Apple's decision to create a new streaming service called Apple Music is a recognition of just how much the music business has changed over the past decade. A decade ago, it was widely assumed that people would build collections of digital music just as they previously built collections of records and CDs. Apple was at the forefront of that change, with Steve Jobs convincing record labels to sell their songs for just 99 cents.
But we now know that this whole way of thinking about the music business was wrong. Customers don't want to buy music, and they don't want to build music collections. Smartphones allow something much better: services that allow unlimited streaming of millions of songs. These services are rendering traditional music ownership obsolete.
A decade ago, the iPod and iTunes seemed like the wave of the future. But it's now clear that they were just an awkward transitional stage between the physical formats of the 20th century and the streaming media services that will dominate in the future.
Music purchases are declining
As recently as 2012, analysts were predicting that paid music downloads would continue growing — albeit slowly — for the foreseeable future. But that's not how things have worked out. In 2014, revenues from music streaming services surged, but paid song downloads in the US actually fell by 12 percent. Globally, downloads declined by 8 percent in 2014.
Digital downloads appear to be on the same trajectory as CDs, only with a 15-year lag. As this chart from CNN shows, sales of CDs peaked around the turn of the century and have been steadily declining since then. Paid digital downloads soared in the decade after the iTunes Music Store was introduced in 2003, but they've now leveled off:
A key thing to note about this chart is that despite all the hype about digital downloads, they've never come close to offsetting declining CD sales. People just spend a lot less money buying music than they used to.
Smartphones are killing music ownership
There are two big ways the rise of the smartphone is leading to the death of music ownership.
One is the popularity of music streaming services. In the pre-smartphone era, music streaming services weren't that useful because you could only use them when you were near your computer. So people bought iPods and filled them with music so they could listen to it on the go.
But today's streaming services work on smartphones that can access the internet wherever they go. There's little reason for users to have their own copies of the music they love. They can just call up songs they want to listen to on demand.
Another trend that's been bad for music ownership is the growing number of users who don't own a PC. People used to keep their music on their PCs and transfer it from there to their iPods. When people bought a new PC, they'd transfer the music library from the old computer to the new one.
That's not very practical on a smartphone, which doesn't have the sophisticated file-management tools of a conventional PC. When people buy a new smartphone, they expect to be able to just throw the old one away.
People can sign up for cloud-based storage services from Google, Amazon, and other companies to synchronize their music from one device to another. But managing these services is a bit of a hassle, especially if you have to do it entirely on a smartphone. And if you're going to rely on an online service to manage your music, why not just use a service like Spotify or Pandora that already has every song you could possibly want to listen to?
Buying music is for old people
Like most technology trends, the shift from owning music to streaming it has been led by young people. A 2011 survey found that almost half of people between the ages of 16 and 24 used streaming services, compared with less than a quarter of 55- to 64-year-olds:
The ubiquity of streaming services means that today's teenagers have no reason to get into the habit of buying music. "I haven't seen someone use iTunes in a really long time," one college student told CNN in 2012. So as the Spotify generation comes of age, the fraction of consumers buying digital downloads will continue to shrink.
Countries with the best internet access do more music streaming
Another sign that the shift toward music streaming is permanent: some countries are way ahead of the United States.
Overall, downloads still accounted for a slight majority — 52 percent — of digital revenues. But in some countries, streaming has become the dominant revenue source for music labels. In Sweden and South Korea, streaming accounts for more than 90 percent of industry revenues.
It's probably not a coincidence that streaming is most popular in South Korea and the Scandinavian countries of Sweden, Norway, and Finland. These countries have long been among the world's leaders in the speed and availability of high-speed internet access. And streaming services depend more on ubiquitous and high-quality internet service than downloads do.
This suggests that as other countries, including the United States, improve the quality and availability of their internet access, we'll see a similar shift away from music purchases in favor of streaming.