IFPI and RIAA 2013 Music Sales Figures: First Take

The IFPI and RIAA today released their annual music sales numbers.  Though there are positive signs, overall they make for troubling reading 

  • Total sales were down 3.9%.  Based on 2012 numbers the trend suggested that 2013 revenues should have registered a 2% growth, so that is a -6% swing in momentum.
  • Digital grew by 4.3% which was not enough to offset the impact of declining CD sales, which has been the story every year since 2000 except last.
  • Download sales declined by 1%. Continued competition from apps and other entertainment, coupled with subscriptions poaching the most valuable download buyers is finally taking its toll.
  • Subscriptions up by 51%: An impressively strong year for subscriptions but not enough to make the digital increase bigger than the physical decline on a global basis nor in key markets, including the US.

Global numbers of course can be misleading and there is a richly diverse mix of country level stories underneath them, ranging from streaming driven prosperity in the Nordics, through market stagnation in the US to crisis in Japan – where revenues collapsed by 16.8%.  The Nordic renaissance helped push Europe into growth but data from the RIAA, show that total US music revenues were down a fraction – 0.3%.  US download sales were down by 0.9% while subscriptions were up an impressive 57% to $628 million.

On the one hand this shows that Spotify has managed to kick the US subscription market into gear following half a decade or so of stagnation.  But on the other it shows that subscriptions take revenue from the most valuable download buyers.  This backs up the trend I previously noted, that streaming takes hold best in markets where downloads never really got started.  Thus markets like the US with robust download sectors will feel growth slowdown as high spending downloaders transition to streaming, while in markets like Sweden where there was no meaningful download sector to speak of, subscriptions can drive green field digital revenue growth.

The Download Is Not Dead Yet

Though subscriptions now account for 27% of digital revenue, the value trend obscures the consumer behavior trend.  For Spotify’s c.9.5 million paying subscribers (or 6 million last officially reported) Apple’s installed base of iTunes music buyers stands at c.200 million (see figure).  The IFPI report that there are now 28 million subscription customers globally.  In the US and UK this translates into 4 or 5% of consumers. Subscriptions do a fantastic job of monetizing the uber fans, just like deluxe vinyl boxsets and fan funding sites like Pledge do so also.  But they are inherently niche in reach.  This is why downloads remain the music industry’s most important digital tool.  Downloads are the most natural consumer entry point into digital music, and if anyone else had been able to come close to matching Apple’s peerless ability to seamlessly integrate downloads into the device experience, then the sector would be much bigger than it is now.

service bubbles

Do not confuse this with being a luddite view that streaming and subscriptions are not the future, they are, but there is a long, long journey to that destination that we are only just starting upon for most consumers.   And before that there is a far more important issue, namely how to get the remaining CD buyers to go digital.

Sleepwalking Into a Post-CD Collapse

Last year the IFPI numbers showed a modest globally recovery but despite the widespread optimism that surrounded those numbers I remained cautious and wrote that it was “a long way from mission accomplished.”  My overriding concern then was the same as it is now, namely that the music industry does not have a CD buyer migration strategy and it desperately needs one.  So much so that unless it develops one it will end up sleepwalking into a CD collapse.   In fact I predicted exactly what has happened:

“CD sales decline will likely accelerate.  Among the top 10 largest music markets in the world CD revenue decline will likely accelerate markedly in the next few years.  In France and the UK leading high street retailers are on their last legs while in Germany and Japan the vast majority (more than 70%) of sales are still physical.  So the challenge for digital is can it grow as quickly as the CD in those markets will decline?

The IFPI have stressed the fact that Japan’s dramatic 15% decline was the root cause of the global downturn.  While this is largely true – without Japan included global revenues still declined 0.1% – Japan’s problems are simply the global industry’s problems squared.  In 2012 a staggering 80% of Japanese music sales were physical but despite the digital market actually declining 4 successive years total revenues increased 4%.  As the world’s second biggest market, when Japan sneezes the global industry catches a cold.   But expect Japan to continue to drag down global revenues and also keep an eye on Germany.  Germany saw a modest 1.2% increase in revenues in 2013 but only 22.6% of sales were digital.  The most likely scenario is that Germany will follow the Japanese trend and go into a CD-driven dive in 2014 and / or 2015.

In conclusion, there is still cause for optimism from these numbers.  Subscriptions are going from strength to strength, at least in revenue terms, and the download sector remains robust in buyer number terms.  But unless the CD problem is fixed, the best both those digital revenue streams can hope to do is consolidate the market around a small rump of digital buyers.

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12 thoughts on “IFPI and RIAA 2013 Music Sales Figures: First Take

  1. We need another suicidal Veevoo to accelerate conversion of prime beef to melamine infused dogfood.
    It will give them 3 to 5 years to convert music to total ashes. Let’s hope for new and fertile land for discovery moment monetization.

    Well they still have old goodwill for payrolls so they can VEVOO!

    In the meantime we can have 100 billion dollar industry in less then five years – few NOT SO BOLD moves required

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  3. Need clarification on what the revenues actually mean:

    We know that anytime a consumer pays for a CD or a download, apart from a small, known % of the sale that goes to the retailer, all the money goes to the Recording company and the artist. This is the actual digital music revenue. Now as far as the streaming services are concerned, there is no known % of the subscriber’s money that goes to the recording company or the artist. So the more crucial questions are these:

    1. Is the $628 million shown here from subscription services involve the total amount of money subscribers have paid the service providers (Spotify et al), or does it show the amount of money the service providers paid the recording companies and artists as part of royalties and such?

    Assuming it is the former, the next question becomes:
    2. Does increase in revenue for the subscription company (Spotify, Deezer, Beats Music,etc) necessarily mean increased revenue/income for the recording companies and artists? Especially when it is coming directly at the cost of paid downloads that would otherwise go to the recording company and artists?

    It would be useful to have some kind of a % number that tells us how much of the $628 million subscription service money actually went to the recording companies and artists as royalty and copyright payments. Granted the payments are based on number of times a track is played and all that, but treating the total subscriber generated revenue as digital music revenue is not just misleading, but also completely wrong.

    Hope we get some additional data on how much of the $628 million actually went to the recording companies and artists.

  4. Paid download don’t always fully go into the artists and record companies’ pockets. Apple takes a 30% fee and so do other online services. So a $1 download doesn’t necessarily mean a $1 redistribution to the music industry.

  5. We must note that on pupuse or out of ignorance 2013 decline of 3.9% is miscalculated!
    The truth: we have over 9% decline in revenues.
    Last year excitment with .3% growth (read 1% inflation adjusted decline) listed 2012 revenues at 16.5 billion – we are for 2013 at 15B. House fire is in progress, Apple and Amazon streaming entry will only add gasoline to this fire.

  6. … anybody remember allofmp3.com? … if the music industry had the foresight to establish a similar downloading and pricing structure … they would be growing by heaps. But they willnot .. and therefore … bye bye riaa … you will not be missed

  7. Pingback: Subscription Streaming: A Measly Billion Dollar Industry | JonMaples.com

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  10. I truly appreciate this post. I’ve been looking everywhere for this! Thank goodness I found it on Bing. You’ve made my day! Thank you again! daeegceaedkd

  11. Mark, They not only need to improve understanding of their business, they need to improve their math skills! Decline for last year is at 9% 16.8B reported for 2012 and just 15 billion for last year.

  12. Pingback: This is the Chart to Read on the Apple-Beats Music Deal, Read This One

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