2018 Global Label Market Share: Stream Engine

Recorded music revenues grew in 2018 for the fourth consecutive year, reaching $18.8 billion, up $2.2 billion from 2017. Streaming was the engine room of growth, up 30% year on year to reach $9.6 billion. For the first time streaming became the majority of label revenue (51%), and its growth continues to outpace the decline of legacy formats. Major label rankings remained unchanged in 2018, but the majors enjoyed varying fortunes and the continued meteoric rise of Artists Direct points to market transforming changes that are reshaping the entire business of record labels.

2018 was shaped by three key factors:

• Continued growth: Global recorded music revenues grew 7.9%. Though 2017 revenues grew by a higher 9.0%, the market grew the same in absolute terms in 2018, adding $1.4 billion of net new revenues as in 2017. Since 2015 the total market has increased by 26%, adding $3.9 billion of net new revenue.
• Stream powered: Though relative growth is slowing, streaming added the same amount of net new revenue – $2.2 billion – in 2018 as it did in 2017. Though 2019 will see mature streaming markets such as the US and UK slow, mid-tier markets such as Mexico and Brazil, coupled with Japan and Germany, will ensure that streaming revenues grow by another $2 billion in 2019.
• Artists Direct:The major record labels retained the lion’s share of revenues in 2018, accounting for 69.2% of the total. Changes in global market shares typically move at a relatively slow pace, particularly at a major vs independent level. However, Artists Direct – i.e. artists without record labels – are changing the shape of the market, growing nearly four times as fast as the total market to end 2018 with $0.6 billion of revenue.

There were mixed fortunes in terms of market shares. Universal Music and Warner Music both gained 0.6 points of market share in 2018, up to 30.3% and 18.3% respectively, with Sony Music losing 1.5 points of share in 2018. Though Sony’s 2018 revenues were constrained in part by the company implementing new revenue recognition practices in 2018, Universal’s market share lead over the second placed label is now an impressive 9.7 points.Artists Direct and Independents together accounted for 30.8%, though this figure is measured on a distribution basis (i.e. Major revenues include independent labels distributed by majors and major owned companies). The independent share based on an ownership share will therefore be higher.

More of the same, but change too

In many respects 2018 was a re-run of 2017: total revenues grew in high single digit percentage terms; streaming was the engine room of growth and added more revenue than the prior year; Warner Music gained most major market share; Universal Music added more revenue than any other label; Artists Direct gained most market share.  But it is this latter point that may say most about where the overall market is heading. The range of tools now available to an artist are more comprehensive than ever before, while deal types that labels are offering (e.g. label services, joint ventures) are changing too. Artists are effectively able to custom-build the right model for them. The market will always need labels, but what constitutes a label is becoming a fluid concept. And in so becoming, it may put us on the verge of the biggest shift in record label business models since, well, ever.

These findings are highlights of the MIDiA Research report: Recorded Music Market 2018: Stream Engine. If you are a MIDiA client you can access the full report, slides and datasets here. You can also purchase the report and all its assets here.

Quick Take: UK Recorded Music Industry Grew By 5.1% in 2016

The recorded music industry’s run of good news stories continues with the BPI’s announcement that UK revenues grew by 5.1% in 2016. As in other markets, streaming is the fuel in the engine. Revenues hit £925.8 million in 2016, up from £881.3 million with streaming accounting for 30% of the total. Streaming grew by 61% (slightly above the global average of 57%) with subscriptions accounting for 87% of the streaming total. Downloads continued their death spiral, falling by 27% however the £56 million in lost download revenue was more than offset by the £97 million that streaming grew by. Physical revenues fell by just 2% (most of the CD buyers that were going to switch have now done so).

Throughout the 2000s the narrative was one of waiting for new formats to grow faster than legacy formats declined. That eagerly sought format replacement effect never happened with downloads, but streaming resoundingly hit that point in 2016. Although streaming doesn’t appear to have started quite as strongly as it finished 2016, the odds are still on 2017 being another year of strong streaming growth.

That is not to say that the next 3 years or so are going to be uninterrupted growth across the globe (there will be some speed bumps along the way). Nor are we likely to see the global business recover to its pre-Napster levels. But these certainly look like the foundations of a new, leaner recorded music business. Think of it as a successor state. One with different rules, in which artists have more choice, where routes to market are numerous and technology-led change is the norm. Numerous challenges remain (eg accountability and transparency, commercial sustainability, growing power of the platforms) but it is easier to fix problems when everyone isn’t spending their entire time simply struggling to keep their heads above water.

