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Google Bails on Selling Music Downloads

By Evan Niu, CFA – Oct 14, 2020 at 8:00AM

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It's all about YouTube Music streaming now.

It's official: Alphabet (GOOG -1.24%) (GOOGL -1.02%) subsidiary Google has bailed on selling music downloads through the Google Play store. The move has been a long time coming, as Google has been trying to nudge users toward YouTube Music for over a year. The company wants people to transfer their music libraries to YouTube Music as an alternative.

Discontinuing music downloads is just the latest development as the music industry continues to aggressively shift to streaming.

Young woman sitting on couch wearing wireless headphones and looking at her smartphone

Image source: Getty Images.

Digital downloads have been declining for years

Much like messaging, Google has never really had a coherent strategy with music. While YouTube is a wildly popular destination for users looking for some tunes, the platform has long been widely criticized for paying pitiful per-stream royalty rates to artists compared to other streaming platforms like Spotify (SPOT 0.60%) or Apple (AAPL -1.96%) Music.

Those rates are low in part because YouTube is a free service. The search tech giant has been trying to grow YouTube Music subscriptions, which cost the same $10 per month as competing services, but consumers overwhelmingly prefer to use the free version.

YouTube Premium and YouTube Music combined had just 20 million paying subscribers at the end of 2019, Alphabet and Google CEO Sundar Pichai disclosed earlier this year. At the end of the second quarter, Spotify had 138 million premium subscribers, and Apple's last update for Apple Music was 60 million subscribers as of the summer of 2019.

More broadly, digital downloads have been declining for years amid a secular shift to streaming. Apple has historically dominated digital music sales with the iTunes Store, but streaming now represents an overwhelming 85% of the U.S. music industry's revenue, according to the RIAA. Digital downloads accounted for a mere 6% of the U.S. music industry's revenue in the first half of 2020, down from 8% a year ago. In dollar terms, digital download revenue fell 22% to $351 million in the first half.

Apple and Amazon.com (AMZN -0.77%) still sell music downloads, while Spotify is exclusively a streaming platform. Amazon said earlier this year that it has 55 million Amazon Music customers, but that includes the limited Prime Music tier that's part of Amazon Prime, as well as the full-service Amazon Music Unlimited that is more comparable to Apple Music or Spotify.

Abandoning digital downloads in order to focus on streaming is an easy call, particularly if it will let Google focus more on YouTube Music by streamlining its offerings. But Google has such a lackluster track record in paid music services and regularly rebranding its offerings (ahem, messaging) just creates confusion among consumers.

Consumers tend to associate the YouTube brand with free content, so don't expect YouTube Music to meaningfully grow its subscriber base, even with Google focusing more on streaming.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Amazon, Apple, and Spotify Technology. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Spotify Technology and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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