Drake is currently the most streamed artist on Spotify with 49 million monthly listeners David Wolff - Patrick/Redferns

Keen to listen to your favourite track, but find on-demand streaming services too expensive? Chances are, you’ll find it for free on YouTube. YouTube owner Google, however, wants to move its video service into the same pond as Spotify and other subscription-based streaming services. An ad-free version of YouTube Music is now being rolled out in the United States, Mexico, Australia, New Zealand, and South Korea, with more markets to come, where it replaces the unpopular subscription streaming service Google Play Music.

Like rival Spotify, YouTube Music’s ad-free service will cost $9.99 per month, while YouTube Premium (previously YouTube Red), featuring original video content from popular creators, will be available for $11.99 per month. So after decades of turmoil for the music industry, has streaming officially become its new business model?


Online streaming took off in 2005, and it clearly has been the saviour of the music business, says Ali Mogharabi, an analyst at Morningstar. Not only did it end the market’s long decline, which started in the late 1990s run until about 2014-2015, but it has also become the music industry's biggest source of revenue, surpassing physical sales and digital downloads.

Downloading and streaming music started with the likes of Napster and Pirate Bay, although based mostly on illegal filesharing. Once proper on-demand streaming started – even without the option to easily download the music – it was an instant success, growing around 40 per cent every year pretty much from the start. Since 2015, subscription-based streaming has helped overall music revenues to increase again. In 2017, three major record labels - Universal Music Group, Sony Music Entertainment and Warner Music Group - made about $14.2 million a day from streaming services like Spotify and Apple Music.

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Fighting music piracy

In total, revenue from streaming last year accounted for 38 per cent of all recorded music, up from 29 per cent the year before, according to IFPI, the International Federation of the Phonographic Industry – with Latin America and China enjoying the biggest market growth. “Nothing else is driving growth – it’s 100 per cent down to streaming, and over the next couple of years growth will continue at the same rate,” says Mark Mulligan, an analyst at MIDiA Research.

One reason is the clampdown on music piracy. Copyright enforcement hasn’t been “quite fixed, but it’s pretty close,” says Mulligan. YouTube’s ID content system is now 99.5 per cent effective and “they are pushing it to 99.6 per cent”. Facebook doesn’t have a good enforcement technology yet, he adds, but “is about to become a major player”. Apple Music and Spotify together count 125 million subscribers - although they are mere bit players considering the success of YouTube. Google's baby now sports more than 1.8 billion users every month, not least thanks to the fact that it is free – not just for consumers, but also the artists themselves. "It’s the number one place where artists get discovered and hits are made," says Mulligan, and “that’s true for every single market”.


The success, however, does not translate into massive payments to the music industry. YouTube labels itself as a platform, not a music distributor, and as a result gets away with sharing less of its profits. Because of its dominance, YouTube pushes down the profits for the music industry as a whole, claims a recent study commissioned by the International Confederation of Authors and Composers Societies (CISAC), a body representing royalty-collecting societies around the world.

The launch of YouTube Music will not be a game changer, though. Mulligan believes that the subscription-based service is “not quite a sop to the record labels, but it’s not far off”. Google simply wants to show “that it’s a good partner to the record labels… rather than needing to be in the premium business”.

Profit margins are further under pressure because of the deep fragmentation of the distribution end of the music industry. Spotify, YouTube and Apple may be digital giants, but they are jostling for space with many smaller local music streaming services around the world, plus thousands of terrestrial and digital radio and TV networks.

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All this doesn’t help the creators in their fight for a larger share of a much-shrunken royalties pie. A few top artists like Taylor Swift may command a large enough following to get it their way when it comes to deciding on music distribution and revenue shares, but most artists simply have to lump it and accept the rates they are being offered. And the more music consumption shifts from download services like Apple’s iTunes and Amazon’s MP3 store to streaming services like YouTube and Spotify, the less money they can expect.


Streaming services may have much more power (and reach) than online and offline music retailers, but according to Mulligan “the margins aren’t there yet”. It doesn’t help that streaming services like Spotify are stand-alone companies that have to make all their profit from distributing music – unlike “companies like Apple and Amazon, which make their money elsewhere, so they can afford to loss lead [sell or stream music with little or no profit] and have no competitive pressure to strike a better deal,” Mulligan says.

As a result, digital revenue for artists is just 10 per cent of overall royalties, says Gadi Oron of CISAC, who represent 239 author societies around the world. Copyright laws, he argues, are outdated and need to be changed so that musicians can secure a bigger slice of the revenue pie. Still, he adds, composers are “very excited that the [streaming] market continues to develop”.

The balance of power

That leaves the record labels as the silverbacks of the music business, except that now they are much fewer and much larger, with just three dominant players: UMG, Warner Music Group, and Sony, which has just swallowed nearly the whole of EMI (it already owned 40 per cent of the company). The result is an oligopoly that ‘chokes’ the market for artists, because the record labels can operate without the usual rules that apply in highly competitive markets, says Oron.

The balance of power is with the rights holders, says Mogharabi. Even the music streaming service providers like Spotify “may be at the mercy of the record labels within the music industry, as they’ll need access to content to continue attracting more listeners,” he says.


Take Sony, which estimates that the proportion of its revenues from streaming has increased from 16 per cent in 2014 to 45 per cent in 2017. With ever fewer rights holders, the distributors – including Spotify, Apple Music, and YouTube Music have less and less leverage to negotiate. The record labels have retaken control of their pricing power.

For the balance to truly shift from record labels to streaming services, there will have to be consolidation in the industry, with big streaming services buying smaller competitors, or possibly mergers between the larger on-demand services. Only then, says Kazunoro Ito, an analyst at Morningstar, will streaming platforms “gain more pricing power”. The losers will be most artists - except top acts, although even they will “continue to be less powerful in the industry.”

Music lovers are finding themselves holding the short straw. Music streaming services have realised that listeners are willing to pay for content. By working with artists and record labels to enforce copyrights on platforms like YouTube, Facebook and elsewhere, the distribution platforms are finally regaining control of content, and the bigger their library, the more likely they are to attract listeners and persuade us to part with our money to subscribe to – not own – our music.