IFPI First Take: Declining Legacy Formats Continue To Hold Back Growth

 

This post has been updated following a conversation with the IFPI

The IFPI today announced its annual assessment of the size of the global recorded music business.  For the first time in a long time the music industry has been able to announce a significant growth in revenue: 3% up on 2014 to reach $15 billion. Except that the growth isn’t quite what it first appears to be. In fact, the IFPI reported $15 billion last year for 2014, and for 2013 too. So on the surface that appears to actually be three years of no growth.

The IFPI has done this before. For example, it had previously announced a small 0.2% growth in 2013 (which was the big headline of the numbers that year). But it then downgraded that to a small decline the following year before then upgrading it to a small growth again in 2015.

The IFPI explained that they have retrospectively downgraded their 2014 number to $14.5 billion to reflect some changes in the way they report performance royalties (a minor revenue impact) and, more importantly, to create ‘constant currency’ numbers i.e. to try to remove the impact of currency exchange fluctuations. That approach works well for company reports but less well for the macro picture. The IFPI have to report this way as they are essentially summing up company reports, however when we are talking about global macro markets we run into difficulties, for example looking at music revenue as a % of GDP etc.

The approach also has the effect of generating very different growth rates. For example, if we assume that the top 10 music markets each grew at 3% in local currency terms in 2015, using the exchange rates the years took place (i.e. 2014 USD to local currency and 2015 USD to local currency) there would only have been 0.48% growth in US dollar terms. If, however, we take the constant currency approach we see 3.2% growth. When we are talking about individual companies there is a lot of value in reporting at constant currency rates as those companies are dealing with repatriating and recording revenue from across the world into their local reporting HQs. But when we are talking about global markets comprised of many local companies (e.g. the vast majority of South Korean and Japanese revenues stay in local companies so are not directly shaped by currency fluctuations) the methodology is less useful. The cracks really begin to show when you take the long view. For example if we went back 5 years with constant currency rates the value of the music business as a % of the global economy would be over stated.

So, with all that said, for the purposes of this analysis I am going to use as my baseline for comparison the IFPI’s previously reported 2014 numbers stated in its ‘Recording Industry In Numbers, 2015 Edition’.  Here are some of the key takeaways (further charts at the end of this post):

• Revenue was flat: Despite all of the dynamic growth in streaming declining legacy formats (CDs and downloads) offset their impact, keeping revenues flat. Also, once performance and synchronization revenues are removed from the mix, revenue fell slightly. This highlights the industry’s transition from a pure sales business into a multi-revenue stream model. It also emphasises the fact that we are still some way from a recovery in consumer spending on music
• Downloads and physical still both falling: Download revenue was down 16% while physical was down 4.5%. The physical decline was lower than the 8% decline registered in 2014 and played a major role in helping total revenues grow. If physical revenue had fallen at the same rate as 2014 there would have been $0.25 billion less revenue which in turn would have brought total revenues down into decline. The Adele factor can once again be credited for helping the industry out of a sticky patch. The download decline was more than double than in 2014 (6.6%) and that drop is accelerating in 2016, with Apple Music playing a major role in the cannibalization / transition trend (delete as appropriate depending on your world view). What is clear is that downloads and subscription growth do not co-exist. Though it is worth noting that the move away form purchase and ownership is a bigger trend that long preceded Spotify et al.
• Streaming growth accelerating, just: Total streaming revenue was up 31% in 2015, growing by $0.69 billion compared to 39% / $0.62 billion in 2014. This is undeniably positive news for subscriptions and a clear achievement for the market’s key players. However, it is worth noting that over the same period the number of subscribers by 63%, up from 41.4 million to 68 million (for the record MIDiA first reported the 67.5 million subscribers tally last week based on our latest research). So what’s going on? Well a big part of the issue is the extensive discounting that Spotify has been using to drive sales ($1 for 3 months) coupled with 50% discounts for students from both Spotify and Deezer and finally the surge in telco bundles (which are also discounted).  The number of telco partnerships live globally more than doubled in 2015 to 105, up from 43 the prior year. But even more significant was…
• Ad supported revenue fell: Ad supported streaming revenue was just $0.634 billion in 2015, down very slightly from $0.641 billion in 2014. YouTube obviously plays a role, and that was a key part of the IFPI’s positioning around these numbers. You’ll need to have been on Mars to notice the coordinated industry briefings against YouTube of late, and these numbers are used to build that narrative.  But YouTube is far form the only ad supported game in town, with Soundcloud, Deezer and Spotify accounting for well over a quarter of a billion free users between them. Also, the IFPI doesn’t count Pandora as ad supported, one of the most successful ad supported models. Then there are an additional quarter of a billion free users across services like Radionomy, iHeart and Slacker. So the music industry doesn’t just have a YouTube problem, it has an ad supported music problem.
• Streaming ARPU is up but subscription ARPU is down: The net effect of streaming users growing faster than revenue is that subscriber Average Revenue Per User (ARPU) fell to $2.80, from $3.16 in 2014, and $3.36 in 2013. Ad supported ARPU was down from $0.10 to $0.08 while subscription ARPU was down. The fall in subscriber ARPU is down to a number of factors including 1) discounting, 2) bundles, 3) churn, 4) growth of emerging markets services such as QQ Music (monthly retail price point $1.84) and Spinlet (monthly retail price point $1.76). For a full list of emerging markets music service price points check out the MIDiA ‘State Of The Streaming Nation’ report. The irony is that the major record labels are increasingly sceptical of mid tier price points yet they have inadvertently created mid tier price points via discounted pricing efforts. Total blended monthly streaming ARPU for record labels was $0.37 in 2015. And if you’re wondering how ad supported and subscription ARPU can both be down but total ARPU up, that is because subscriptions are now a larger share of total streaming revenue (up to 78% compared to 71% in 2014).

