Home Entertainment Music Industry Breaks Out Of $7 Billion

Music Industry Breaks Out Of $7 Billion

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Pexels.com Last year, streaming by itself became the biggest source of recorded music revenue, accounting for just over half (51%) of total industry revenues

Music Industry Breaks Out Of $7 Billion Rut As Streaming Takes Over, Yet YouTube Concerns Remain

The RIAA released its annual U.S. recorded music sales figures for 2016 on March 30. Industry revenue had been flat at around $7 billion since 2010, but the good news is that it’s finally broken out of that rut. Total revenues are now $7.65 billion, up 11% from 2015 and beating my estimates from last September.

(Of course, that’s still far below the industry’s peak of almost $15 billion in 1999.) The No. 1 source of growth by far: on-demand streaming from services like YouTube, Spotify, Apple Music and TIDAL.

2016 represented yet another in a series of milestones in the music industry’s transition to digital. Digital revenues overtook revenues from physical products (mainly CDs) in 2011, but streaming accounted for only 18% of digital revenue.

Download sales exceeded CD sales in 2012. By 2015, streaming had drawn even with downloads and together accounted for more than two-thirds of total industry revenue.

GiantSteps Media Technology Strategies
Aggregate recorded music industry revenues, 2010-2016. Data source: RIAA.

Last year, streaming by itself became the biggest source of recorded music revenue, accounting for just over half (51%) of total industry revenues.

Most of that growth came from on-demand streaming, whose revenues almost doubled from 2015, while digital radio-type services (such as Pandora, Sirius XM satellite radio and iHeartRadio) kept pace with overall industry growth.

Meanwhile, digital downloads went into freefall, declining 22% from 2015. On the physical product side, CDs also accelerated their decline and now account for only 15% of industry revenues. The resurgence of vinyl slowed, with only 3% growth in that area. Vinyl (mostly LPs) seems to be topping out at 6% of total industry revenues.

GiantSteps Media Technology Strategies
Aggregate recorded music industry revenues, 2010-2016. Data source: RIAA.

On-demand streaming services have done a remarkable job in building paid subscribership. Spotify, in particular, has gotten its “conversion funnel” down to a science, with paying subscribers now numbering 50 million and accounting for an astounding 40% of overall registered users worldwide.

That’s more than triple the percentage just after Spotify launched in the U.S. in 2011, and it surpassed some of the optimistic predictions of that time. Apple Music’s all-paid subscribership has exceeded 20 million.

Image technewsworld.com

The RIAA has added two categories to its revenue tallies. One is “Limited Tier Paid Subscription,” which covers paid-subscription services with features and/or music catalogs that are more limited than the full on-demand services.

These include “radio plus” services that offer personalized Internet radio with no ads, unlimited skips and limited downloads such as Pandora Plus, Slacker Plus and Napster UnRadio.

They also include paid on-demand services with limited catalogs such as Amazon Prime Music, the service that Amazon offered to Prime members before launching the full on-demand Amazon Music Unlimited service last October.

Image capture money.cnn.com

The other new revenue category is “Other Ad-Supported Streaming.” This is meant to capture ad-supported digital radio services that aren’t reflected in the category “SoundExchange Distributions.” SoundExchange is a collecting society that distributes revenue from digital radio services to record labels.

Recently, Pandora and Sirius XM began making direct licensing deals with certain labels, bypassing SoundExchange. As those are the two largest digital radio services, it made sense to report this revenue as a separate category. In fact, it represented more than $100 million last year.

The one sour spot in these numbers for the record industry is the disproportionately small growth in revenue from ad-supported on-demand streaming. This category includes YouTube, Spotify Free and Vevo, but YouTube is the 800-pound gorilla here.

Revenues “only” grew 26% over 2015, which outpaces overall industry growth but is a far cry from the over 100% growth in paid services (on-demand plus “Limited Tier”).

The RIAA attributes this disparity to “legal loopholes” that enable YouTube to pay royalty rates that are much lower than fully-paid subscription services like Apple Music or even freemium services like Spotify. The legal basis has to do with the fact that YouTube is a user-generated content service, while the others only provide music supplied by record labels.

YouTube offers a technology called Content ID that identifies music in uploaded videos and offers rights holders (such as record labels) choices of blocking the uploads or sharing in revenue from ads placed on or next to the videos.

Pexels.com
Last year, streaming by itself became the biggest source of recorded music revenue, accounting for just over half (51%) of total industry revenues

Google (YouTube’s owner) claims that it isn’t legally obligated to provide Content ID, on the basis that as a user-generated content service it isn’t liable for copyright infringements committed by its users under the Digital Millennium Copyright Act (DMCA).

This legal position survived a couple of important court challenges over the past few years. It gives Google leverage over music rights holders in royalty negotiations: its position is that it can turn off Content ID whenever it wants.

Doing so would leave record labels with a choice of two very bad alternatives. One is to effectively abandon YouTube. This would not only cost the labels the revenue they do make (much of the $469 million from ad-supported on-demand services last year), but it would cost dearly to send YouTube huge numbers of takedown notices under the DMCA.

It would also force the labels to forgo a very important promotional channel for music and artists, with an estimated 120 million active users for music alone. The other alternative is to just let people post copyrighted music, with promotional value but no direct monetization. The labels would also lose the revenue in this case, but at least they would not incur additional copyright enforcement costs.

For this reason, the RIAA is pushing hard for Congress to make changes to copyright law that would legally obligate YouTube and other user-generated content services to monitor their networks proactively for copyrighted material–to replace “notice and takedown” with “notice and stay down.” That’s a long-term fight and a subject for another column.

source https://www.forbes.com/sites/billrosenblatt/2017/04/01/music-industry-breaks-out-of-7-billion-rut-as-streaming-takes-over-yet-youtube-concerns-remain/2/#4c80dd4344f3

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