Is The Digital Transition The Record Industry’s Way Back to Revenue Growth?
January 26, 2016
Pierre Priot in Digital, Industry, digital, music sales

Now that year 2015 is over, it’s report & studies high time. For starters, Nielsen just put out its “U.S. Music Year-End Report” which focuses on three keys facts: sales are going down, streaming is going off the roof, Adele’s “25” has been breaking all records. [1]
But yet overall revenue fails to grow.

 

Record Industry revenue crisis, any way out?
 
This record industry revenue crisis is obviously far from being over. Is there a way out?
Well, there seems to be one, but you might not like it.
The point of running studies and gathering data is searching for patterns. There is one pattern standing out when compiling record industry sales data from various countries. Furthermore, comparing the current crisis to the previous industry breakdowns validates the pattern.

Every time the industry had to switch from one model/format to another, it went through a crisis. Massive sales drop. It occurred when cassettes were launched (remember the “home-taping is killing the record industry” campaign), then again when CD took over vinyl… and more recently when MP3 kicked in, and again with streaming. [2][3]

The current crisis is no Armageddon, it is a transitory evolution crisis. It may be one of toughest the industry when through, but it’s really the latest detour along the road. The end of the breakdown will occur as soon as the industry has completed embracing its digital age.

Market comparison

Among the most recent examples we may focus on the French, US, UK, Swedish or even Japanese markets.
 
French record industry syndicate SNEP discloses sales figures for 2015 first semester : physical sales keeps plunging down while streaming is taking a larger ratio of revenue, but yet fails to bring overall growth to the industry (down 6.2 %). [4]

France’s streaming market went up 43% compared to last year figures. Nevertheless France clearly fails to fully embrace the digital distribution model, with physical still making the biggest part of sales (57 %) ; this is obviously the best explanation for the french industry poor revenue.
 Additionally, download sales are also declining, bringing down the industry’s most profitable digital music business model revenues.

The stake here is clearly the french music industry’s ability to jump from one model to another — which was successfully achieved by Sweden or Norway, and brought back revenue growth to those markets.

In America, the RIAA latest report just confirmed this pattern for the US market which revenue remain stable compared to 1H of 2014 (actually it went down by 0.5%). In the US, digital revenue value accounts for 76% of the overall market, and amount is on the rise (71% last year). [5]

How about UK? Most recent Entertainment Retailers Association’s report describes 2015 as the best year over the past decade. UK music revenue went up 3.5% as digital now accounts for more that 50% of the industry revenue. [6]

Last outshining example: Sweden, home of Spotify, and vivid supporter of digital music consumption. [7]

In Sweden & Scandinavia, subscription revenues had made up to 65–70 percent of total recorded music income. [8]
How about music market revenue in those countries, you may ask? Stable by 2010, non stop growth since 2011. [9]

Quite the opposite, Japan, with a strong history with the physical format (Japan is the place where CDs hope they’ll end up when they’ll die), is the slowest market when it comes to embracing digital music consumption. In 2014, IFPI put the blame on Japan for the global record industry poor results, the rising sun country was facing then a 16,7% revenue drop. [10]

Evolve or die

I’m NOT calling for full-digital model adaption. I’m just stating a simple fact : everywhere the jump has been done, the industry made profit again. It has been proven right by all recent reports.

But that doesn’t mean indie artists or small labels will get a significant piece of that pie though? I doubt that.

Not to mention the music experience itself. 
What good can come up from a model that put record stores out of the picture?
Don’t get me started!

references:

  1. Nielsen — U.S. Music Year-End Report
     http://www.nielsen.com/us/en/insights/reports/2016/2015-music-us-year-end-report.html
  2. Offres Culturelles et leurs Economies — Distribution des contenus culturels
    http://www.culturemedias2030.culture.gouv.fr/annexe/23-fiches-culture2030-23-.pdf
  3. Publishing in the digital era | Bain & Company, Inchttp://www.bain.com/bainweb/PDFs/cms/Public/BB_Publishing_in_the_digital_era.pdf
  4. Marché de la musique enregistrée — les résultats du premier semestre 2015
    http://www.snepmusique.com/actualites-du-snep/marche-de-la-musique-enregistree-les-resultats-du-premier-semestre-2015/
  5. RIAA 2015 Mid-Year Music Sales and Revenue Numbershttp://riaa.com/media/238E8AC7-3810-A95C-44DC-B6DEB46A3C6E.pdf
  6. Entertainment Retailers Association — Entertainment scores its best year ever as music, video and games revenues surge through the £6bn barrier
    http://www.eraltd.org/news/era-news/entertainment-scores-its-best-year-ever-as-music,-video-and-games-revenues-surge-through-the-%C2%A36bn-barrier.aspx
  7. Fair Music — Transparency and Payment Flows in the Music Industry
    https://www.berklee.edu/news/fair_music_report
  8. Sweden: A Market Transformed. International — Federation of the Phonographic Industry.
    http://www.ifpi.org/sweden.php
  9. IFPI — Digital music report 2014
    http://www.ifpi.org/downloads/Digital-Music-Report-2014.pdf
  10. Reuters — Global recording industry optimistic despite revenue fallhttps://www.yahoo.com/tv/s/global-recording-industry-optimistic-despite-revenue-fall-135152102—sector.html?nf=1
Article originally appeared on Music Think Tank (http://www.musicthinktank.com/).
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