Units Sold vs. RPU

The shift from physical to streaming

Developments in technology have forced the music industry to reinvent itself twice in the past twenty years.

The first was the shift from physical to digital.

The second is the shift from digital sales to streaming.

Streaming represented 10% of the market in 2010, 51% in 2016 and is forecast to represent 72% in 2018.  Merrill Lynch predicts that streaming will allow the industry to surpass $14bn in yearly revenue by 2018.

The appropriate measure of success

The industry has traditionally focused on ‘units sold’ as the measure by which to gauge commercial success.  The shift from physical to digital did not change this.  The industry operated a sales model just as much for digital downloads as for CDs.  However, the shift to streaming represents a shift from this sales model to an ‘access’ model.

Some have suggested that this necessitates a complete change in the way that the industry measures success.  Some industry players and observers employ ‘per stream’ figures which conceive of each stream as a sale.  However, this fails to account for the fact that a stream might generate a very different amount of revenue for labels, publishers and artists depending firstly on the listener’s choice of service (e.g. ad-supported ‘freemium’ service versus paid subscription service) and secondly on their levels of engagement with their chosen service.

The difference between different services can be stark. It is estimated that, on average, the recording industry earns £1 per year for each listener on an ad supported only service but £70 for each listener on a paid subscription service.

For these reasons, many are suggesting that the industry should focus on revenue per user (RPU), rather than number of streams, when trying to measure commercial success in streaming.

Challenges ahead

When streaming is viewed in these terms, the challenge for the music industry clearly becomes not only to increase the number of streams per user, but also the revenue that each user generates for the industry.

The key to this is encouraging user engagement in paid subscription services (versus ad funded ‘freemium’ services) and encouraging the streaming services to offer subscription services at a range of price points that offer something for the casual music listener and the aficionado alike.

But, more fundamentally, it also requires a change of mind-set for many of those within the industry.  Strategies for marketing and promoting music that might have worked under the old model may not be appropriate under the new.