I often argue that we can learn a lot from the music industry. Namely, I see it as an indicator as to what to expect in a few years’ time.
That’s why I was intrigued by a recent article in the Economist, detailing the state of today’s music.
CDs vs Digital
Once upon a time, record-industry executives could all but weigh their profits on scales. Literally: each pallet of compact discs (CDs) they sold translated into predictable quantities of cash for them and, second, for singers and songwriters.
In 1999, the year the music-sharing service Napster was founded, wholesale revenues in the industry peaked at $23.7 billion. Then they began a slide that has since continued almost without interruption.
Until now. Growth in the digital streaming of music helped industry revenues to expand by 3.2%, to $15 billion, last year. That was the fastest rate since 1998. The largest piece of the market was digital, with 45% of the total, whereas demand for those CDs continued to fall: physical goods accounted for just 39% of sales.
This is similar to what the trend has been with publishing: sales of printed books are constantly declining, whereas the digital market, ruled by Amazon, has continued to grow.
What stopped this inexorable decline is subscription-based streaming services like Spotify, Deezer, and Apple Music. These proved especially successful, as the fastest-growing category: last year revenues from these rose by 59%, to more than $2.3 billion. Digital downloads on services like iTunes (which slice up albums into 99-cent individual tracks) accounted for $3 billion of sales, though that represented a decline of 10.5% on the year before. The music industry looks increasingly likely to be defined by services like Spotify, weightless but not cashless.
In regards to books, Amazon seems destined to rule this market as well, much like it has with eBooks. Kindle Unlimited, for all its faults, has a lot going for it. It is built on Amazon’s robust platform. It builds on its existing reader and, more importantly perhaps, author base—much of which is Indies. And it is competitively priced.
The bad news
This recent uptick in sales doesn’t mean we’re back to the halcyon days just yet, as there is still a lot of catching-up to do. The total market remains 36% smaller than it was at its pre-Napster peak.
Much like with publishing, there are two things that concern the music industry: piracy and a culture of free.
The good news is that illegal downloads have declined, at least in America, but piracy takes various forms, such as when people rip music from digital sources like YouTube videos.
Even when punters aren’t ripping music, they can easily create a playlist on YouTube and listen to their favorite songs for free, all day long. Licensed clips often come bundled with an advert, but their popularity does not yet produce big revenues. 900m people got music from ad-supported user-upload services like YouTube last year, but that these generated only $634m in revenues globally—barely 4% of the total.
That is why some complain about the culture of free and would like YouTube to stop offering the latest releases. If this debate sounds familiar, that’s because it is. I remember plugging a tape recorder to my radio so I could tape my favorite shows—and songs. Later on, I’d videotape MTV.
The good news
YouTube has made fortunes for a few Indie performers who got started on the platform, and the site’s defenders say there is great potential for established artists to earn more by getting their products to the masses for free. They can then earn more through live performances and related swag. Megadeth, an American metal band, recently worked with PledgeMusic, a London-based crowdfunding site, to record their 15th album: fans who pledge can pre-order the album, get signed guitars, have a guitar lesson with the band, spend a day with them in the studio, and participate in a jam session.
Besides, the paying portion of users is growing rapidly. Streaming services had 68m paid subscribers in 2015, up from 41m a year earlier. Spotify alone has 30m paying customers.
That suggests that revenues from such subscribers and from advertisers will grow sufficiently to let ever more bands and firms prosper, even in an era of digital music. But none of them will earn $2 a record, as in the days when music could be sold by the pallet, and no executives will get the other $8.
Much like it will be with books, then.