2014 is the year of streaming music. In the first half of 2014, on-demand music streaming increased 42%, with audio-only streams (i.e., no YouTube videos) increasing 50.1%, according to Nielsen SoundScan. That's an acceleration over last year, when streaming saw a 24% increase in the same period. On‐demand streams surpassed 70 billion songs in the first six months of 2014, according to Nielsen.
The rise of streaming has come at the cost of CDs and, more notably, digital downloads. But vinyl continues to grow, and grow quickly. Vinyl sales increased over 40% in the first half of the year, accelerating from a 33.5% increase in the same period last year.
French music streaming company Deezer took notice of vinyl's success and announced recently that it will offer a premium streaming service in partnership with wireless speaker maker Sonos. It promises to offer lossless audio streamed throughout your entire home for $19.99 a month. The company hopes this differentiates it from services like Spotify, Pandora (NYSE:P), and Apple's (NASDAQ: AAPL) music streaming services.
"Music quality has gone backwards from vinyl to CDs to MP3s and Deezer Elite reverses that trend," according to the company's press release. "For the very first time, music lovers everywhere can stream music with the depth and richness of what the artist intended."
Does vinyl really sound better?
Ask any number of your friends who collect and listen to vinyl records, and there's a good chance they'll tell you vinyl just sounds better than anything else. (I used to say this, too.) While a vinyl record likely sounds better than the 96 kbps audio files Spotify streams to mobile users, and could be even better than the 320 kbps streams premium subscribers have access to, your friends are probably fooling themselves unless they have very good playback equipment.
Like any format, vinyl has limitations in reproducing sound. The amount of work that goes into reproducing bass on vinyl is astounding, and I'd still rather listen to B.O.B. by Outkast with its crazy 808s on CD. (You'll notice very few rap albums in the top-selling vinyl lists.) In fact, back in the early days of CDs, the consensus was that CDs sounded better than vinyl. But sound is subjective, and if your friend says vinyl sounds better, who am I to say he's wrong?
I'll agree vinyl definitely sounds different. For me, sometimes it's better, sometimes it's not.
So, why buy vinyl? In short, vinyl is cool.
There's nostalgia in digging through crates of old records. There's the novelties artists are including more and more in LP releases like colored vinyl, reverse grooves, hidden tracks under the labels, and loops (like on Sgt. Pepper's).
The format is beautiful with big album art that often folds out, and the vinyl record itself is much more enticing than a CD or tape. A recent survey from ICM Research found that 15% of buyers of physical formats have no intention of listening to them. It's just something that shows their support for the artist and looks nice on a shelf or in a frame on the wall.
There's also the tactile nature of listening to vinyl. Even the way the audio is reproduced is tactile -- sound doesn't come out until a needle touches the grooves. The calming surface noise as you drop the needle and just before the first track hits always stays in the background. And the whole record plays out as the listener flips through the liner notes and examines the album art.
These are things streaming can't replace.
Who wants lossless audio streaming?
Deezer is looking to capitalize on the growing market of audiophiles. Vinyl sales are soaring, and high-end headphones like Beats and Sol Republics are extremely popular. The natural conclusion is that there are more audiophiles today than ever before. At the very least, the market of people who want to look like audiophiles is very big.
But if the market for lossless audio streaming were big, wouldn't it have made sense for a company like Beats, with its high-end headphones, to enter the market when it released its subscription music service earlier this year? We would have seen Pandora and Spotify testing it as well. None of them offer anything better than 320 kbps streaming (the standard high end for compressed audio files).
That's because the streaming music market is about convenience and price. Companies need to keep that in mind when developing new products. The most successful products in the category have maximized both aspects.
Spotify is free on PCs for as much on demand music as you want. It's relatively inexpensive for an ad-free experience that extends to smartphones.
Pandora makes custom radio as easy as picking a song or artist you like, and telling it what else you like as it plays songs for you. It's also free, and even less expensive than other services to remove ads.
iTunes radio is conveniently built into 42% of the U.S.'s primary portable music players for free.
The big streaming players like Pandora, Spotify, and Apple offer a lot of conveniences vinyl can't compete with, so it's not like the $1.6 billion industry is going to crumble at the hands of old technology. It will continue to cannibalize other digital formats, however, as we saw a decline in digital downloads for the first time last year. Digital download revenue fell below $4 billion last year. Over the last five years, streaming has grown from 9% to 27% of digital music revenue (including ringtones).
Vinyl is still a very small part of the market, accounting for just 1.8% of album unit sales. Streaming accounted for 20.6% of unit sales based on Nielsen's equivalent album rate of 1,500 streams to one album. Vinyl's growth is more of a threat to CD sales than it is to digital formats.
Deezer seems to be missing the reasons why streaming and vinyl have both grown so much recently, and it's offering something in the middle ground that doesn't serve either market well.
Adam Levy owns shares of Apple. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple and Pandora Media. 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.