PORTLAND, Ore. (TheStreet) -- If you're not streaming new music or watching new music videos, you may as well be reciting it in Latin.
Streaming is the only relevant music medium, and even Billboard and Nielsen Soundscan have figured that out. During the first six months of 2014, Nielsen Soundscan found that on-demand streams through both audio and video services like YouTube, Vimeo, Spotify and recent Apple (AAPL) acquisition Beats Music are up 42% from the period last year. That's more than 70 million total streams, including a 50% jump in audio music streaming to 33.6 million. That still lags behind video streaming, which accounted for 36.6 million music streams in early 2014 and jumped 35% from last year.
Everything else that isn't on a vinyl disc is dead. Nielsen Soundscan equates 2,000 streams to one album, but even with that in the equation, album sales are down 3.3% through June. Take streaming out of the mix and you're looking at a 14.3% drop from the same time last year. The nearly 20% drop in compact disc sales over the last year is almost expected as CDs continue their post-'90s free fall, but the 11.6% drop in digital album sales and whopping 13% drop in digital track sales is a bit more jarring.
Digital music sales fell for the first time last year, but this is just an unpleasant reminder that those sales aren't coming back. It doesn't matter that you generally can't stream music in subways or in tunnels -- people aren't loading up their smartphones with songs anymore and definitely aren't lugging around an iPod.
That's incredibly bad news for the music industry, which uses digital track sales as a crutch to limp toward respectable numbers. When you factor in "Track Equivalent Albums" -- or 10 of an artist's tracks that add up to one album -- Katy Perry, Pharrell Williams, Lorde and Beyonce all had albums sell 1 million copies and go platinum this year. Take those individual tracks away and reduce album sales to strictly physical and digital albums in their entirety, and suddenly Beyonce, Lorde, Coldplay and Eric Church are the only artists to go gold and break 500,000 sales this year. The only album to go platinum by that measure? The soundtrack to Disney's Frozen, with 2.7 million copies sold in the first six months of 2014.
The only albums seeing sales rise this year are vinyl records, which have seen a 40% jump through June. Granted, that's only up from 2.9 million to 40 million, but it's better than any non-streaming medium can offer. Still, it should be noted that it's an incredibly small, esoteric segment of the market. The top-selling vinyl album, Jack White's Lazaretto, sold only 49,000 copies in the first half of 2014. The next-best seller, Arctic Monkeys' AM, sold only 25,000 -- or roughly half White's total. If you're not pre-ordering new Black Keys, St. Vincent or Mac DeMarco albums or buying yet another version of Bob Marley's Legend anthology or The Beatles' Abbey Road, you're inhabiting a very small portion of the vinyl segment and an even smaller space in the overall music industry.
As Weird Al Yankovic showed last month, musicians can either make streaming singles or fade into irrelevance.
Yankovic's 14th album, Mandatory Fun is his last in a 32-year deal with Sony's RCA Records label and the first for which RCA withheld money for videos. Yankvoic rose to MTV-era prominence with the help of videos for songs like Fat, Eat It and Amish Paradise and opted to ask third parties for funding. College Humor, Nerdist, Will Ferrell's Funny Or Die, Yahoo!'s (YHOO) Yahoo! Screen, Google's (GOOG) Vevo and even News Corp's (NWS) WSJ.com answered the call and rolled out eight videos from July 14 through July 21. By the end of the run, Mandatory Fun was No. 1 on the Billboard 200 and became the first comedy album to debut there since Bob Newhart's The Button-down Mind of Bob Newhart in 1960.
As Yankovic told participants in a Reddit Ask Me Anything earlier this month "I really don't think the album format is the most efficient or intelligent way for me to distribute my music anymore." It turned out he was just being polite. According to Nielsen, album sales of any kind plummeted from 755 million copies in 1999 to just 290 million last year. Compact disc sales have fallen steadily from 730 million in 2000 to just 165 million last year. This year, the Frozen soundtrack was the only digital album to sell 1 million copies -- or even more than 350,000.
Meanwhile, even as digital track sales fall, singles sales remain strong. Pharrell's Happy sold 5.6 million copies in just six months. Katy Perry and Juicy J's Dark Horse broke 4 million, but even artists a bit further down the chart are more representative of what anyone's actually listening to. DJ Snake, Iggy Azalea, Bastille and Aloe Blacc are absent from the first-half album charts, but all sold more than 2 million copies of their singles Turn Down For What, Fancy, Pompeii and Man.
Move it over to on-demand streaming and those 2 million to 5 million sales turn into 40 million to 65 million audio streams and 70 million to 120 million video streams. Psy's Gangnam Style still managed 69 million video streams this year after making more than $1 million off of streaming royalties alone last year. Google CEO Larry Page watched Psy's viral hit rake in $2 per 1,000 pageviews and called it “a glimpse of the future.” By that measure, the 122 million views Perry's Dark Horse received through June adds up to $244,000 alone. It isn't seven figures, but it's a whole lot of cash for one song doing six months of work.
Companies that aren't Google still haven't quite figured out how to make streaming generate a ton of money for them. Vevo brings in some cash for Sony (SNE) and Universal (owned by Vivendi (V)), but it's far more efficient for independent artists and ad-driven Google than for anyone else. Pandora (P), meanwhile, has been leaning more heavily on advertising, adding more commercials to its free service while raising the monthly cost to Pandora One subscribers from $3.99 to $4.99 earlier this year.
Both Pandora (with 31% of the streaming market) and Clear Channel's iHeartRadio (9%) have made their free services work with help from advertisers. Newcomers like Apple's iTunes Radio, with just 8% of the total streaming audience, haven't been so quick to embrace that strategy. Apple's been trying to make iTunes Radio pay off by coaxing users into purchasing downloads of the songs they're hearing. That strategy has backfired spectacularly, with only 2% of users ever pushing the "buy" button.
Amazon, meanwhile, worked its Prime Music streaming service into the $99 annual price of Amazon Prime -- which also includes free video streaming and two-day deliveries from Amazon's online marketplace.
Consumers, especially young ones, aren't waiting around for the music industry to figure this out. They're not only already sending video links and posting clips though social media, but they're using streaming to get around almost all of traditional media. According to Variety, home-grown YouTube personalities are scoring higher with teens than just about anyone that the music, television and movie industries have to offer. The only musician who rates a mention in the Top 20 is, not surprisingly, Katy Perry -- who by rights should be performing in the Super Bowl halftime show in 2015.
Young viewers and listeners hated the Big Media filter, hated the hoops they had to jump through just to get to the music and video they loved and hated the fake sheen on all of it. They've now dispensed with it altogether and have left execs scratching their heads as they try to figure out who Smosh, PewDiePie and KSI are.
When you can consume your favorite music without ever listening to an album from end to end, why would you ever go back to that old, costly model? You wouldn't, and one day the music industry as we know it will figure it out -- just in time to close up shop.
-- Written by Jason Notte in Portland, Ore.
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