Market research company The NPD Group's new study shows people are using Internet radio and on-demand music services more, and that growth seems to be cutting into time spent listening to CDs, broadcast radio, and music downloads.
NPD says fully half of U.S. Internet users 13 and older -- 96 million people -- listened to music on a Net radio or on-demand music service within the past three months.
Internet radio's audience is up 27% year over year, NPD says, while the on-demand music audience is up 18%. This growth coincides with a drop in the number of consumers who listened to music on CDs (down 16%), music on AM/FM radio (down 4%), and downloads (down 2%).
"Although AM/FM radio remains America’s favorite music-listening choice, the basket of Internet radio and streaming services that are available today have, on the whole, replaced CDs for second place. We expect this pattern to continue," said Russ Crupnick, senior vice president of industry analysis at NPD.
By the way, to the point of faster growth of Internet radio listening compared to on-demand serivces, remember that many of these services have been adding their own customizable radio features. Spotify, Xbox Music, MOG, Rdio (which just partnered with The Echo Nest on this) all offer "Pandora-style" custom streaming radio... and the industry awaits a rumored Apple entrance into the space.
NPD's findings come from its "Music Acquisition Monitor." They say since 2009, "the percentage of Pandora users who also listened to AM/FM radio declined by 10 percentage points, those listening to CDs on a non-computer device fell 21 percentage points, and listening to digital music files on portable music players also dropped 21 points." [See the chart. The lime-green line is AM/FM, CDs on a non-computer device is gold, and digital music files is the lighter blue.]
Which stands to reason, as Internet radio usage continues to migrate away from being a "desktop-only" experience. NPD says, "34% of Pandora users are now listening to music on the service in their cars -- either connecting through an in-car appliance, or listening via car-stereo-connected smartphones or other personal listening devices."
And one final note -- and this goes to the heart of the question of whether Internet radio and similar services offer promotional benefit to artists and labels: These music streaming consumers "noted a significant positive effect on their overall discovery and rediscovery of music. In fact 64% of these services’ users reported rediscovering older music, and 51% were learning about new music."
This is important because as Pandora and the webcast community struggle with sound recording royalties amounting to most (or all) of their revenues, the rationale for broadcasters' immunity from these royalties has been the traditionally-accepted notion that radio play is "promotional" for labels and performers. The music industry -- the beneficiaries of net radio royalties -- have argued that streaming radio offers no promotional benefit.
Crupnick adds, “AM/FM radio has traditionally played a significant role in helping consumers learn about new music from well known artists, as well as finding new ones; however, Pandora and other music services are an increasingly important part of the music-discovery process."
Of course, if time spent with Internet radio and on-demand services is truly cutting into time spent with more traditional modes of music listening, some will argue that people will begin purchasing less music. So, while the promotional power of newer services might not help record labels, keep in mind that record sales for all but the luckiest few of performers have never been a significant source of revenue. Newer online music services then could still offer promotional benefit to artists who earn money via touring, licensing, merchandise sales, and more.