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Two Stats That Explain Why Apple Is Getting Into Streaming Music

Nielsen SoundScan and Billboard released their annual mid-year report on the state of the music industry. The data shows that streaming music and digital downloads are moving in opposite directions.

Posted on July 19, 2013, at 12:46 a.m. ET

If you want to know why Apple is launching a streaming music service this fall, look no further than the mid-year report on the state of the music industry published by Nielsen SoundScan and Billboard.

There, amid three pages of statistics that illustrate just how far the music industry's fortunes have fallen, are two data points that underscore a massive shift in how consumers listen to music digitally. Digital track sales for the six months ended June 30 fell 2.4% to 682 million downloads from 698 million in 2012. Conversely, audio and video music streams increased 24% to a staggering 50.9 billion. Streams were one of only three categories measured to show positive gains, along with vinyl albums sales, which were up 33.5% to 2.9 million units, and digital album sales, which gained 6.3% to 60.8 million units.

"Streaming continues to be a tremendous growth story," said David Bakula, SVP of Nielsen Entertainment.

The growth in streams is clearly taking the steam out of digital sales. Indeed, at the end of last year digital track sales gained 5.1% to 1.3 billion and digital album sales swelled 14.1% to 118 million. In just six months, digital track sales have swung to a loss and digital album sales growth has been slashed by more than half.

The move by consumers away from a la carte song downloads to a buffet of streaming music is nothing new, of course. The shift has been gradually taking hold for a while, as consumers increasingly view services like Spotify and Pandora that offer either free or subscription-based access to libraries of millions of songs on demand as a better value than paying 99-cents for each individual song.

What the mid-year numbers show, however, is that the shift to streaming is no longer occurring gradually. Quite the opposite, in fact, it is now taking place at warp speed.

For Apple in particular, there is no doubt that iTunes is still a huge and important business — in February the store sold its milestone 10 billionth song. But, as AllThingsD pointed out in April, growth in iTunes sales has slowed over the last two quarters.

Small wonder, then, that against the backdrop of those statistics, Apple decided to launch iTunes Radio. For the company to remain a force in music retail, it needs a streaming option to counter Pandora, Spotify, Clear Channel's "I Heart Radio" and others before it cedes them too much ground.

At the pace consumption is moving to streaming, though, the fall can't come soon enough.