So the end of term report card is: an ok year, with the years of successive decline behind us, but long term questions remain about sustainability and the longer term impact of incentivized growth tactics.

Consumer Spending On Digital Music Actually Fell In 2014 (Yes You Read That Right)

The following are excerpts from recent MIDiA Research blog posts.  If you’re not already signed up to the newsletter type your email address in the box on the blog home page and you’ll get analysis and data on the digital content economy straight to your inbox every Monday.

Spending money on recorded music has become a lifestyle choice, an honesty box for the conscientious consumer.  No one really needs to pay for music anymore.  That much is familiar to most, but what is new is that it is now manifesting itself in a new worrying way.  In 2014 consumers actually spent less on digital music than they did in 2013. Though the drop was small – 1% – it was still nonetheless a drop at a period when digital spending should be booming.  In some key markets the consumer spending decline was significantly larger, such as a 3% fall in the UK.  Of course, overall digital music revenue grew globally in 2014 but all of that growth came from the 37% increase in digital music B2B revenues, such as advertising income and telco bundles.  In short, the music industry is getting better at selling to businesses and worse at selling to consumers in the digital arena.

With B2B digital revenues 6 times smaller than consumer digital revenues the music industry is not about to suddenly become a B2B2C business.  But the direction of travel indicates that there is a problem.

Read the original post in full here.

The music industry has long been viewed as a canary in the mine for how media industries transition into the digital era.  In many respects that role has now been outlived.  Book publishers quickly realised that after a few short years they had moved beyond where the labels had got to in 10.  Meanwhile games publishers (mobile, console and PC) have learned how to monetize their super fans in a way the music industry could only dream of.  But it is the video sector that provides the starkest contrast.

39% of consumers regularly stream music for free, nearly four times the rate that pay for music subscriptions.  While free tiers of paid services play a clearly defined subscriber acquisition role, the purpose of standalone free services is becoming less clear-cut:

• Old favourites trump new gems: Half of free streamers say they use these services mainly to listen to music they already know. While it would be unrealistic to expect anything other than the most on-trend of super fan to be spending all their time sampling new tunes, these trends illustrate that free on demand streaming services are most used as consumption destinations.
• The end goal has changed: Just under a third of free streamers go onto buy the music of artists they discover on these service while 37% simply stream newly discovered artists more. Both use cases will coexist for some time, but with with music purchasing fading phenomenon, the latter will dominate.

Read the original post in full here.

The TV business is of course a vastly bigger one than music but it is, in years spent terms at least, at far earlier stage of its streaming subscription transition.  And yet already there are more than twice as many online video subscribers as there are music subscribers and the nascent online video subscription market is already bigger than the entire recorded music business.

Even discounting the relative scales of each business, the comparisons illustrate the contrast between what can be achieved with a niche product aimed at largely male, high spending super fans (music) and the reach a lower priced, more broadly targeted product can do (even with the hindrance of limited catalogues).

