Ad-based music streaming revenue will exceed $1bn by 2017 despite a decline in freemium services

Ad-based music streaming appears to be stronger than ever with forecasts predicting it to exceed $1bn by 2017 despite declining numbers of players offering ‘freemium services’.

A new study by Juniper Research has revealed that ad-based music streaming will have generated $782m in 2015 and that figure will increase to $1bn by 2017. The increase is attributed to an accelerating shift in consumer behaviour with listeners increasingly opting for streaming over downloading as well as a number of new players entering into the world of music streaming.

Apple Music has the potential to be one of the main drivers behind the positive forecasts due to it featuring ads in its paid for subscription. Last month McDonald's, Nordstrom, Home Depot and Walgreens all had ads on the service which were both audio and visual.

The download market, which has long been at the forefront of digital transformation, experienced its first decline in 2013 when music industry analysts, Nielsen SoundScan, reported that digital annual track downloads had shrunk by 5.7 per cent. The decline accelerated last year with the Recording Industry Association of America reporting US sales of digital music singles and albums fell 11 per cent and 14 per cent respectively during the first six months of 2014.

Year-on-year improvements in broadband coupled with cheaper smartphone contracts with less memory are also funneling people towards streaming music services, thus increasing the numbers of people migrating to streaming is boosting ad-based revenue.

In April this year Spotify announced that its advertising revenue grew 380 per cent in the first quarter compared to the same period last year. This was helped by growing numbers of users towards the end of last year which brought its user base to around 60 million, 45 million of whom were on the ‘freemium’ service which includes ads.

This may not necessarily remain the case for long though. Spotify recently revealed it would change the model of its non-payment subscription service by restricting some content exclusively for paying users. This follows on from chat topping musicians such has Taylor Swift who removed her music from the platform earlier in the year because she said the streaming service’s free plan was unethical for artists.

The report highlights that freemium services across the board appear to share the same mind set, evident in the likes of Apple Music and Amazon Prime who offer only basic radio style features in their free services which include ads. This curbed experiences alongside revered artists like Taylor Swift calling for fairer deals for struggling musicians is likely to help the streaming services channel users into paid for subscriptions.

Joe Crabtree, author of the report said that with convenience, accessibility and curation becoming the “defining elements of the music landscape, the potential of the streaming industry will revolve around the levels of which providers can convert free customers to paying customers.”

The trend towards streaming is unquestionably having a negative effect on conventional radio such as BBC’s Radio 1 which the Guardian reported in June was coming to terms with its lowest audience ratings for more than a decade. The UK's Media briefing report released earlier this year found that overall time spent listening to radio is falling, and the biggest decline is in commercial radio.

Get The Drum Newsletter

Build your marketing knowledge by choosing from daily news bulletins or a weekly special.