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The Year in Streaming 2016

(By Marc Hogan | Published on December 2, 2016 for

Breaking down the winners and losers of this breakthrough year for streaming music, and looking ahead to what’s next for the industry.

Experts have been anticipating the dominance of streaming audio since the days of Y2K and nu metal. In 1999, the first customizable online radio service, Launchcast, was introduced. In 2001, seven years before Spotify, Rhapsody was unveiled as the first proper on-demand streaming music service. But those early streaming dreams were squashed when the iTunes Store opened its virtual doors in 2003, giving way to a downloads-based digital music economy, which has held fast ever since. Until now: If current patterns hold, 2016 will mark the first time subscription streaming revenues will meaningfully overtake download sales.

So it’s worth noting both the significance of streaming music’s accomplishments this past year as well as how historically fragile those accomplishments remain. Going into 2017, streaming will no longer be a niche for music but the new normal. The big question is no longer whether streaming is the future, but what form that future will take, who will benefit, and what that might mean for listeners.

Through June, the U.S. music industry as a whole was on pace to grow for the second straight year—its first consecutive years of growth since the late ’90s, at the height of the CD era—and subscription streaming services like Spotify and Apple Music deserve the credit. The rest of the industry has increasingly legitimized streaming as well, led by longtime holdouts the Beatles finally embracing the format late last year. The Grammys opened up their eligibility rules to include streaming-only releases, the RIAA started counting streaming toward platinum and gold certifications, and even Radiohead, whose Thom Yorke previously compared Spotify to “the last desperate fart of a dying corpse,” released new music on, yes, Spotify. Looking to make the most of this new landscape, artists like Beyoncé, Chance the Rapper, and Drake toyed with the artistic and commercial potential of releasing new music exclusively through a particular streaming service. Underlying all that, though, is another, even bigger question dating back to the turn of the millennium: Can the economics of streaming become sustainable?

Given streaming’s triumph, some of the debate has moved to divvying up the spoils of that victory. This year, labels, artists, songwriters, and managers called for an overhaul of copyright law to close what they saw as a “value gap” that allows the “user upload” sites like YouTube to unfairly earn revenue from their work (YouTube, of course, viewed the matter differently). Another industry target was “stream ripping,” the process of turning a stream into a downloadable file, which became the subject of a massive lawsuit. And songwriters, left wondering about their share of streaming payouts, used their recently formed advocacy group, Songwriters of North America, to sue the Department of Justice.

The streaming services themselves had feuds, too. After Senator Elizabeth Warren called out Apple Music as an example of concentrated corporate power that can harm competition, news broke that Spotify had been challenging Apple’s app-store practices, which include taking a cut from Spotify’s monthly subscriptions. Apple Music and Jay Z’s Tidal vied over exclusive album releases, prompting multiple Kanye West tweets complaining about that “Tidal/Apple bullshit” and leading Universal to swear off global streaming exclusives after Frank Ocean managed to break out of his contract with the label through a savvy exclusive deal with Apple Music. Spotify, in turn, reportedly gave less promotion to Apple and Tidal exclusives.

Overlooked in this by pretty much everyone (but Kanye) were music listeners, facing a reality where they may need to subscribe to multiple services if they want to hear every high-profile new album. Reassuringly for consumers, music-biz analysts don’t foresee exclusives being as crucial to music streaming services as they are to TV services like Netflix or Amazon. “There will continue to be exclusives, but there’s only so many you can put out and still have impact,” says Mark Mulligan, founder of London-based MIDiA Research, a digital-music market research firm.

What’s next for streaming is, in a word, more. More streaming services continue to hit the market, with Pandora, iHeartRadio, and Vevo all prepping their own on-demand platforms, Amazon recently introducing Amazon Music Unlimited, and SoundCloud rolling out SoundCloud Go. The crowded marketplace should also keep spurring more talk about deals, whether that’s Spotify potentially buying SoundCloud or Apple being rumored as a suitor for Tidal. More streaming services may find themselves having to simply shut down, too; Rdio filed for bankruptcy at the close of last year, and this year Samsung shuttered its Milk Music streaming service.

