In the good old days of the CD boom, the music industry was all about the first week. Prime the pump with endless airplay on pop radio and MTV, blanket major markets with billboard ads and buy acres of promotional space in big record stores, with a crescendo toward the release date.
Even as digital downloads have started to supplant CD sales, a strong debut remains critical, particularly for the big stars. Witness Beyoncé's recent coup selling more than 1 million copies of her latest album during its first week in Apple Inc. AAPL -2.20% 's iTunes Store—using strong online buzz in place of normal promotion.
But as the industry starts to embrace digital services that let fans rent access to vast libraries of songs for a flat monthly fee, major labels may need to adjust their approach to marketing music, and perhaps to which artists they sign.
Spotify AB, Pandora Media Inc. P +3.10% and a host of less-known competitors pay record labels and artists every time a user listens to one of their songs.
So instead of trying to sell a $15 CD at Tower Records, or even a 99-cent download on iTunes, labels need to get fans listening to a given song or album for years to come.
Spotify set off a flurry of back-of-the-envelope math when it recently disclosed on its website that its average payments amount to tiny fractions of a cent per song.
Some pundits quickly concluded that a Spotify user could never listen to a song or album often enough to generate the same revenue that a download sale would.
But that missed the point.
Data reviewed by The Wall Street Journal showed that one major record company makes more per year, on average, from paying customers of streaming services like Spotify or Rdio than it does from the average customer who buys downloads, CDs or both.
The average "premium" subscription customer in the U.S. was worth about $16 a year to this company, while the average buyer of digital downloads or physical music was worth about $14.
Other data from the same company showed that in the long run, even many individual albums eventually make more money from streaming services than they do from downloads.
Underscore that phrase, in the long run.
The acts were identified in the data only with generic descriptors. When they first hit the market, all the acts' albums made more money from download or physical sales than from streaming.
It took 34 months for an album by an "indie rock/pop group" to make more money from streaming than from sales. An album by one "modern male R&B rapper" reached that juncture after just four months.
In both cases download revenue flattened as sales flagged, while streaming revenue continued to climb as people kept listening to the music.
Notably, pop acts, which tend to rely on heavy marketing, were the least likely to see the revenue from streaming services exceed sales revenue. That is because online listening—and therefore revenue—tended to level off for those types of acts at about the same rate as their sales.
In Sweden, where streaming subscription has overtaken downloading as the most popular method of acquiring music, the difference is more pronounced.
An average premium subscriber there is worth about $17.75 to the company, versus less than $4 for the handful of people who still buy music.
The lesson for record companies and artists appears to be: making disposable hits may once have been a viable business, but new technology could demand tunes built to last.
—Ethan Smith is The Wall Street Journal's bureau chief in Los Angeles. The Upshot is a business column by bureau chiefs around the globe that offers timely analysis of the industries they cover.
