Digital improvements power Online Music Revenue.

Online music services are beginning to find their financial rhythm, with revenue from subscriptions and advertising expected to hit $5.4 billion this year. That’s an 18.2% increase from a combined $4.6 billion in revenue in 2016, according to a new report by research firm Research and Markets.

In its “Internet Music Programmers 2016-2018: Ad-Supported and Subscription Listening Hours Chart a Monetization Groove” analysis, the research company says subscription services, which includes hybrid of ad-supported and paid services and SiriusXM Radio online revenues, will account for more than half of 2017 revenue, at $3.3 billion, while advertising, such as in-stream audio, visual and display ads, will contribute $2.1 billion.

The increases are a result of several improvements in the digital music industry, the report says, including matching audio CPMs across platforms, improving targeting and ad technology innovations. Services have also increased their ad loads per programming hour, adding to inventory and potential revenue.

As more players enter the market and more consumers sign up for free or paid plans, the online music industry is getting increasingly competitive. In the last year, iHeartRadio, Spotify, Pandora, Google Play, SoundCloud and Amazon Music have all added new paid services, including several lower-priced options, or created an ad-supported option. At the same time, mobile usage is surging, with more Americans using their mobile devices to stream music from radio broadcasters and pureplays. The report’s revenue projections include domestic services that may also have international operations.

“The mobile platform is contributing significantly to listening hour consumption, audience reach, and triggering a shift in consumption patterns,” the report notes.

While radio broadcasters offer streaming via their websites and mobile apps, most are also available through the aggregator TuneIn. While noting that TuneIn is a “bridge between audiences and broadcasters,” Research and Marketers did not include TuneIn listening in its analysis.

In a similarly bullish forecast, media analyst Jack Myers recently reported that pureplay services collected $1.92 billion in U.S. revenue last year and says that figure will grow to $4.11 billion by 2020. At the same time, terrestrial radio broadcasters’ digital revenue was $1.72 billion last year and is expected to grow to $3.15 billion by 2020.

Digital listening is steadily on the rise, with ad-supported and subscription listening up 9.2% in 2016. Ad-supported services are responsible for about two-thirds of listening hours and contribute 38% of revenue, with that share expected to surpass 40% by 2018, the report notes.

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