All the while, the existing players are butting heads over how to give listeners the best personalized, automated listening experience. They’re launching lower-priced services with less functionality and looking beyond smartphones toward smart speakers and, in the longer term, smart cars.

For all the intriguing evolution taking place for streaming music, precedent in this space suggests keeping an eye on the bottom line. In an earlier streaming era, Launchcast went to Yahoo in a $12 million deal and survived an important legal challenge, only to end up getting absorbed into CBS’s (non-customizable) radio network. Rhapsody, which arose as the music industry was grappling with file-sharing services like Napster, this year rebranded its U.S. operations as Napster, and only holds a fraction of the subscribers boasted by Spotify and Apple. Profitability is still a challenge for the streaming business, to put it politely: Pandora has not yet managed to be consistently profitable; Spotify has never turned an annual profit; Tidal lost twice as much money in 2015 as they did the previous year; and it’s no coincidence that players like Apple, Amazon, and Alphabet, the corporate parent of Google and YouTube, have other, more lucrative businesses. And there aren’t many other companies left to write a check for a music streaming service. The labels, too, have to hope that streaming can grow fast enough to offset an ongoing decline in downloads and physical sales. Ted Cohen, managing partner at digital entertainment consultancy TAG Strategic and a former EMI digital executive, sees hope in a growing number of label executives with experience in the streaming world. “We have a playing field that’s littered with casualties,” Cohen says. “If this is going to go long-term, the deals [between streaming services and labels] have to get a little bit more sustainable. We’re close.” In other words: Labels need to cut deals with streaming services that won't put the streaming services out of business.

Here’s a look at 10 streaming services, what went well and what went poorly for them this year, and where they might be headed in 2017.

Pros: The biggest subscription service for on-demand music streaming is only getting bigger. In September, Spotify CEO Daniel Ek tweeted that his company had passed 40 million paid subscribers—double the amount it had in June 2015. The fact that Spotify is chiefly a music streaming company—and not a tech giant with other products to sell—may give record labels added reason to support it. It won’t hurt Spotify’s relationships with the labels, either, that it has remained steadfastly opposed to exclusives. In June 2016, the company hired Troy Carter, the founder/CEO of artist management firm Atom Factory and former manager of Lady Gaga, looking to bolster its relationships within the music biz. And the service continues to expand its offering of personalized playlists, widely seen as the most intuitive out there. The company has also branched out into video, entered the Japanese market, and swiped right for a partnership with Tinder.

Cons: Spotify’s growth hasn’t translated into profits. The company posted a net loss of nearly $200 million in 2015, the most recent year for which numbers are available. Plus, Spotify is in the midst of negotiating new licensing contracts with the majors, so its bottom line going forward is less than certain. And debate still rages over the platform’s payouts to songwriters and publishers for the use of songwriters’ compositions, which are legally separate from the royalties they pay labels for the songs’ recordings. A year ago, artist rights advocate and Camper Van Beethoven frontman David Lowery sued Spotify for copyright infringement; the case is still ongoing.

What’s Next: Spotify’s most crucial challenge will be going public. The company is under a time crunch because of the deal terms for the $1 billion in convertible debt it raised in March, which encourage it to make an IPO sooner rather than later. “If [the IPO] hasn’t happened by this time next year, then something hasn’t been going right,” says MIDiA Research’s Mulligan. Separately, Spotify has reportedly been considering buying SoundCloud, an acquisition that would potentially further entrench the company in the streaming marketplace, but the price would have to be right. Spotify clearly remains the streaming service to beat, but it will soon have to convince Wall Street that its model can eventually turn a profit.

Pros: Apple Music solidified its role as the No. 2 subscription on-demand streaming service this year, making up for its lack of market dominance with an emphasis on artist exclusives—and Apple’s massive cash hoard should make profitability less of an immediate concern. In September, the company announced that Apple Music had acquired 17 million subscribers since launching in June 2015. A redesign with the new iOS 10 operating system went after Spotify’s home turf—algorithm-based, personalized playlists—with additional features. Most significantly, Apple had the initial exclusive on several of the year’s most commercially—and, in some cases, artistically—successful albums, from Drake’s VIEWS to Frank Ocean’s Blonde/Endless twofer.

