Welcome to the future. Speak to music industry insiders and ask them for the big picture, and it all looks very different to ten years ago. The one thing that defines where we are now, compared to where we were then, is the change in people’s music buying habits. Most of the money made from music sales now comes from streaming. In the United States, the Recording Industry Association of America reports that it now accounts for three quarters of industry revenues.
In the first half of 2018, total revenues from recorded music grew by 10% to $4.6 billion – and streaming accounts for most of that at $3.4 billion, a huge 28% year-on-year increase. This includes Spotify, Apple Music, Amazon, TIDAL, along with internet radio services like Pandora, SiriusXM and ad-supported on-demand streaming services such as YouTube, Vevo, and ad-supported Spotify. The RIAA says that the most lucrative format for the music industry is paid subscriptions, with these growing by a third and bringing $2.5 billion into the industry coffers.
In other words, three quarters of recording industry revenue came from streaming, and three quarters of that from paid subscriptions. This is dramatically outperforming advertising-supported music streams, meaning that people want their own private world of music uninterrupted by commercial messages – even if it costs them money to get it. In other words, just as music buyers a generation ago would go to the music shop on the High Street to buy CDs, happy to pay money to get personal access to ‘their’ music, so the same thing is happening now online. It is interesting that this goes against the notion of free music that peer-to-peer sharing sites like Napster once promoted. The figures do show that advertising-supported services like YouTube, Vevo and the basic Spotify also grew, but nowhere near as fast as subscription services. Market research company Nielsen reports that the revenue from these made up only 11% of total streaming revenues.
Every time a new set of statistics comes out, people say “the writing is on the wall for Compact Disc”, and are then proved wrong. Yet in the United States at least, the venerable silver disc is now really taking a hit. The RIAA reports that shipments of physical products decreased by one quarter to $462 million in the first half of this year, which is a higher rate of decline than in recent years. Indeed revenues from CD specifically fell by 41% in this period, while vinyl LP sales crept up slightly by 13%. Physical music media made up just 10% of total industry sales. It’s hard to put a gloss on this, and shows that there’s a fundamental change in the way we consume music now taking place. Of course, CD still has a long life ahead of it, but it’s becoming more of a niche pursuit now – a status that it will have to get used to.
Further proof that streaming is now the only real game in town, is the decline of digital downloads – revenues fell 27% in the first half of this year to $562 million, which is the the lowest level in over a decade. The same pattern is apparent for individual track sales, down 28% year-over-year, and digital albums down 26%. This category now made up just 12% of total revenues for the first half of the year – nearly fifteen years or so later, the days of buying your favourite pop songs on iTunes Music Store are now fading away.
Although hi-fi buyers might feel more than a little nostalgic for the demise of Compact Disc, the US music industry doesn’t seem too saddened by it. Revenues were up strongly in the first half of the year and paid subscription streaming seems to be rebalancing the dynamics of the industry. Mitch Glazier, President of the RIAA, thinks this is a great opportunity, saying that record companies are helping to foster “a diverse streaming marketplace”, meaning there’s a good deal of choice for consumers in how they get their streamed music.
He points out that there is still work to do on music licensing legislation in the USA, but the basic picture is rosy. The challenge is of course to increase the number of artists available on streaming services, and to improve the breadth and depth of music – rather in the same way that even by the early nineteen nineties, there were still vast numbers of albums that had not yet gained a CD release. As streaming services improve, choice will get better and the take-up of streaming services should in turn increase even more.