 

The days of other media industries learning from the music industry are gone. Now it is time for the music industry to heed its lessons from its peers.

Read the original post in full here.

Why The Music Aficionado Was To Blame For Declining Music Sales In 2014

Music revenues declined by 2.9% in 2014, down from $6.9 billion in 2013 to $6.7 billion across the US, UK, France, Italy, Australian, Sweden and Norway. Much has been made of the fact that revenue fell in the Nordic markets where streaming had previously driven growth. One year’s worth of revenue numbers does not make an industry trend. The one year fall off in strong streaming markets is not proof of a fundamental weakness in the streaming model in just the same way a couple of years of growth was not proof of its strength. We are in the midst of a transition period and there will be further anomalies and blips along the way. They key reason for the volatility is the music industry’s growing dependence on an increasingly small group of consumers: the Music Aficionados. Music Aficionados are consumers that spend above average time and money with music. They represent just 17% of all consumers but a whopping 61% of all recorded music spending. These consumers shape the fortunes of the music business. In the past this did not matter so much because:

1. So many passive majority music fans were spending strongly
2. Aficionados were behaving predictably

Now that has all changed. Passives are sating their appetites on YouTube while Aficionados are making major changes to their buying habits. Last year 14% of Aficionados said they were stopping buying CDs while 23% said they were buying fewer albums of any kind and 23% also said they were buying fewer downloads. The 2014 revenue numbers show us just what impact these changes had. If we extrapolate those percentages to Aficionados’ share of spending in those markets in 2014 we see:

• Aficionados spent $192 million less on CDs, which was 67% of the total $326 million lost CD spend in 2014
• Aficionados spent $250 million less on downloads, which was 86% of the total $290 million lost CD spend in 2014

In total the Aficionados accounted for 76% of the lost CD and download revenue in 2014. So what’s going on? Why are the super fans jumping ship? Well first of all, they aren’t. This is a transition process. They are shifting their spending towards subscriptions. For some of them this will mean spending less (especially the 23% that stopped buying more than an album a month and are now spending $9.99 instead of $20 or $30). For others it will be an increase in spending. At a macro level though, lost download and CD spending accounted for a $617 million decline while streaming growth accounted for a $351 million gain, which means that there was a net loss of $265 million. Because the music industry has largely stabilized after years of dramatic decline, it only takes relatively minor fluctuations one way or the other to determine whether a market grows or shrinks. This is why both the Aficionado needs more attention now than ever and also why the Passive Massive needs engaging at scale. Aficionados have been taken for granted for too long and are now being migrated away from products without a spend ceiling (albums) to a product with a fixed ARPU cap (9.99 subscriptions). When the Aficionados sneeze the music industry gets a cold. It is time for a cure.

Five Long Term Music Industry Predictions (And How Disney Will Rule The World)

The new year is typically a time for predictions for the year. But at the midway point of the decade, rather than do some short term predictions I think this is a good time to take a look at the longer term outlook for the music industry. Here are five long term music industry predictions:

1 – Disney will become the world’s biggest music company

Consumers are buying less music and there are more ways to easily get free music than ever before, both of which make selling music harder than ever. Major labels have addressed this by doubling down on pop acts (Rihanna, Katy Perry, Rita Ora, Ariana Grande etc.) which have a more predictable route to market. Video (YouTube) and very young audiences (also YouTube) underpin the success of these artists. While the majors have been pivoting around this very specific slice of mainstream, Disney has quietly been building an entire entertainment empire for this generation of pop focused youth. Unlike the majors, Disney has TV shows and channels targeted at each key kids and youth age group and uses them to bring artists through. They start them out kids TV shows such as The Wizards of Waverly Place (Selena Gomez), Hannah Montana (Miley Cyrus) and Sonny With A Chance (Demi Lovato). Disney then very carefully matures these fledgling stars as their audiences age so that by the time they and their audiences are fully fledged teens, they are fully-fledged pop stars. At which point they have shaken off most of their bubble gum imagery and have conveniently acquired a little edge, a specific positioning and a personality. It is a highly effective process. Each of those three Disney stars are only in their early 20’s but already have multiple albums under their belt. Disney will not only continue to excel at this model, they will most likely become the biggest pop label on the planet. Which given where music sales are heading (pop accounted for 44% of the top 10 US album sales in 2014) could well mean Disney even overtakes Universal to become the biggest music company of all.