Cons: There’s a dark side to exclusives, too. After Ocean followed his contract-fulfilling Endless visual album with the self-released Blonde, both at first available only on Apple Music, Universal Music CEO Lucian Grainge put a kibosh on his company doing any more single-platform, global streaming exclusives. And Apple can often appear either unwilling or unable to avoid angering music fans (and artists), from its elimination of the iPhone headphone jack, to Apple Music’s clunky interface, which led to Bon Iver’s Justin Vernon tweeting in July that it was a “literally horrid platform.” There were other artist-related snafus: Apple featured Shamir in an ad, then used a Shamir soundalike in another commercial; ANOHNI has complained that taking Apple’s money for the “Drone Bomb Me” video made her feel “like a house cat that had been declawed.” Though having the Beats team of Jimmy Iovine, Dr. Dre, and Trent Reznor on board was supposed to position Apple Music as artist-friendly, the company still has a ways to go in keeping artists happy.

What’s Next: Apple will keep doing exclusives, Iovine has said. And despite the service’s initial trumpeting of its human curators, more algorithm-based playlists are on the way. Apple was too late to streaming to hold anything like the stranglehold iTunes had over downloads (at least, not yet). Instead, Apple Music’s battle with Spotify may be more like the Mac vs. PC debate: a corporate presentation of chic tastefulness versus an ostensibly techier rival.

Pros: SoundCloud is at a crossroads. The mostly free streaming site claims to attract 175 million monthly listeners. In March, the company launched a paid subscription service, Soundcloud Go, and it’s reportedly under consideration as a takeover target for Spotify.

Cons: In recent years, as SoundCloud has cleaned up its offerings amid the label deals that led to SoundCloud Go, the site has lost some of the Wild West allure that originally made it a preferred destination for DJs and artists. Apple and Spotify have both struck deals this year with a company called Dubset, which should enable these services to offer some of the unofficial remixes and multi-song DJ mixes that had been SoundCloud’s distinguishing feature. And it’s surely possible that talk of a Spotify deal could be just that—talk.

What’s Next: If SoundCloud doesn’t sell to Spotify, it could still end up in the hands of another bidder—the company was reportedlyconsidering a $1 billion sale as recently as July. And investors like Twitter, which poured $70 million into SoundCloud earlier this year, will eventually be looking to cash in on an exit strategy.

Pros: Pandora may be a newcomer to on-demand streaming, but the company is a pioneer of streaming music more generally. It counted 77.9 million active listeners in its most recent earnings period, mostly for its free service. This year, Pandora announced that its personalized Thumbprint Radio had reached more than 5 billion spins since launching in December 2015. The company is also out in front of the industry’s efforts to hook subscribers who aren’t willing to pay $10 a month for music, recently relaunching its $4.99-per-month radio subscription service. The company’s basic conceit—a hands-free, personalized listening experience—is one that Spotify and Apple have been moving toward.

Cons: Pandora’s total user count has fallen 2 percent since last year. And so far it has only been able to acquire about 4 million paid subscribers.

What’s Next: In September, Pandora executives said the company could release its on-demand service as early as this month, though January may be more likely.

Pros: Though less known in the United States, Deezer has been one of the more successful streaming companies in Europe. It’s similar to Spotify and other on-demand platforms, right down to a feature that promises users a “personal soundtrack” based on algorithms, music experts, and listening context. The French company has been quiet about its numbers lately, but it has said that as of mid-2015 it had 3.8 million revenue-generating subscribers, whether through standalone subscriptions or bundling deals from wireless service providers. In January, Deezer raised about $100 million in funding from Warner Music parent company Access Industries, giving at least one of the three majors a vested interest in its survival. In July, Deezer officially launched to all U.S. listeners.

