It is beginning to look like we are at one of the most important junctures in the music industry’s history since the dawn of the digital age. Ever since the rise of Napster the music industry has navigated a number of tricky and outlook-defining decision points, such as: how to tackle piracy, whether to license to music services, whether to go DRM free, whether to support ad-supported, what to do with mobile? But now there is an even bigger question which straddles all of those sub-factors: Is Plan A working and if not, what is Plan B?
It is easy to get the impression that the music market is moving towards being in a good place, that the corner is slowly being turned. Indeed US sales, in volume terms at least, showed a modest upturn in 2011. However when the Adele factor is stripped out of the equation, music sales across most markets, US included, look a lot less rosy. But even leaving Adele in the mix, the UK – the world’s 4th largest music market – paints a concerning picture.
To illustrate the point, let’s compare the situation now compared to 2 years ago. The view from 2010 (see chart) revealed full year 2009 trends of strong CD sales decline coupled with solid digital growth, but no enough to prevent overall market contraction. However the view from 2012 shows worryingly little progress. Though CD sales decline did slow, the overall market continued to shrink (also H1 2012 numbers show an acceleration in CD decline once again). Most concerning of all though was digital: growth slowed not just in percentage terms but also in absolute terms, down from £75 million new digital revenue in 2009 to £63 million in 2011. As a market grows it is expected that % growth slows too, but at this relatively early stage of the market’s development absolute growth should be continuing to grow too.
The UK music market has spent most of the last decade in decline but if the current metrics and dynamics remain in place the UK recorded music market could end up losing a cumulative total of £1.3 billion between 2012 and 2017, more than its entire current value (see figure two). The good news is that digital will represent more than 70% of revenues, but that will be a larger slice of a much smaller pie.
There are many contributory factors (piracy, the lost music buyer generation etc.) but there are two observed trends which merit particular attention:
- Digital buyer growth has slowed. Of the total UK digital music growth between 2008 and 2011, just 31% came from new buyers, the remainder came from increased spend per buyer. Increasing spend per buyer is of course an important strategic objective, but in these early days of digital music more of the growth should be coming from new customers, not from consolidation around the early adopter niche. With Apple’s iTunes accounting for such a large share of the UK and US digital music markets, it is unsurprising that digital growth is closely aligned with the rates at which Apple acquire new device customers (which, to be clear, is a very different metric from the rate at which they sell new devices) and the rate at which they grow average music spend.
- Music buyers are disappearing. Extrapolating from Kantar’s UK music panel (as reported in the BPI Yearbook) approximately 5 million music buyers have disappeared from the UK market since 2008. Granted many of these buyers were probably low value customers and not all of them are necessarily lost for good, but it is clear that digital services are not doing a good enough job of converting music buyers from physical to digital and certainly nowhere near a good enough job of preventing lapsing CD buyers from disappearing out of the market all-together: against the total 7.9 million CD buyers ‘lost’ between 2008 and 2011, there were just 1.9 million new digital buyers.
What Can Be Learned from the British Experience?
The UK is not the same as the US, Japan, Germany, Sweden or any other music market. Nor is it a direct predictor of what will happen in each of those markets. However the overall direction of its market fundamentals are directionally similar – and in some cases functionally similar – to many other markets. The UK is not a failing music state like Greece or Spain, it is a robust market (by music industry standards) with a mature and established digital sector and – for now – an established high street retail presence. Over the last few years the UK’s story has been one of ‘steadying the ship’, of the corner slowly being turned. So the UK trends should be viewed in the context of how quickly a solid market can potentially veer off course.
It is possible that the 2011 UK numbers will be followed by H2 upsurge in CD sales and an acceleration of digital growth, and I for one hope that this proves to be the case, but the safer bet is an evolution of the status quo. Across most key music markets it is clear that the current digital product mix is not delivering enough. The US has passed the 50% digital mark and in the case of this market it is the sign of robust market fundamentals. But passing the 50% mark in itself is not necessarily a measure of success. It is only a commendable achievement if it is not an artefact of a shrinking overall market (as was the case with South Korea when it crossed that point with much fanfare in the mid 2000’s).
The UK’s music market is not about to implode, nor is the global market. But it would be wise to view the UK as the canary in the mine for global digital music strategy, to assess whether the air is truly safe to breathe, whether Plan A is up to task.
I think the music industry in general is following the typical product life cycle on large scale, where there is a rapid growth, a peak and then a decline. What could stop the decline and turn it into a growing stage again is innovation.
Do you know peak oil? It is a good analogy on what happens when you exploit a product to its full potential. In this case, peak oil represents the physical version of music it will be gone in a predictable amount of time. Our world’s energy needs are increasing, so we need to find other alternative solutions, or we will be in trouble. This again to one thing: innovation.
I’m with you 100% on the innovation imperative. If you haven’t seen it already take a look at my report on the topic: https://musicindustryblog.files.wordpress.com/2011/11/music-format-bill-of-rights.pdf
The peak oil analogy is a decent one. All previous format cycles in music overlapped. This isn’t happening properly now. i.e.digital is not growing quickly enough in relation to physical decline
Some good points here but how much have you factored in the demographics ? There’s population bulge of 50 to 70 year olds who will be dropping off the radar one way or another. How does it look if you adjust for music consumption per head ?
