“Charting the Path to Sustainable Growth.” That’s the title to the recently released report on digital music by The International Federation of the Phonographic Industry (IFPI), and it’s the best choice of words to describe the current state of the music industry.
It’s no secret that there’s a value gap in today’s music industry.
According to IFPI, this value gap arises from the very significant mismatch between the value that certain digital platforms extract from music and the value returned to rights holders.
It’s almost like serfdom. The land is worked by poorly paid laborers and the harvest is sold for much more by the landowners. In our market, the value gap has disenfranchised the artists behind the music just like those laborers. It has put us in a state of artistic serfdom. Despite the bleak landscape, however, IFPI’s digital music report reveals the tools of change that might diminish that gap.
The advent of the digital age has, in many ways, screwed the music community. Illegal downloads, inequitable royalties, and other monetary suppressants have spread like fleas since the first song was converted into an mp3.
Finally, the evolution of the digital age is gradually returning that value back to the artists.
According to IFPI, in 2014 and for the first time, the industry derived the same proportion of revenue from digital channels (46%) as from physical sales (46%). The influence of digital has exploded, and now its sway over the industry is stronger than ever. This milestone indicates the importance of building an infrastructure that can lead to sustainable growth in a digital world.
“The music industry is managing the transitions from physical to digital, PC to mobile and download to streaming at the same time,” said Edgar Berger, Chairman & CEO International of Sony, in the report. Streaming is at the helm of this transition. According to the report, revenues from music subscription services rose 39% last year and now make up 23% of digital revenues globally. 41 million people worldwide now pay for music subscription, as reported by IFPI, up from 28 million in 2013.
That shift demonstrates the growing power of music among consumers. Subscription services like Spotify and Pandora are swiftly becoming the consumers’ channel of choice for listening to music. Despite this expansive growth of streaming, overall recorded music revenues in 2014 fell by .4%, IFPI reported. According to the report, this came about due to a global decline in both physical format sales (-8.1%) and download sales (-8.0%).
People are listening to music as much (if not more) than ever, but are paying for it less and less. The report states that 35% of respondents across 13 markets use free music streaming, and only 16% pay for subscription services. Most free music streaming services are supported by ads, a market that grew by 38.6%, according to IFPI.
“Just the simple fact that there is a paid model in China now is an incredibly positive development, but it was always going to need time to develop,” said Ed Peto, owner of Beijing-based music consultancy, Outdustry Group, in the report. “The difficulty at the moment is that consumers can still get everything they want for free.”
Music markets across the world can sympathize with China’s difficult development of a paid model among the ubiquity of free music services. Streaming, the report claimed, is simply a convenient alternative to piracy for consumers. The rise of ad-supported streaming, and the decline of physical format and download sales, highlight the unfortunate fact that people are growing less willing to pay for the music they enjoy. In this artist serfdom of ours, blocking artists from the harvest is an obvious hazard. The opposite is true too: in markets where subscription services account for more than 30% of revenues, artists are seeing growing sales, collecting more money, and receiving a larger share of that revenue.
If everyone paid for subscription services, it might result in the resurrection of the music industry. The value gap would eventually shrink. Consumers would continue having the unlimited access to music that they want at a price that they can afford. Unfortunately, that happy day might never come to pass. Instead, the music industry must lean on other ways to support artists and save the music.
Synchronization, as Music Dealers advocates time and time again, is an industry that benefits all parties. Brands, films, games, and TV shows benefit from the marketing power of the music they license; the consumer experience is enriched by the emotional power of music; and artists are paid far more equitably for their art than through other formats.
On the surface, it might not seem like sync had a big year. IFPI reported that the industry split only 8% share of global industry revenue with performance rights revenue. However, according to the report, sync revenue increased by 8.4% in 2014 with monumental gains in key industries. France, for example, saw a 46.6% increase in sync revenue. Japan’s sync industry jumped by 35.5%, and Germany, too, saw a 30.4% growth.
The dramatic rise in sync revenue shows the growing tendency of brands, films, video games, and TV shows to leverage music as a tool of audience engagement.
And while its 8% share of global industry revenue might seem low in comparison to digital channels (46%), the average artist payment is much higher per placement than in most other mediums, such as streaming.
Video may have killed the radio star, but digital nearly maimed the entire industry. Until a new model is developed, sync will be one of the only revenue streams keeping the modern artist alive.
By: Zach Miller, Music Dealers