The Music Associates

By Pat Melfi
It’s not always clear where to draw the line when sizing the music industry.  The broad definition will include not only the actual customer’s expenses (on concert tickets, streaming subscriptions and so on) and B2B licensing cash flows, but also ad-revenues of radio and other music-related media.
That definition will put total revenue of the U.S. music market at whopping 43$ billion. 
Under a more conservative approach, however, only a fraction of radio revenue will be included in the music industry in the form of royalty payments. In the U.S., however, even that won’t be exactly the case, as American radio stations don’t pay out performance royalties to recording artists, stating that they provide “free publicity and promotion to the artist”. Accordingly, the US radio is only compensating the owners on the composition — songwriters and their publishers. So, adopting a more precise definition, the industry’s revenue can be estimated by summarizing the cash flows of the following core businesses:

Recording industry:
 The recording industry is growing, and revenue is up 16,5% in 2017, adding up to $8,8 billion in retail value. 
 That growth is primarily powered by the rise of streaming services. Over the same period, streaming revenue went up by 43%.
 In 2018, streaming accounted for 75% of the total recording revenues.

US Recording industry revenues, 2005-2017, US$ billion Source: Recording Industry Association of America Live industry:

While the recording industry is precisely measured, there is no consensus when it comes to the live sector’s revenue. The estimation becomes problematic due to various reasons, from the complexity of revenue attribution to the volume of the secondary ticket market. As a result, revenue estimations vary between the different sources.
 Drawing primarily on Citi and PwC estimations, the total revenue of the live industry can be put at around $9,5 billion. 
 Around 80% of live revenue comes directly from ticket sales, while brand sponsorships and merchandise generate another 20%.

Publishing industry: 
 According to the MIDiA Research, publishing generated $1,8 billion in the U.S. in 2017 
 Overall publishing revenue increased 8% over the course of 2017.
 According to Citigroup, this growth is primarily driven by the surge of performance royalties, connected to the rise of streaming.

Summarizing the cash flows of recording, live and publishing segments, total revenue of the U.S. industry can be put at around $20 billion.

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U.S. Music Industry Revenues by Source, 2017
Source: RIAA, Citigroup, PwC, MIDiA Research Streaming is King 

The U.S. music market seems to be utterly reliant on streaming as the music consumption medium. The latest BuzzAngle report states that it accounts for as much as 85% of all recording revenues, while the global average is at around 38%. The U.S. has completed its transition to the new music distribution paradigm: Drake’s Scorpion takes the top spot on the BuzzAngle’s end-year chart with 500 thousand CD sales vs. 6 billion on-demand streams, and A Boogie Wit Da Hoodie’s SZN reaches the #1 on Billboard with just 823 album sales. However, don’t rush to the conclusion. The structure of music consumption is not that simple. 

Radio in the digital age There is a big chunk of consumption that is not reflected in the industry revenues. As previously mentioned, terrestrial radio doesn’t contribute directly to the industry’s revenues, as the U.S. law rules that the promotional effect of airplay is enough to compensate right holders. At the same time, radio remains the most powerful medium in the U.S, reaching 92% of Americans every week. This reach is not only high but also stable – those ~90% figures are persistent over the last decade. To put it in perspective, according to Nielsen’s research, throughout 2017 the average weekly consumption via radio was about 14 times bigger than the aggregated consumption through audio streaming services (including all sites and internet applications designed to provide audio content, e.g.,
Pandora, Spotify, iHeartRadio).  

Audio Listening in the U.S in Q2 2017 by Medium, Avg. Weekly Minutes of Total Use
Source: Nielsen Radio broadcasts, of course, are not exclusively limited to the music programming: news, talk shows and other non-music content were always the vital components of airplay. Still, though, the role of radio as a consumption channel can’t be underestimated. Essentially, it remains the primary music medium in the U.S. up to this day. But what are the reasons for such strength of radio, the media that seems to be outdated in the country with the highest streaming penetration rate? 

The power of the Airplay
The radio industry is powered by both cultural specificity and the localized nature of the market. First of all, the U.S. is one of the most geographically fragmented music industries. The fourth largest country in the world, stretching across more than 9 million km2, the U.S. is built on the principles of decentralization. Both political and legislative landscapes of every state are different, and this is a reflection of the deeper-level cultural versatility.  

