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Big labels cash in on streaming services, as downloads continue to drop

Those millions of music streams are slowly turning into a tidal wave of cash for record labels. During a recent Warner Music Group earnings call, WMG’s CEO Stephen Cooper revealed that WMG’s music streaming revenue increased by 74 percent from last year, while digital downloads continue to slide, decreasing by 12 percent over the same time.

According to a report by Re/Code, Cooper informed investors that music streaming “more fully captures the true demand for music.” His assessment rings true for the entire music industry as well. In the first half of 2014, music streaming revenue for the music industry was up by 42 percent while digital download sales overall decreased by 12 percent over the same time last year, according to Nielsen’s latest report on U.S. digital music consumption.

Related: Pharrell awarded BBC Song of the Year, most streamed song by Spotify for “Happy”

Cooper and WMG have been riding the streams all year into new ventures. The label inked a partnership deal with Soundcloud last month in which WMG shares in royalties for its artist’s songs that stream on the ad-supported portion of the service. The deal also worked out royalty terms for Soundcloud’s upcoming subscription service. Last September, WMG also signed a deal with iHeartRadio to get additional promotion for WMG artists and a share of ad revenue in exchange for lower payments of royalties for the digital radio service. WMG has seemingly got the best of the iHeartRadio deal. Clear Channel CEO Bob Pittman informed Mercury News he hopes Clear Channel gets a “payoff” from the deal soon and can “build a digital marketplace in which everybody wins.”

It’s no surprise that major labels like WMG favor the subscription service model that brings in direct cash from each user, rather than ad-supported services. Cooper is so bullish on the revenue potential of music streaming that he even reasoned that the freemium music streaming model is beneficial, as long as it leads to more lucrative subscription-based streaming. Freemium is a term used to describe on-demand music streaming services with an ad-supported free tier along with a premium paid subscription tier. In the first half of 2014, those free ad-supported tiers grew in revenue by 57 percent compared to the same time last year, according to data from the RIAA.

Subscribing to the tried and true crack cocaine sales method of giving customers the first taste for free, Cooper said the freemium model “provides the means for consumers to discover the advantages of the premium offerings, and thus, leads them to become paying subscribers.”

With YouTube and Soundcloud prepping paid subscription services, along with other well established subscription services from Beats Music, Spotify, and Pandora, Warner Music Group is ready to “turbo-charge the adoption rate for subscription streaming,” according to Cooper. So, don’t expect artists like Bruno Mars to pull a Taylor Swift.