Revenue from recorded music rises as streaming services grow

According to the IFPI’s Global Music Report 2016, global recorded-music revenue increased by 3.2% to $15.0 billion in 2015, fuelled by growth in streaming services.¹ he growth in streaming is helping to offset the continuing decline in physical and download revenue.

According to the IFPI figures for 2014, the increase in streaming revenue was not enough to offset the decline in other recorded-music revenues. Overall global revenues also fell by 0.4% in 2014. So the 2015 figures are encouraging.

Digital overtakes physical

The new IFPI report reveals that global digital sales accounted for 45% of all recorded-music revenue in 2015 ($6.7 billion), overtaking the physical share of the market for the first time, now 39%.  Performance revenue (14%) and synchronisation revenue (2%) make up the rest.

Streaming revenue now accounts for 19% of global revenue (up from 14% in 2014).  The IFPI estimates that 76% of this is attributable to streaming subscription monies, even though only 7% of streaming service users have subscriptions.  The other 93% of users instead use ad-supported tiers/services.   Streaming is now close to overtaking download revenue, which accounted for 20% of global revenue in 2015.  But the rate of decline of downloads is accelerating: year-on-year download revenue fell 10% in 2015.

The streaming success story is mirrored in the UK, with new data from the Official Charts Company (OCC) revealing that the volume of audio streams was up 83.4% in Q1 2016, compared with Q1 2015.²  Digital revenues overtook physical revenues in the UK in 2014.

Music users transition from ownership to access

These figures follow Spotify’s announcement in March 2016 that it had hit the 30 million subscriber mark – an increase of 10 million subscribers since summer 2015.  Apple Music announced in February 2016 that it had amassed 11 million paying subscribers since it launched last year.  The IFPI estimates that a total of 68 million people worldwide now pay for a subscription service, representing a year-on-year growth of 66%.

Physical is still important

While the growth of streaming suggests that music users are becoming increasingly comfortable with the idea of accessing, rather than owning, recorded music, the IFPI also reports that the decline in physical revenue has again slowed – with a 4.5% drop in physical sales in 2015, compared with 8.5% in 2014.  In the UK, the OCC reports that the vinyl revival continues, with vinyl sales increasing again in Q1 2016, up 61.6% year on year.

Criticism of “safe harbours”

The IFPI and other industry bodies continue to voice their criticism of music-focused, user upload services (such as YouTube), which often rely on “safe harbour” rules in the USA and Europe to resist being licensed on the same basis as other online music services.  These “safe harbour” rules were introduced to offer protection to passive, online intermediaries (such as ISPs) from liability for copyright infringement.  Rights-holders have long argued that online services that are actively involved in the distribution of music should not be allowed to rely on those rules to avoid being licensed on a fair basis.  The IFPI estimates that, while Spotify paid record companies approximately $18 per user in 2014, YouTube delivered less than $1 per user in 2015.YouTube generated $9billion in revenue in 2015, compared with Spotify’s $1.3billion.³

The European Commission released a Communication in December 2015 called Towards a modern, more European copyright framework.⁴  Along with a broad range of legislative proposals relating to copyright, the Communication contained an acknowledgement of rights-holder concerns about the scope of the “safe harbour” exemption, and stated that it would be considering the issue during 2016.  Whether this will amount to any substantive legislation to address rights-holder concerns remains unclear.

Conclusion

Advocates of streaming will claim the new figures as evidence that streaming is helping to save the recorded-music market. Sceptics may argue that streaming is cannibalising other revenue streams like never before. Either way, it looks as if streaming is here to stay.  Industry stakeholders will increasingly look to strengthen their share of the revenue.

Ed Weidman, Associate and Kieran Lavery, Trainee Solicitor, Michael Simkins LLP

Click here to view the IFPI’s Global Music Report 2016 in full.

 

[1] http://www.ifpi.org/downloads/GMR2016.pdf
[2] Music Week (11 April 2016).
[3] http://www.musicbusinessworldwide.com/youtube-will-earn-9bn-in-revenue-this-year-towering-over-spotify/
[4] http://ec.europa.eu/newsroom/dae/document.cfm?action=display&doc_id=12526