2 – The western pop music industry will increasingly resemble Bollywood

2014 was the first year film soundtracks accounted for 2 of the top 10 selling US albums (‘Frozen’ and ‘Guardians Of The Galaxy’), generating 4.4 million sales and 30% of the top 10 overall. And both albums were Disney. In India music plays a supporting role to film in revenue terms but is culturally centre stage, the beating heart of Bollywood film. The music and film require depend on each other for context and relevance. We are set for this model to become increasingly pervasive in western markets. Just as video underpins the success of pop stars, it creates an audience bond to music in film and TV, turning the music into the soundtrack of memorable, fun and moving moments. Triggering the same emotional chemistry music does in real life. With music sales still tumbling but movie sales holding up, expect movie soundtracks to become an ever bigger part of music sales, and for the dividing line between film star and pop star to blur entirely. Expect Disney to, again, be the key force.

3 – Live music will lose ground to other live entertainment

Live has been the music industry’s ‘get out of jail free’ card, holding up total revenues while sales revenue declined. The balance of power has shifted with sales revenue now just a third of the total revenue mix, down from 60% at the start of the century. But cracks are already appearing with price increases underpinning much of the live revenue growth in recent years and the big revenue polarised between ageing rockers and pop divas of the moment. There are only weak signs of a next generation of stadium filling rock bands. The big live venues are already looking for alternative ways of getting bums on seats, with TV show spin offs in particular proving successful. Venues and promoters love TV show tie-ups because they bring big TV cross promotion which helps ensure commercial success.   TV comedy shows are now doing 10 to 12 night sell outs in 10,000 capacity venues. You don’t see many artists doing that. Shows like Disney On Ice (yes, Disney again) fill out the biggest venues with ease. And it is not just the top end that is moving away from music. Comedians like the UK’s John Bishop play tours that happily play a small club one night and an arena the next. Expect the live market to shift more towards a broader range of entertainment, especially TV tie ins, squeezing out many music acts in the process.

4 – Old world copyright establishments will lose relevance 

The fragmented nature of global music rights, especially on the publishing side, has long been a thorn in the side of digital music.   The system of multiple national rights bodies and commercial rights owners administering different parts of music rights across the globe hinders the ability of the digital music industry to be truly global. A handful of rights bodies are pushing the innovation needle, others are not. The distinctions between recording, performance, mechanical etc. served well in the analogue era when there was a clear distinction between a sale and a performance. But in the streaming dominated landscape they are less useful. Additionally the entire range of audio visual elements that an artist comprises in the digital era can be prohibitively difficult to put into a single product. This is because the rights are usually held by so many different stakeholders, each with different priorities and appetites for risk. Expect music companies, artists and their managers to increasingly collect as many rights as possible into one place so they can create multimedia experiences without having to navigate a licensing minefield. In doing so, more and more monetization will happen outside of the traditional licensing frameworks. Whether that be because all of the revenue occurs in a single platform (e.g. YouTube) or because new licensing /collection bodies are used such as Audiam or Global Rights Management administer the rights. Creative Commons might play a bigger role but the real focus is going to be on being able to license more easily AND monetize more effectively.

5– Labels will become agencies

Finally we have agencies or what you might call labels, but I’m going to call them agencies, because that is what they need to become. The label model is already going under dramatic transformation with the advent of label services companies like Cooking Vinyl’s Essential and Kobalt’s AWAL, and of fan funding platforms like Pledge and Kick Starter. All of these are parts of the story of the 21^st century label, where the relationship between label and artist is progressively transformed from contracted employee to that of an agency-client model.   Labels that follow this model will be the success stories. And these labels will also have to stop thinking within the old world constraints of what constitutes the work of a label versus a publisher versus a creative agency versus a dev company. In the multimedia digital era a 21^st century labels needs to do all of this and be able to work in partnership with the creator to exploit all those rights by having them together under one roof.

Streaming is changing the music world right here, right now, and there is an understandable amount of focus on it. But it is just one part of a rapidly changing music industry. This decade has already wrought more fundamental change than any previous one and the rate of change is going to continue to accelerate for the next five years. All of the rules are being rewritten, all of the reference points redefined. This is nothing short of the birth of a new music industry. The blessing of a generation is to be born into interesting times, and these times are most certainly that.

Assessing the Impact of Streaming on Total Music Revenue Growth

[My summer blogging hiatus is herewith over]

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 1^st 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.