Cons: Deezer’s U.S. invasion has been a long time coming (Spotify arrived stateside in 2011). And its sales pitch may confuse: The company previously soft-launched here in recent years as a high-resolution audio service for Sonos users, a “mass-market” service for Bose users, and as a bundled tie-in for Cricket Wireless prepaid phone plan customers. In 2015, Deezer became the first of the on-demand streaming services to file for an IPO, but it abandoned the plan due to “market conditions.” In August, only a month after Deezer went wide in the U.S., its North American CEO left to run a weed vaporizer company. Even antitrust authorities have expressed doubt that Deezer’s ties with Warner Music will give it much of a leg up in the crowded streaming marketplace. And like most streaming services, Deezer isn’t exactly profitable: It disclosed losing about $13 million in the first six months of 2015, the most recent period available.

What’s Next: Deezer has some breathing room, as the company recently renewed a lucrative partnership with French telecom company Orange for another two years. Ultimately, though, the service will need more listeners to sign up for standalone subscriptions, which tend to generate more revenue than phone bundles. Where those subscribers will come from, however, remains to be seen.

Pros: Bandcamp isn’t a streaming service in the sense of Spotify or SoundCloud, but streaming through its website is a great way to discover—and, Bandcamp hopes, eventually buy—music that’s too far afield for playlist algorithms and even human playlist curators. Bandcamp, which takes a 15 percent cut on digital sales and 10 percent on physical merch, says it has been profitable since 2012 and has helped fans pay artists $186 million to date. Acts nurtured on the platform, including Mitski, Car Seat Headrest, and Alex G, saw new levels of success this year, and the service has added legacy content like the Dischord Records catalog. The site also received a favorable profile in The New York Times as a possible “Holy Grail of online record stores,” and hired an editorial staff to bolt on at least some of that expert-curation component. (Full disclosure: Some of Bandcamp’s editorial staff members are Pitchfork contributors.)

Cons: Digital download sales keep dropping overall. As the Times noted, Bandcamp also faces the risk that, as it helps direct listeners to new music more purposefully, its once-defining pleasure of randomly stumbling across, say, Sebadoh co-founder Eric Gaffney’s unreleased material, or a no-fuss EP by a beloved indie-pop bandleader, could be lost.

What’s Next: The company appears to be hunkering down in its enviable position as, in its apt words, an “alternative” to the subscription-based streaming giants. “As long as there are fans who care about the welfare of their favorite artists and want to help them keep making music, we will continue to provide that direct connection,” Bandcamp wrote in a blog post this year. “And as long as there are fans who want to own, not rent, their music, that is a service we will continue to provide, and that is a model whose benefits we will continue to champion.”

Pros: Google’s parent company Alphabet has two plays on music streaming. One is Google Play Music, which is a full-on music streaming subscription service similar to Spotify. The other is YouTube, the giant video site, which in addition to its free, ad-supported level also offers an ad-free YouTube Red subscription service. Though Alphabet hasn’t broken out subscriber numbers, YouTube’s biggest strength is the sheer reach of the free service. A U.S. survey earlier this year showed more music consumption via YouTube than with any of the music-only services, a finding that was especially pronounced among younger listeners. In September, YouTube named record mogul Lyor Cohen as its global head of music, a move that could help mend the company’s relationship with the industry.

Cons: YouTube, like other streaming services, generates few if any profits. Its battle with the music industry could also weigh further on its bottom line, especially if fed-up artists and listeners move toward less controversial listening platforms. Of course, for as long as the price is free, that’s a big “if.”

What’s Next: YouTube’s chief business officer, Robert Kyncl, told me earlier this year that “what’s next is more ad revenue.” Alphabet has the resources to play a long game here.

