RIAA: Consumers are shelling out for subscription music

Subscription services such as Spotify and Rhapsody can tell their critics to put a clamp on it. In 2011, revenue jumped 13 percent to $241 million, even as overall music sales rose barely at all.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
3 min read
The music labels pulled out all the stops when marketing Lady Gaga's "Born This Way." Here an advertisement covered the S train in New York City. Greg Sandoval/CNET

Here's a message that Spotify and Rhapsody will surely forward to the handlers of Adele, Coldplay, Tom Waits, Paul McCartney, and especially those guys in The Black Keys: Subscription music services saw revenue increase 13.5 percent last year, while the number of the sector's paying customers climbed 18 percent.

That's according to the Recording Industry Association of America, which yesterday released year-end music shipment statistics for 2011. The RIAA reported that subscription revenue went from $212 million in 2010 to $241 million last year. The number of users rose from 1.5 million to 1.8 million during the same period.

Translation: Spotify, Rhapsody, and to a far lesser extent the other subscription music services appear to be grabbing market share. Members of some well-known bands or their managers have criticized these services recently and have declined to distribute through them for allegedly failing to adequately compensate artists. The services have defended themselves by asking for a little patience.

After a decade of rampant file sharing, consumers are just starting to pay for music again. Any gains in the number of the sector's paying customers or revenue have been hard won.

Subscriptions and album downloads, which topped the $1 billion mark in revenue for the first time, helped overall sales see the first increase since 2004 -- albeit one that was only 0.2 percent.

The narrowest of increases after seven years of straight declines is something sure to be cheered by the four major labels. This is a sector that is half the size it was in 1999. Included in that ugly seven-year slide were a few years with some double-digit plunges.

What's driving the growth? Nobody knows for sure but there's no shortage of guesses, such as the aforementioned uptick in subscribers to music services; the massive popularity of singer Adele and her album "21;" the popularity of music featured on TV shows such as "The Voice;" and online and offline retailers heavily discounting music. In addition, this was the first full year since the once-popular file-sharing service LimeWire was driven out of existence.

Some of the other bright spots in the RIAA's report include digital performance royalties. That's the money collected from online radio services, such as Pandora, and satellite radio service Sirius. Revenue in this category jumped 17 percent from $249 million in 2010 to $292 million last year.

Synchronization royalties -- money paid to include songs in films and TV shows -- rose 4 percent to $196.5 million. Overall digital sales equaled physical sales for the first time ever.

Not surprisingly, CD sales continued to be a drag on revenue. Unit sales fell 4.8 percent while revenue dropped 8.5 percent.

One area that's left out of the count is ad-supported revenue, from companies such as YouTube and Vevo. According to music industry sources, the industry has yet to settle on a way to account for revenue generated by these services.

The RIAA's digital numbers. RIAA