Following the money in music
Do you ever get a kick of nostalgia when you accidentally come across an old cassette tape at home, or when you clean up your basement and rediscover your turntable? Perhaps you even forgot you own those. Today, music is more or less a click away. The advancement of technology has challenged an entire industry to create new services to sell its core product.
So how does this trend play out on the size of our wallets, you may ask?
Total consumer spending on music was 36,8 billion euros in 2012, according to a report by PwC (note that the original results are in US dollars). More than 500 licensed digital music services were operating worldwide, providing consumers with over 30 million tracks – the findings of IFPI. Choice seems to be the motto. And scope. The digitalisation of music has made it possible for record companies to reach customers in territories, where there was little previous retail infrastructure. Worldwide digital revenues in 2012 were estimated at 4,15 billion euros, or more than a third of total industry revenues. In other words, the music store is now open 24/7.
Europe, a diverse market
Sweden is the leading market with almost 60% of digital revenues made in 2012, followed closely by Norway and Denmark, and Poland at the rear end of the top ten, with 9%. Although Austria is a small music market compared internationally, it has seen an increase of 300% in streaming profits in the first half year of 2013, a total amount of 2,5 million euros. (For more information, go here). Around 800.000 people are already using online services to purchase music and the revenues earned by digital stores, downloads and mobile services have risen by around 10%, making in total 26,5 million euros. Together with the sales made by digital stores, streaming profits make almost a quarter of the total sales volume in Austria.
Franz Pleterski, label manager at Warner Music Austria, sees digitalisation as an add-on service to distributing music and encouraging musical diversity, but to him, it doesn’t seem to have replaced physical sales as a major source of profits. “Through the internet, the whole core market of the industry has changed. Yet, most of our income is generated by physical sales – the CD is still alive,” he said. “But you do see the differences in products – albums are more likely to be [physically] sold, whilst singles are most of the time streamed or downloaded. Classical music is also increasingly sold as a physical product.”
Currently, only a fragment of the entire music repertoire is being consumed online, Pleterski believes. Yet, official sales figures by IFPI for 2012, show a rising volume of downloaded songs of 25% to 11,5 million euros and a slight increase of album downloads of 6,5% to 12,5 million euros in Austria. One in five units of the global top selling albums were bought in a digital format worldwide in 2012, with One Direction’s “Up All Night” seeing 38% of its units sold digitally. CD sales are still making almost two-thirds of revenues, but the market for physical sound carriers seems to be shrinking compared to digital revenues. Record companies’ strategies of proactively licensing across different revenue channels are paying dividends, too. “Warner Music has positioned itself with ‘Neuland Concerts’ successfully over the past few years as a booking agency and concert organiser,” said Pleterski.
Press manager of IFPI Austria Thomas Böhm, on the other hand, sees new services and online music stores as a great source of keeping music profitable. “Austria now has around 35 online stores and various streaming models, where you can consume almost 20 million songs any time you want, on your mobile phone, tablet or laptop,” he said. “Since 2004, as the first online stores started to operate in Austria, we have registered a steady growth of revenues made by digital sales.” This could therefore be an opportunity for the long-term growth of the music industry, he believes. “In Scandinavia for example, the sale of physical records is shrinking, but the music market is growing. This is due the growth of streaming profits.” Streaming service Spotify expects to pay more than 370 million euros to music rights holders in 2013. Despite disagreements over royalties, the relationship between the record industry and streaming services is symbiotic. While music labels are keen to find new ways to grow revenues, online music services are reliant on labels for the music they play.
Saviour of the artist?
The shift of a market, in which a product used to be sold for 15 euros instead of the current 99 cents (or similar) has, of course, had an impact on artists’ revenues. The ever-lower barriers of entering the global music market is a great opportunity to engage with a worldwide audience, however “to upload a song as an unknown band on iTunes or Spotify is not enough to get discovered globally. You have to be backed by a creative campaign or a strong label to reach customers on an international level,” said Pleterski.
Whilst various stakeholders in the music industry praise the potential of digitalisation as a new way to monetise, artists are still struggling with the new business models. Peter Kreuzer, singer of the band La Rochelle says that “there’s no business like show business. The clear profit of a digital „sold“ album on Spotify doesn’t account even a 100th of revenues made by CD sales. We have to deal with the new models, but we try to use this modernisation to our own benefit – by engaging with a global audience.”
Phillipp Lingg singer of HMBC, who landed a major hit in Germany, Austria and Switzerland with “Vo Mellou bis ge Schoppornou“ (yes, this does have a distinctive sound to it) last year sees things differently. “We are present in streaming services, but we will get soon off them and focus on different areas, like live shows,” he said. Live music and festivals are still a good way to generate profit based on creative work. According to “Global entertainment and media outlook 2013-2017” by PwC, live music is a growing market with increasing ticket sales and sponsorships worldwide, and with generated revenues of 19,6 billion euros in 2012.
So where is the money in music?
To say that the CD’s dead would be wrong. To say that vinyl’s is hip again would be a bit of an overstatement. To say that digital music is all around would be about right – literally, but it still has a way to go until (if ever) it makes up for the majority of revenues in the industry. So, since nobody can be certain what the future of music will look like, we’ve decided to feature a number of stories that could shed some light – from white label music to soundbranding and instrument manufacturers, to name a few. Stay tuned!