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Ad-based music streaming far from dead, research shows

Revenue from "freemium" music-streaming services is expected to surpass $1 billion by 2017, according to Juniper Research. Ultimately, they may also persuade more users to pay for subscriptions.

Ads or not, streaming music appears to be on a path to serious growth, Juniper Research data shows. Lexy Savvides/CNET

Apple Music's subscription-based music-streaming offering won't prove to be much of a detriment to ad-supported music listening, new data from Juniper Research shows.

Revenue generated from ad-based music streaming is expected to hit $782 million worldwide this year, and jump to more than $1 billion in 2016, the research firm said Tuesday. Still, these services -- sometimes called "freemium" because they are free to use but make money on advertising -- could ultimately boost the number of users who eventually opt for subscription-based services.

"The new research found that while freemium services will continue to entice a growing number of users, the model will enjoy a greater influence in funneling consumers towards the more profitable subscription options," according to a statement from Juniper Research.

The research is undoubtedly heartening to companies that operate ad-based subscription services. After Apple announced its subscription-based Apple Music in June at the Worldwide Developers Conference, many have argued that the business model will ultimately guide the streaming business. While Juniper generally agrees with the sentiment, its data suggests ad-based music listening is far from dead.

The music-streaming business is generally broken into two categories: ad-based and subscription-based. Ad-based models, or freemium, provide users the opportunity to stream tracks, but every few songs, they must listen to audio ads. Subscription-based services, meanwhile, remove all ads in favor of monthly fees for access to music libraries. Unlike most freemium services that limit the number of songs that can be skipped, most subscription-based offerings do not limit song skips.

Several companies operate on both sides of the streaming space. Pandora, for instance, has a freemium model, as well as a $5-a-month subscription-based option. Spotify has a free, ad-supported offering alongside its $10 subscription service. Tidal, backed by artist Jay Z, and Apple Music offer subscription-based services that start at $10 per month. Apple Music, however, also allows for free access to the company's Beats 1 radio station without paying the monthly fee.

Whatever the method users choose, what is abundantly clear is that streaming music is here to stay. In March, the Recording Industry Association of America (RIAA) reported that for the first time, streaming-music revenue outstripped CD sales. The organization reported that in 2014, streaming-music revenue in the US reached $1.87 billion, just topping the $1.85 billion generated off CD sales.

Meanwhile, music downloads, the music purchases that typify Apple's iTunes store, are starting to erode. RIAA reported that music download revenue in the US hit $2.6 billion in 2014, down 8.7 percent compared to the same period in 2013.

Like Juniper's data, RIAA's report showed a strong ad-supported music-streaming industry, as revenue soared 34 percent to $295 million. Paid subscription services were up 25 percent to $799 million last year.

Looking ahead, subscription revenue is expected to soar, Juniper said. The company said Apple Music will "act as a major catalyst in driving the expansion of subscription-based streaming services." The research firm noted that the increasing popularity of subscription streaming will ultimately contribute to a "global decline" in download revenue. The company expects streaming revenue to overtake download revenue in 2018, marking the next major shift in how listeners consume music.