To a certain extent, every distinct part of the United States has its own cultural and media setting, and music is a big part of it. That decentralization doesn’t necessarily stop at a state level: Nielsen, for example, highlights no less than 210 DMAs (Designated Market Areas) as singular territories where “population can receive the same television, radio and broadcast channels”. Such fragmentation affects the music industry in a significant way – numerous studies have highlighted the variation of music preferences across the U.S, from overall genre tastes distribution to the popularity of selected artists. 

In other words, the U.S. is more like a group of local conjoint markets than a homogeneous industry. Of course, there are broadcast networks that connect the country's media-space, which are a crucial tool of artist promotion on a national level. Coast-to-coast broadcasts can offer nationwide reach, and shows like Saturday Night Live are notorious for propelling music careers into the next league. Still, though, there is a good reason why no country musician has ever come out of New York – and here is where radio shows its strong suit. 

The localized nature of airplay allows radio stations to engage with the regional cultural context, and that is something that global, unified streaming cannot offer (at least not yet). Radio broadcasts are curated, localized and increasingly interactive, and this is precisely why radio can compete on par with streaming services of all scopes. That localized nature also makes radio airplay data a massive source of insights for music professionals — which is why Soundcharts currently tracks over 1,700 radio stations in 69 countries across the globe. 

On top of that, due to the geographical spread, dominant cultural tropes and lack of public transportation in specific regions personal automobile remains the primary mode of transportation in the country. United States has one of the largest numbers of cars per capita, with 271 million vehicles in operation as of Q4 2017. Such car population also plays in radio’s favor: over 70% of Americans name terrestrial and satellite radio (SiriusXM and alike) as the leading in-car audio source. At the same time, all of the primary streaming services now offer solutions for in-vehicle listening, from Apple’s CarPlay and Google’s Android Auto to Spotify’s onboard integrations and rumored voice-controlled players, making “the Car” the main battleground of a “radio vs. streaming” standoff.

The Future of Radio
Although radio is the first medium for audio consumption, the combined revenue of the U.S. stations remains stagnant over the last years, as the growth of digital advertising and the slow decline of airplay cash flows balance each other out. This stability is expected of the mature market such as radio industry, but at the same time, as the iHeart bankruptcy showcases, even some of the largest players on the market struggle to find a stable financial model. Radio station revenues in the U.S. 2006-2017, $US billion, by source
Source: BIA/Kelsey

The challenge of the radio industry is not that the revenue or even consumption is down, but that the streaming has been growing in double digits for years in a row now. On top of that, the age profile of the radio audience is almost diametrically opposite to the demographics of streaming users: while 16-25 y.o is the top streaming census, radio thrives
within the demographics from 35 y.o. and up. This rapid aging of the audience is often referred to as the main threats of the industry, as the question of whether or not radio stations will be able to engage younger listeners remains open. In that regard, If the radio fails to take on the streaming generation, we might see a rapid decline in the sector’s revenues in the coming years. 

Time spent listening to music via selected sources in the U.S. 2018, by age group
Source:  Audiencenet, Music Business Association.

Radio and Music Consumption

For now, however, the radio keeps its prominent position. Based on the AudienceNet study, conducted in July 2018, no less than 43% of all music consumption happens through radio (including both airplay and digital streams of the radio broadcasts), surpassing on-demand streaming with 27%. The digital radio services such as Pandora, residing in a kind of a grey area between radio and steaming, account for another 12%. However, even if we would put customizable radio under the streaming label, the aggregated share of music consumption via streaming would still fall short of the radio airplay. 
On top of that, over 49% of Americans name radio the main channel for music discovery. In that sense the U.S. industry is a conjunction of digital and physical worlds: while streaming takes center stage when it comes to the revenue structure, traditional media are still as relevant as they’ve ever been, and airplay remains the first promotion and consumption channel in what seems to be an entirely digitized industry. 

However, there is still one point of the U.S. music industry to be explored.
Since the age of piracy and up to the explosion of streaming, the live performance was considered to be the primary revenue stream for any artist out there, to the point where all other activities would be seen as the way to promote concert tickets. Yet there is a segment of the U.S. live industry that has evolved to become a massive promotion channel not only in the States but all over the globe – top-tier music festivals.