Great post, but surely it would be a more complete story if figures for digital growth and digital revenue were separated into streaming and paid downloads amounts.
The interesting thing about this time period in the UK is that Spotify was introduced to the market in early 2009, so the question is, what kind of effect has it had on the UK music market? Does it seem to be the solution the music industry is looking for?
I’m wondering if it’s cannibalizing downloads …
Catherine – streaming is a small fraction of UK digital revenue c14% of total UK digital revenue in 201 was from streaming, and that includes YouTube
Bob – the demographics and spend per buyer issue is an important one and I’ll be following up with a post on just that soon (you’re one step ahead of me!). The headline story is a) spending is heavily concentrated around a small group of buyers, and this concentration intensifies as casual buyers drop out of the market b) the ageing music buyer population impacts total buyer numbers dramatically because the influx of new younger buyers is so weak
Thanks for the info, Mark … you mean 2012, btw?
Looking forward to your follow-up post.
Mark, I am a newbie to this site, so forgive me if I step on any sacred cows, land mines or state the obvious.
Clearly, the entire music industry is in a prolonged state of turmoil and your post reflects the continuation of this industry seeking its balance.
I read over your Music Format Bill of Rights which seems very comprehensive in scope and with passion. What I missed, or failed to recognize, was a financial forecast or financial impact of what would adopting your proposal might look like, and any comments of endorsement from the artist community. My question is, how is this going? What has been the reaction from the labels, artists or consumers to your format bill of rights? I completely agree with you that the download is not the answer. It was a cheap and simple innovation that under minded the potential for a greater reward.
a couple of comments and observations
At the end of the day, isn’t it really all about insuring that the Artist is fairly compensated for their work and that if this can be accomplished, wouldn’t this lead to the rest of the supply chain finding their balance as well? What am I missing here?
I am truly amazed at all the innovation that seems to blow past the reality that they are profiting from the works of an artist with little to no regard for them, – without the artist’s music, none of their innovation or profit is possible. Napster might have unleashed hell on a deserving industry full of “milk-it-til-it-bleeds” types, but that doesn’t excuse the new comers of digital innovation from failing to align with the artists interests. Am I missing something here?
Is music innovation only made possible from the exploited works of an Artist? Are there no models of innovation that Artists support and think are fair to them?
very much enjoy your site, thank you for the opportunity to comment
The Spotify business model needs time to mature. Most of the money the music industry will make off of Spotify is going to be from the revenue sharing. Until Spotify is making money the revenue share won’t be triggered. Also, lets not forget how good Spotify is at eliminating Piracy. http://www.betweenthelinernotes.com
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A couple of things. I do not see any coverage in your post of a simple fact – a vast majority of music lovers do not want to own music, they simply want access to it in a convenient manner. Ergo, Spotify is successful. Also, I have to ask, did you mention Spain and Greece as a Euro-Zone related economic problem? If not I would say it is wise to provide data for your assertion that Britain is in a better situation vis-a-vis those countries. I would add that what is happening to music in Britain is also happening in the USA where I live.
The decline of actual music sales began just prior to the advent of Napster around 1999. That means the recorded music industry has had almost 15 years to come up with a plan to get music cheaply and conveniently into people’s hands – they failed miserably. As Brian Eno has said, “Recorded music equals whale blubber.” When you were a rich whaling baron you owned the market in whale oil. When gaslights appeared and whale oil was no longer purchased you went broke. We are at the end of an era for what I describe as music in containers, eg CDs. The recording industry is going the way of the whaling barons because it couldn’t, and still can’t, see the future of how music fans want to access music..
Dave Allen, Gang of Four.
Thanks for the post. I’m with Bob Fisher on this one.
I think the British man and woman, in fact, around the globe, all folks are being bombarded with a variety of ways to spend their leisure. From alternative sports like parkour and hot yoga to daily summer festivals and after work cheese tasting clubs. Go back a decade, and you were given only a handful of options of things to do.
With discovering new music, the news papers would give you artist A, artist B and artist C. That was the choice. The TV would have artist A doing an interview, artist B would have their song on repeat on the radio, and artist C would have themselves up on billboards every where.
That was it! That was the choice!
Now, with social media, and a gazillion websites, and every artist being able to promote themselves directly to you, the choice is so huge, that it’s easier to make no choice at all. Plus, there’s very little to inspire those who actually have the cash to spend, that they choose to support Susan Boyle because there is literally no one else.
Those are the two problems. Information overload, and lack of choices. People tune out as a result.
And then the industry gets in this silly argument about piracy and decreased spending. If there were more real artists like Adele who could inspire a generation of folk, 35 years old and up to get in tune with new music again, the record industry could in fact be saved from the slump. Instead, the record labels all fight for the same pie when there are dozens of pies left untouched.
The older generation need good music. And this ridiculous argument over clamouring for crumbs might result in a turnaround, but they could be spending their time more wisely, because that’s what they’re doing, is spending a whole lot of time going after folks who probably will never spend a dime on music ever again, when there are a tonne of folks who would love to have real music playing out of their stereos. If the dubstep community can do it, then major record labels can do it too.
Thanks for the post again
The DIYer will start the revolution!
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