First Time Worldwide, Digital is Music’s No. 1 Business

For the first time worldwide, digital is music’s No. 1 business. The industry makes a fraction of the money it once did.

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More people are listening to music worldwide than ever before thanks to streaming services, but as a result the recording industry is making a third less money every year than it did at the peak of the CD era.

Tuesday, the recording industry’s worldwide trade group said revenues grew 3.2 percent last year. After several years of wobbling between minor growth and decline, it’s the first meaningful uptick since 1995, according to the International Federation of the Phonographic Industry, or IFPI.

It also marks the turning point where digital trumps physical. Digital sales — like the money gleaned from downloaded tracks, paid subscriptions to services like Spotify and Apple Music, and advertising revenue off the listening on sites like YouTube  — comprised 45 percent, sweeping beyond physical’s 39 per cent share, which comes from CDs and other formats like vinyl records.

The bottom line, however, is bleak. The music industry is effectively half the size it was at its height in 1999, when the industry peaked at $28.6 billion, according to IFPI figures released in 2013. Last year, it was just $15 billion.

(The IFPI later specified that its latest figures peg the 1999 peak of the industry at $23.7 billion, nearly $5 billion less than what it reported three years ago. The group said the adjustment was because of exchange rates and changes in methodology.)

“There remains a gross mismatch between the consumption of music and revenues,” Frances Moore, chief executive of IFPI, said Tuesday during a call with reporters.

An IFPI chart shows the decline in music revenue over the last 10 years

Streaming music has been the driving force in moving the industry back to growth. Last year, revenue from streaming soared 45.2 percent, while download sales were down 10.5 percent.

But streaming has fallen fall short of becoming a music industry savior.

“We should be growing much faster,” Edgar Berger, chairman and CEO of international at Sony Music Entertainment, said Tuesday. “If we continue to recover at the same speed as last year, it will take us 10 years to reach the level … before digital disruption.”

Record label executives and the IFPI pointed fingers squarely at user-upload services like YouTube, claiming 80 percent of people flocking to Google’s massive video site are there looking for music.

IFPI breakdown of music industry revenue 2015
IFPI

Services like YouTube are the biggest source of demand for music worldwide, overall making up a more than 900 million person audience, Berger noted. But these services generate only about 4 percent of industry revenue, equal to $630 million.

“This is a gigantic mismatch between volume and rewards,” he said.

A YouTube spokesperson said Google has paid out over $3 billion to the music industry overall, and noted that only about 20 percent of people historically are willing to pay for music. “YouTube is helping artists and labels monetize the remaining 80 percent,” YouTube said.

The music industry plans to fight that battle in the seats of government worldwide. IFPI officials called on global policymakers to change laws that allow tech companies to “effectively to circumvent the normal rules of music licensing,” according to Tuesday’s report.

It echoes a scathing campaign last month by U.S. music industry officials. Hundreds of music industry figures, including megastars like Katy Perry and Maroon 5 and high-profile manager Irving Azoff, lashed out at Google for profiting off piracy because of a “dysfunctional” law.

The industry’s underlying target is what is known as “safe harbor” provisions in digital copyright legislation in both the U.S. and European Union. In the U.S., this section of a 1998 law called the Digital Millennium Copyright Act created a notice-and-takedown system, in which copyright owners flag infringement to online companies.

But music figures claim that tech giants “have figured out how to game this law” to earn billions of dollars without compensating the artists and rights holders fairly for their work, according to the letters sent to the Congress’ U.S. Copyright Office last month.

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