Streaming Made Up One-Fifth of U.S. Recorded Music Revenue in 2013

Streaming music revenue in the U.S. grew 39% in 2013, generating $1.4 billion in revenue and making up more than one-fifth of the recorded music industry's business, up from just 15% in 2012, according to figures released Tuesday by the Recording Industry Association of America.

In total, the U.S. recorded music industry posted $6.996 billion in revenue for 2013, down 0.3% from $7.016 billion in 2012, as royalty payments from music services such as Spotify and Pandora made up for declines elsewhere, according to the RIAA's annual report.

Sales from CD's, vinyl and other physical formats dropped 12.3% to $2.27 billion last year, while revenue from digital sources grew 7.6% last year to $4.36 billion. Last year, digital made up 64% of overall recorded music revenue.

Within digital, however, a 1.0% decline in revenue from downloads to $2.8 billion in 2013 suggest that consumers may be shifting away from owning music towards streaming services that give them access to large catalogs of music, such as Spotify, Beats Music, Slacker and Rdio. RIAA estimated that 6.1 million people paid for on-demand streaming in 2013, nearly double that of 2012 when 3.4 million people paid for music subscriptions. Paid subscriptions generated $628.1 million in revenue in 2013, up 57% from 2012.

Advertising-supported streaming, such as YouTube and Spotify's free tier, generated $220 million last year, up 28.7% from 2012. In addition, Internet radio royalties paid out by SoundExchange to artists and rightsholders were $590.4 million last year, up 27.8%. SoundExchange payments made up 8% of total U.S. music revenue in 2013, up from 6.7% in 2012. The majority of payments collected by SoundExchange comes from Pandora, the country's largest Internet radio service. Here's a breakdown of the various sources of revenue within streaming music:

"All of this shows the music industry today has grown into a diverse digital business teeming with a wide variety of innovative services catering to all types of music fans," Joshua Friedlander, RIAA's Vice President of Strategic Data Analysis, concluded in the report.