Streaming Music To The Rescue (Part II)

This is a continuation of two blogs I wrote earlier, (“The Almost Impossible Business of New Music” and “Streaming Music to the Rescue”). If you have not read those, my thesis is that streaming music companies were not getting their fair share of industry profits. They are saving the music industry but even though they have sizable audiences and significant revenue, they are still losing money.
This blog is just a very short update where I can share new publicly available information:

• First, 2016 marked the first year where revenue from streaming platforms surpassed revenue from sale of CD’s, downloads, and vinyl sales combined
o U.S. Recorded Music Sales : $7.68B, up 11.4%
o Streaming Revenues: $3.93B, up 68.5% (of which $2.26B were from 22.6M paying subscribers)

• Pandora’s 2016 Full-Year Financials:
o Revenue: $1.385 Billion (up 19% over 2015)
o Negative Net Income of $343M, double the loss than the previous year, and mostly due to higher SG&A expenses and investments in Research and Development of $142M which is $60M more than they invested in R&D in 2015

I believe these two recent data points strengthen my thesis: Streaming revenue is increasingly saving the industry, but despite revenue growth, Pandora lost more money because they keep investing in improving their product and user experience. What is really important is that services such as Spotify and Pandora are also lowering piracy because now the value proposition of consuming music legally is very strong. Therefore, the music industry really benefits from these players and if they want to continue promoting innovation and lowering piracy they will have to cut better deals with streaming companies.