Streaming Music Jumps 24% Ahead of "iRadio" Launch

Music sales may hurting, but as far as streaming music goes, the numbers are soaring.  In the first six months of 2013, streaming music was up 24 percent to nearly 51 billion streams, while overall sales of albums were down 4.6 percent over a year ago, to 210 million units, according to Nielsen.  That’s music to Apple’s ears as the tech giant readies to launch its iTunes streaming music service.

“Overall sales are down slightly in the first half of 2013, but there continues to be encouraging growth in digital album sales” says David Bakula, SVP Nielsen Entertainment.

Nielsen said that digital albums now comprise 43 percent of all album sales, up 38 percent at the same time last year.  Digital albums are up 6.3 percent while digital tracks are down 2.3 percent, Nielsen said.  CD sales declined 14.2 percent and Vinyl LP sales continued their trend higher, up 33.5 percent.  Collecting vinyl is becoming a trend among college-age students and the under-30 crowd and companies are complying with the trend, producing newly released albums on vinyl.  The leaders there were bands Daft Punk, Vampire Weekend and Queens of the Stone Age.

One interesting trend is the big role that video is having in the streaming music business.  This is apparent when you look at the top ten streamed songs.  “Harlem Shake,” the track by Baauer, had more than 438 million streams as the video went viral with different renditions being posted on YouTube.

More companies are finding their own ways to make money on the rise of streaming music by introducing Pandora-like services.   Apple is planning its own streaming music service coined “iRadio” which it plans to take head-to-head with Pandora and Spotify.  However, record companies are demanding higher royalties and guaranteed minimum payments which could make capitializing on the service more difficult.  Recently, Pandora founder Tim Westergren was in the hot seat after Pink Floyd published an editorial in USA Today that criticized Pandora for not paying artists fairly.

Apple reportedly intends to pay royalties to labels based on a blend of how many times listeners hear their songs and how much advertising Apple sells, according to The Wall Street Journal.

During iRadio’s first year, Apple will pay a label 0.13 cents each time a song is played, compared with 0.12 cents Pandora pays labels per listen on its free service.  Apple will also pay labels 15 percent of net advertising revenue, proportionate to a given label’s share of the music played on iTunes. In the second year, that bumps up to 0.14 cents per listen, plus 19 percent of ad revenue, The Wall Street Journal reported.

Apple reportedly won’t have to pay royalties for some performances of songs that are already in listeners’ iTunes libraries, or songs that might be on an album that a listener owns just part of.  “Heat Seeker” tracks selected by iTunes for special promotions, are also exempted. Apple also doesn’t have to pay for songs listeners skip before 20 seconds have elapsed. The company only gets to avoid paying royalties for two songs per hour for any given user, the paper said.

Apple is hoping that its iRadio will encourage listeners to buy the tracks they like at the iTunes Store and help increase sales of iPhones, iPods and other products.  They are also expected to use the new service to develop their iAd system, a mobile advertising system that allows third-party developers to embed their apps with ads, the paper said.