The U.S. Paid Music-Streaming Market Is Booming, Thanks to Apple and Spotify

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Paid music streaming has been helping the U.S. music industry bounce back, as consumers continue to flock to the streaming subscription model. Apple (NASDAQ: AAPL) reportedly overtook Spotify (NYSE: SPOT) in the U.S. market earlier this year, though both companies should have roughly comparable subscriber bases in the U.S. Spotify discloses a geographical breakdown of its subscriber base, and had over 25.7 million premium subscribers in North America (including Canada) at the end of the second quarter.

Overall, the U.S. paid music-streaming space just hit a major milestone.

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51 million and counting

Billboard reports that there are now approximately 51 million paid music-streaming subscribers in the U.S., citing data from MusicWatch. On top of those subscribers, there are an additional 29 million users that are either on free trials or have a bundled music service like Amazon Prime Music. (The e-commerce giant recently said it has "tens of millions" of paid music subscriptions globally.) Apple and Spotify each have roughly 20 million subscribers in the U.S.

There's also another 20 million users that share an account with a paid subscriber, according to MusicWatch, and another 157 million users that stream music for free. Spotify has 30.1 million ad-supported users in North America. Smaller rival Pandora has 65.4 million free users and 6 million subscribers in the U.S. The U.S. has a strong conversion rate of free users upgrading to paid plans, so service providers have ample opportunity to convert all those ad-supported users to paid subscribers.

For what it's worth, the RIAA estimates that there were an average of 35.3 million paid subscriptions in the U.S. last year, but that's an average for the year, so the number of paid subscriptions at the end of 2017 would be higher than that average.

Growing the market

MusicWatch's data also shows why people decide to upgrade to paid plans, with the strongest value propositions being unlimited access to on-demand music combined with no ads.

However, the research suggests that content discovery is not a meaningful driver of subscriptions, even as Spotify argues that content discovery -- best exemplified by its popular Discover Weekly feature -- is a key differentiator and competitive advantage over rivals, including Apple. Content discovery is also part of why Apple just acquired music recognition service Shazam.

On the July earnings call, Apple CEO Tim Cook argued that investors are focusing too much on competition between Apple and Spotify, which is misplaced. "The key thing in music is not the competition between companies that are providing music," Cook said. "The real challenge is to grow the market."

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple and Spotify Technology. The Motley Fool owns shares of and recommends AMZN, Apple, and P. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.