Study: Ad-based music streaming revenue to hit $1b despite less “freemiums”

Ad-based music streaming revenue is expected to exceed US$1 billion by 2017, according to new data from Juniper Research. The figure will hit $782 million this year.

The rise in revenue will be despite the fact that more and more major players – including Apple Music and Amazon Prime Music – are refusing to offer “freemium” (or free tiers). Others will continue with them but will most likely reduce them.

The report, Digital Music – Subscriptions, Ad Revenues & Download Services 2015-2020, expects to see a significant global growth in user numbers. Apple Music will "act as a major catalyst in driving the expansion of subscription-based streaming services," after reaching 11 million subscribers in five weeks and with an ultimate target of 100 million.

“With convenience, accessibility and curation having become the defining elements of the music landscape, the potential of the streaming industry will revolve around the levels of which providers can convert free customers to paying customers,”noted research author Joe Crabtree.

Music streaming is broken into two – ad based (“freemiums”) or subscription based. Ad-based services are set up so that customers have to listen to audio ads. Subscriptions-based services do not have ads and allow users to skip as many songs as they want. Most of the major players as Pandora, Spotify and Tidal currently offer both.

According to Juniper, "The new research found that while freemium services will continue to entice a growing number of users, the model will enjoy a greater influence in funnelling consumers towards the more profitable subscription options”.

Juniper also noted that 2014 marked a major shift in the digital revolution, with the download market experiencing its first decline as consumers switched to streaming. By 2018, streaming revenue will overtake download’s, Juniper predicts.

The seismic change in landscape was reflected in March 2015 figures from the Recording Industry Association of America (RIAA). It reported that streaming revenue overtook CD sales for the first time in 2014, with streaming reaching $1.87 billion to the $1.85 billion generated by CDs. The RIAA also noted that in 2014, download revenue dropped by 8.7% to $2.6 billion.

Reflecting Juniper's findings, RIAA's report showed a strong ad-supported music-streaming industry, with revenue soaring 34% to $295 million. Paid subscription services were up 25% to $799 million last year.