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By Anne Steele 

The music industry's rebound continues as revenue in the U.S. rose significantly for two consecutive years for the first time since its 1999 peak, thanks almost entirely to the rise of streaming services.

Domestic retail revenue jumped 17% in 2017 to $8.7 billion, according to an annual report from the Recording Industry Association of America, a trade group for recorded-music companies. While that marks a return to the same level reached a decade ago, it is still 40% lower than the industry's high-water mark, $14.6 billion, as physical and digital format sales continue their long decline.

Music-streaming platforms -- responsible for almost all of the industry's growth -- accounted for two-thirds of revenue last year. That includes revenue from subscription services like those offered by Spotify Technology SA and Apple Inc.; digital radio services like Pandora Media Inc. and Sirius XM Holdings Inc.; and ad-supported on-demand streaming services like Alphabet Inc.'s YouTube. Revenue from those platforms altogether rose 43% to $5.7 billion.

Paid subscriptions, up 63%, were the largest contributor to growth during the year, bringing in more than $4 billion to make up 47% of the market. It is by far the biggest format of recorded music in the U.S. Revenue from ad-supported on-demand streaming services, meanwhile, rose 35% to $659 million in 2017.

The tally of subscriptions to full on-demand services ticked up 56% to around 35.3 million for the year, compared with 22.7 million in 2016, helped by the introduction of new services like Pandora Premium, iHeartRadio All Access and the first full year of Amazon.com Inc.'s Amazon Unlimited.

In 2017, a 6% dip in CD shipments weighed on physical formats, which fell 4% to $1.5 billion. But that is a lower rate of decline than in recent years, as vinyl's resurgence continues -- up 10% to $395 million. Revenues from physical products accounted for just 17% of the overall market.

Revenue from digital downloads -- previously a bright spot and the biggest contributor to revenue as recently as 2015 -- dropped 25% to $1.3 billion.

Still, the recorded music business is contending with what it calls the "value gap" in the amount of revenue it takes in from different forms of streaming. YouTube, in particular, has long been a bugbear for the music industry because it pays substantially less per song than Spotify or other pure-music services. The report released Thursday didn't single out the video-streaming giant by name, something the group has done in the past.

"The playing field remains unfairly tilted at the expense of creators and digital music services, resulting in a 'value gap,' the gulf between the amount of music being consumed and the compensation that platforms return to music creators for exploiting the music," says RIAA Chief Executive Cary Sherman in a blog post. "The economic consequences are real."

Mr. Sherman complained that terrestrial radio doesn't pay artists to air their music, and contended that satellite-radio broadcaster SiriusXM pays a "below-market rate."

The RIAA has thrown its support behind proposed legislation in Congress that would ensure all music platforms pay royalties on a market-based standard, among other reforms.

"Even as the shift to streaming powers the industry's recovery, the digital migration also exposes the growing gap in our core rights -- because, under current laws, not all platforms pay artists and labels fair rates reflecting market value for the use of their music," says Mr. Sherman.

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

March 22, 2018 14:42 ET (18:42 GMT)

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