How Streaming Affects Music Revenue Growth
By Mark Mulligan, cofounder of MIDiA, from Music Industry Blog.
The Dutch music industry trade body the NVPI has announced that recorded music revenues were up by 1.9% in the first half of 2013. This follows first half rises for Norway (17%), Sweden (12%) and Germany (1.5%) which in turns comes on the heels of full year growth in 2012 for markets such as Brazil, Sweden and Norway (all markets with strong subscriptions and ad supported sectors). This is undoubtedly positive news and indicative of the proverbial corner being turned. However it is still too early to draw definitive conclusions about the impact of streaming on music revenue (and let’s stop calling it ‘sales’, a tag that hardly fits on-demand subscriptions).
Music revenues have been in decline for so long that sooner or later the bottom has to be reached, else the market would diminish into obscurity. We are now somewhere close to that bottom but we need to be careful not to read too much into 1st half sales. Music revenue is heavily concentrated into the last quarter of the year due to festive period gifting. But gifting is becoming increasingly eaten away at by digital for many reasons, not least of which is that gifting an iTunes voucher just isn’t the same as actually giving an album. So if digital is able to sustain growth across growth markets for a second successive year then we can start talking about the sustained revenue growth potential of streaming.
Even if that growth is sustained though, another speed bump is on its way: the post-CD revenue collapse. The CD is still by far the world’s biggest music revenue source. If you strip out the US and UK, digital accounted for just one qyarter of global music sales in 2012. Viewing the music world through the Anglo-American lens can give a distorted view of things. In Japan, the world’s second biggest music market, physical accounts for 80% of revenue, in Germany, the fourth largest, it is 75%. Currently the trend in most markets is that many CD buyers are simply falling out of the habit of buying music rather than going digital. If that trend continues for a sizeable chunk of the music buyers that currently account for three quarters of non-US and UK music spend, then a big dip in revenues should be anticipated.
The fate of the CD is of course largely out of the hands of streaming services, but is nonetheless highly correlated. Streaming has taken root most quickly in the markets where the CD has already hit rock bottom. There are clear-cut cases of streaming helping tip these markets into growth but there are also plenty of markets with strong streaming where total market growth has not yet arrived (see figure). In some instances the scale of the decline of the CD market is just too big for digital to do anything about.
What is clear from this sample of markets though is that there is a large concentration of low streaming / low growth markets and very few low streaming / high growth markets. Where streaming has a low market share, revenue growth is usually negative. This does not necessarily indicate cause and effect but the correlation is nonetheless fairly compelling.
So some preliminary conclusions that emerge are:
- In markets where CD growth is slowing (often because the majority of the initial contraction period is over) streaming can tip markets into growth
- In markets with comparatively strong CD sales and / or download sales, total revenue is less likely to grow
- As we near the end of this first main phase of CD revenue decline, streaming’s contribution to digital will increasingly be enough to tilt markets back into modest growth
So while it is too early to say that streaming is saving music revenues, we are seeing the first signs that in markets with the right conditions, it can be enough to tip the balance.
Here’s what makes this so complicated to research and understand. Just taking the top 3 talked about in this post, Sweden, Norway, and Finland, we can find a couple of things that completely and totally confuse the situation:
First is Sweden, which is the capital of Spotify. With less than 10 million people, surely a company as widely known as Spotify is going to sway the numbers within their own country. Sports teams, companies, local music, and many other things work this way. Pride is a powerful revenue generator. Interestingly enough, Sweden is also the capital of something else. The Pirate Bay. Which was founded there in 2003. To confuse the situation even more, Ek, born in Sweden, was the CEO of uTorrent. Who really knows what drives that country’s interests.
The second one is Norway. 2 things here. One is the music industry in Norway has been growing steadily since the late 90s. Well before streaming took off. But interestingly enough, right around the time of broadband, which was about 2000. Also, ISP’s have no restriction on download amount. Two, Norway’s music industry is subsidized by the government to the tune of about 30%. This means grants, education, etc. Which could easily be driving the increased interest in music.
The third one on the list is Finland. This one is extremely interesting. Take a look at these 2011 music industry revenue totals http://cl.ly/image/3T0b3U0Q4300. Live music represents half of the revenue and government subsidies represent about a third (just like Norway). And even crazier, royalties generated more revenue that actual sales of recordings. Which basically means no one is buying shit there.
I tried looking for Government Subsidies for Sweden, something that I’ve been trying to find for a while, but it’s difficult. The only thing I can find is 2006, which was about 12 Million SEK. Which is basically nothing. I’d love to see the numbers for 2011 and up. If someone can find them, please post. Also something else that’s interesting and worth noting, Denmark, which is part of Scandinavia has also seen major digital growth, but overall revenue has steadily been decreasing for a while http://cl.ly/image/2p3j061u0U07. Streaming represents about half (47.4%) of the digital revenue too http://cl.ly/image/2E463J1u0r3m. I definitely think you’ll see growth in the Denmark music market in 2015 or possibly 2016, seeing as how digital represents half the revenue and overall losses are flattening.
I could go on forever about this stuff. I definitely think you need to consider the piracy and free music culture of that area, before you jump on the bandwagon. But it’s definitely fun to research, and obviously either way, their music economy is growing (or one could argue rebounding), so more power to them.
All difficult to find backup can be downloaded here http://cl.ly/0B233Q110W09
Finally, nice job by Mark on this one. It definitely got me thinking, researching, and writing.
Nick Mango
http://twitter.com/alternate1985