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US streaming revenues overtake CD sales

Taylor Swift
Getty Images
Taylor Swift

Streaming music services such as Spotify have eclipsed CD sales and are closing in on digital downloads as the largest source of revenue in the music industry's biggest market, according to new data from the Recording Industry Association of America.

US revenues from subscription streaming brands such as Spotify and Rhapsody and streaming radio services including SiriusXM hit $1.87 billion in the US in 2014, a 29 per cent increase on 2013 and equivalent to 27 per cent of total music industry revenues.

Sales of CDs slipped 12.7 per cent to $1.85 billion, even as the decline in total sales of physical formats was cushioned by the renaissance of vinyl records, which accelerated in 2014, with a near 50 per cent jump in sales of LPs to $315 million.

Downloads have been the US music industry's largest source of digital revenue for a decade but they peaked in 2012 and have been in decline ever since. In 2014 download revenues fell 8.7 per cent to $2.58 billion, equivalent to 37 per cent of total industry revenues.

"The music business continues to undergo a staggering transformation," said Cary Sherman, chairman and chief executive of RIAA. "Record companies are now digital music firms, earning more than two-thirds of their revenues from a variety of digital formats."

Read MoreMusic downloads fall as streaming, vinyls surge

The growth of streaming has sparked a new power struggle in music between the creators of music and the companies that distribute it. Taylor Swift, pictured above, pulled her music from Spotify late last year following a dispute about its free service, which it uses to attract paying users.

Music labels such as Universal Music Group are also pushing for the company to amend its free tier because they think it is overly generous and is not converting enough users into paying subscribers. Spotify, meanwhile, has insisted that the free service is an essential and necessary marketing tool.

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Income from advertising-supported free streaming grew slightly in 2014 to $295 million in the US and continues to represent a relatively small proportion of industry revenues, compared with downloads. However, revenues from streaming radio services, such as Pandora — which are collected and distributed by SoundExchange, the digital rights agency — grew sharply from $590 million to $773 million.

All physical music sales together — including CDs, vinyl and music videos — slipped below a third of the industry's total revenues for the first time, falling from 35 per cent to 32 per cent.

Across the US music industry, retail revenues were flat for the fifth year in succession at $6.97 billion.