Pros: Tidal, like Apple, has largely sold itself on exclusives, including Kanye West’s The Life of Pablo and Rihanna’s ANTI; West’s periodic updates to Pablo challenged the definition of the “album” itself. In May, Tidal said it signed up 1.2 million new users during its first week exclusively streaming Beyoncé's Lemonade, adding to the 3 million paid subscribers the service claimed in March. Plus, Prince’s invaluable catalog is, with minor exceptions, Tidal-only. There’s also the matter of artist ownership, not only in the form of Jay Z, whose business group acquired Tidal’s parent company last year, but also its announced co-owners, including Beyoncé, Kanye, Arcade Fire, Daft Punk, and Jack White. Tidal has also claimed to pay the highest royalty rates of any subscription streaming service and, unlike its main rivals, offers a high-resolution audio subscription alongside its standard streaming service. Further distinguishing Tidal, the company has announced donations to Black Lives Matter and other nonprofit social justice groups. And former SoundCloud exec Jeff Toig, who became Tidal’s third CEO in eight months when he was hired last December, has stayed at the helm throughout the year.

Cons: Tidal’s parent company recently disclosed a $28 million loss for 2015, more than double the $10.4 million it lost in 2014. It’s the subject of multiple legal actions. Rihanna’s ANTI notoriously appeared on Tidal early by mistake. And Apple’s Iovine has dismissed reports that his company might be negotiating to acquire Jay Z’s service.

What’s Next: Even if Beyoncé is able to release a headline-grabbing visual album every year, Tidal clearly has some catching up to do if it’s to remain an artist-owned company.

Pros: Amazon has already quietly become a leader in paid music streaming, at least technically. Although the company doesn’t disclose subscriber numbers, customers who sign up for its Amazon Prime service have access to Amazon Prime Music, which arrived in 2014 with a limited catalog. According to market researcher Parks Associates, 15 percent of U.S. broadband households subscribe to Prime Music, versus 7 percent for Spotify Premium, 5.9 percent for Pandora’s paid tier, and 2.7 percent for Apple Music. The new Amazon Music Unlimited service offers an expanded catalog similar to those of its rivals and, for Prime members or owners of Amazon’s voice-activated Echo speaker, comes at a discount to the other subscription streaming services. As for exclusives: Amazon is the only place you can legitimately stream Garth Brooks. “The streaming services so far are doing a really good job of [appealing to] the really engaged music consumer who gets why paying 10 bucks a month for a subscription is worthwhile for them,” says Russ Crupnick, founder of research firm MusicWatch. “Amazon looks like they’re trying to get to the more casual music consumers.”

Cons: Tools like Amazon’s Alexa may not have the greatest taste in music. For example, saying “Alexa, play that song that goes ‘put up a parking lot’” has been reported to result in the speaker playing Counting Crows’ cover of Joni Mitchell’s classic “Big Yellow Taxi.” And Amazon’s lower prices for streaming subscriptions may lead consumers to expect to pay even less than they already do for music, further shrinking the pot that’s left for songwriters and musicians.

What’s Next: If Amazon has its way, Alexa will be taking many more questions. Amazon’s vice president of digital music, Steve Boom, has said that music streaming’s next phase of growth will come via connected smart devices in the home. Alexa, where did we leave our smartphones? Never mind, we won’t need them anymore.

Pros: Napster used to be Rhapsody, which has more experience than anyone else at subscription on-demand streaming music. The company, which had marketed itself abroad as Napster for several years, fully rebranded its U.S. operations as Napster in July as well. The company last claimed almost 3.5 million paid subscriptions. And sharing a name with a famous file-sharing service has its advantages: Metallica’s “return” to Napster made headlines in November, 17 years after the band sued the company’s less legally scrupulous predecessor. Plus, Napster has been on the deal-making prowl, recently announcing partnerships with Sprint, Lufthansa, and grocery chain Aldi. Most importantly of all, the business swung to a surprising $1.6 million profit for its most recent quarter, according to a regulatory filing.

Cons: Napster’s latest subscription figures, which date to December 2015, would still put it far behind Spotify and Apple Music. And in the longer term, it has continued to lose money, posting an $11.4 million loss for the first nine months of 2016.

What’s Next: The grandaddy of subscription streaming services will need to prove it can still compete today. The company named a new CEO in April, and confirmed a round of job cuts in June. As with the old Napster, streaming is a tough business.





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