulligan of MIDiA Consulting, who writes the Music Industry Blog, told the Fool that "Eventually the core of music ownership will fade as a consumer concept, but the change will not be anything like immediate. Even now, just 40% of music sales are digital. In markets like Germany and Japan, way more than two thirds of the market is still the CD." 

The most engaged digital music fans are shifting their behavior, and in some cases spending, toward subscription services, Mulligan said. Those people may be moving away from ownership, but the mainstream music buyer is just starting his trip down that road. Additionally, Mulligan said, while traditional CD buying is declining, "we are seeing more ways in which people value ownership alongside access -- e.g., 7-inch vinyl singles, deluxe edition box sets, etc."

Digital makes it harder for unknowns

The music industry has always been a business of hits and streaming services make discovering new artists harder. And while iTunes and, in some cases, the streaming services allow an unknown band "shelf space" next to The Rolling Stones, that digital shelf is in a dusty corner of the virtual store that few customers are likely to see.

"The top 1% of catalog on digital services accounts for a much larger share of total sales than in CD sales," Mulligan told the Fool. "This is is due to many factors, not least of which is the tyranny of choice on digital services: there is so much choice (30 million tracks) that there is effectively no choice at all. People end up gravitating toward the familiar. It is the great paradox of having access to all the music in the world, choice paralysis."

Keeping audiences to the familiar is not only bad for new artists, it's bad for album sales as customers are likely to either already own familiar music or not feel a need to buy it. 

Royalties could become an issue 

One of the biggest challenges facing streaming music services is that they have to pay royalties on the music played. And while artists and labels complain that these fees are not high enough, they are already causing problems for the services.

"If royalties go up, they [streaming services] will die," Mulligan said. "Music subscription service penetration is already only 5% and is unlikely in the extreme to break through to mainstream at the $9.99 price point. These services are already operating on wafer-thin margins and most are bleeding cash. If royalty rates go up, consumer prices go up, which means consumer adoption goes down."

Artists could, Mulligan said, opt out of streaming services over payment issues as some did with iTunes when it launched. But most, he said, will likely come back. "There are very few artists now who would say iTunes was anything other than a crucial revenue stream," he said.

Will people still buy digital copies?

Much like albums, cassettes, and CDs before them, digital downloads will reach a peak then begin to fall. That fall might be excessively hard for the major labels (Sony (NYSE:SNE) , Universal Music Group, owned by Vivendi, and the privately held Warner Music Group) as sales won't simply transition to another format. During past industry transitions, there was a sales boost from people wanting to update their collections to the latest format. That is inherently impossible in a music world dominated by streaming services.

Mulligan does still see some growth for music downloads, but if you are a musician or record label, it's not a pretty picture.

"I think there remains a lot of potential growth for music downloads in some big emerging markets (e.g., Brazil, Turkey, Russia) but in established markets we will see a plateau and decline," he said.

The next step for you

Want to figure out how to profit on business analysis like this? The key is to learn how to turn business insights into portfolio gold by taking your first steps as an investor. Those who wait on the sidelines are missing out on huge gains and putting their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you what you need to get started, and even give you access to some stocks to buy first. Click here to get your copy today -- it's absolutely free.

Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends, Apple, and Pandora Media. The Motley Fool owns shares of and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers