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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13 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

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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.

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  13. Hello Mark, I had occasion to happen upon your blog and felt compelled to offer some insight as to your statement: “And before that there is a far more important issue, namely how to get the remaining CD buyers to go digital.” I do so because I believe that I have devised the perfect solution for an extremely important issue(s) – I have attached an excerpt from an article that I am researching and writing. I have also noted further issues touched upon in the comments, however, although I do have some interesting insights in that regard as well, unfortunately, I am not yet able to provide a thoroughly researched position. Nevertheless, I hope that what I was able to provide is helpful in providing you with some insight as to what is indeed one very important component of the overall picture as regards the future of the music industry – cheers!!!

    There are sound reasons why I make mention of iTunes and YouTube. With regard to iTunes, although there are various online digital download services other than iTunes, I am unaware of any other online digital download service that offers the variety and versatility of iTunes and, in particular, the option to convert a 256 kbps mp3 file into a 1,411 kbps .wav file, as well as the option to copy the same to a compact disc for personal use if a consumer so desires, which, as the section below explains was a hotly debated issue, i.e., cd quality (1,411.2 kbps) versus digital quality either in the form of an mp3 (256 kbps) as initially offered through iTunes or otherwise as streamed through online digital streaming services such as Spotify and Pandora (320 kbps).

    On one hand, debate raged over the quality of the songs available through online digital download services such as iTunes (256 kbps) as opposed to the quality of the songs streamed through online digital streaming services such as Spotify and Pandora (320 kbps). On the other hand, debate raged over the quality of the songs on cd (1,411.2 kbps) as opposed the quality of the songs available through online digital download services such as iTunes (256 kbps) AND the quality of the songs streamed through online digital streaming services such as Spotify and Pandora (320 kbps).

    Indeed, though digital music was available through other online digital download services such as Bandcamp and Google Play, and even though I prefer YouTube for many reasons over and above digital online streaming services such as Spotify and Pandora, nevertheless, to my knowledge, iTunes was the only online digital download service with the versatility to end the iTUNES VERSUS SPOTIFY/PANDORA CONTROVERSY, as well as the CD VERSUS THE MP3 AND STREAMING CONTROVERSY.

    THE CD VERSUS MP3 CONTROVERSY: SOUND ADVICE

    I am patently aware of the ongoing debate concerning the quality of sound, specifically, the cd quality (Bit Rate: 1,411.2 kbps) versus mp3 quality (Bit Rate: 256 kbps) debate. Having previously had an opportunity to be actively involved in the production, manufacture and distribution of cd’s as well as digital mp3’s throughout the various stages of the process (for example, Blinded In Bliss and Cynicist), I think that that controversy can be easily laid to rest by simply converting a mp3 purchased on iTunes to a .wav file format (while in iTunes, simply right-click, scroll down and click on the “Create WAV Version”) – and wallah, end of debate!!!

    For example, while in iTunes, hover over a purchased song, click “Get Info” for the song and, in addition to the artist and song information, among other things, you will see information such as that posted below (although there may be a difference as to the sample size, id est, 16 bit or 24 bit – please note that the sample size is not listed for many of the songs listed on iTunes and as a 24 bit recording is of higher quality than a 16 bit recording, and given that those involved in the recording process are presumably knowledgeable in that regard, I am reasonably certain that those tracks are 24 bit recordings – the sample rate should be 44,100 kHz or higher as well):

    Kind: Purchased AAC audio file
    Size: 8 MB
    Bit Rate: 256 kbps
    Sample Rate: 44,100 kHz

    Then, while hovering over the song, just scroll further down and click on the “Create WAV Version” (now, depending on the particular song, after creating the new .wav file version, hover over the new .wav file version, click “Get Info” and you should see information like that posted below):

    Kind: WAV audio file
    Size: 39.8 MB
    Bit Rate: 1,411 kbps
    Sample Rate: 44,100 kHz

    Thus, although a song may be purchased in an mp3 format, as the song can be converted to a .wav file format which is, in essence, cd quality (provided that the songs are 24 bit recordings with a 44,100 kHz or higher sample rate), there is the added convenience of the mp3 format which can be uploaded to an mp3 player, ipod or other personal portable playback device.

    The mp3 can then be further converted to a .wav file format and, if so desired, copied to a blank cd for personal use, that is to say, one file (the .wav file) for home use in situations where there are greater file storage availability options (such as a personal home computer) and higher quality playback equipment available, one file (the mp3 file) when there are lesser file storage availability options (such as a mp3 player or ipod), and one “file” (the compact disc) for use in the personal home stereo, car or boat – for further added convenience and portability!!!

    Another point to consider is that all cd’s are not created equal.

    “Back in the 1990s, historical societies, museums and symphonies across the country began transferring all kinds of information onto what was thought to be a very durable medium: the compact disc.

    Now, preservationists are worried that a lot of key information stored on CDs — from sound recordings to public records — is going to disappear. Some of those little silver discs are degrading, and researchers at the Library of Congress are trying to figure out why.

    Unfortunately, this testing has also found that not all CDs are the same. Michele Youket, a Library of Congress preservation specialist, plays a CD of classical piano rhapsodies by Erno Dohnanyi. It crackles, and eventually the sound just cuts out.

    This is a variant of what’s called “CD rot,” Youket explains. In this case. it’s what’s called “bronzing.” The outer coating of the CD erodes, leaving a silver layer exposed. And when you leave silver exposed, it tarnishes.
    So it’s actually changing the composition, and that’s why you hear the scratching there,” Youket says.

    And here’s the thing about CDs: Youket says part of what makes it hard to preserve CDs is that they are not uniform. There were a lot of different standards of manufacturing, depending on the year and the factory.”

    Another added feature of purchasing a digital download from iTunes is that when a cd has decayed, or otherwise been scratched or damaged, simply make another copy!!! And what of cd distribution and availability:

    “Increasingly, CDs aren’t being created at all. The record shops that sold them are going out of business, and new computers don’t come with CD drives any more [though this fact per se does not pose a problem in that an external cd drive for those interested in further copying the .wav file to a blank compact disc still remains a viable option].”

    SOURCE: http://www.npr.org/blogs/alltechconsidered/2014/08/18/340716269/how-long-do-cds-last-it-depends-but-definitely-not-forever

    Obviously, the option to convert a song from a mp3 file format to a .wav file format and, if so desired, to further copy the .wav file to a blank compact disc are not available through online digital music services such as Pandora and Spotify.

    Then there is the ability of being able to upgrade digital content through YouTube, as well as iTunes as technological advances are realized (although that ability has yet to be set in stone – more on that head in a bit). How many of you remember purchasing a song you initially heard on the radio in a vinyl format, then an 8-track format, then a cassette tape format, then a compact disc format and again in a downloadable digital format or, at the very least, by way of one or more of the popular aforementioned formats? Then, in consequence of a trend which is becoming increasingly popular, in reverse – meaning that many collectors or audiophiles have begun to purchase more and more music in some of the more nostalgic formats for various reasons.

    Though I still purchase a cd from time to time having recently purchased autographed copies of Christian Alvestam’s “Self 2.0″ and Goatwhore’s “Constricting Rage Of The Merciless,” in my opinion, purchasing cd’s is more a matter of nostalgia (like purchasing vinyl, autographed or special edition releases) than practicality, especially when you consider, among other things, the cost and pitfalls inherent in the manufacturing process of the cd’s, packaging and shipping costs and, in particular, international shipping costs.

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