by : April 2014, Business, Featured Articles

Streaming’s Global Momentum

Streaming’s Global Momentum

In January, various speakers at the MIDEM Show in Cannes suggested that music streaming may no longer be considered a complement to traditional music sales but the new way to access music. The momentum seems to be global.

In the United States, the growing popularity of streaming has impacted the livelihood of competing distribution channels. “Streaming services are starting to generate real consumer interest, [and] download sales are suffering as a consequence.”1 Platforms such as Spotify and YouTube each claim to have broken the $1 billion mark in total generated payments to rights holders since the inception of their services.2

Other countries are experiencing similar success stories.  In the year 2012, France’s streaming industry had a market share of 13%, which rose to 15% in 2013. Internet downloads and mobile downloads decreased, while subscriptions and physical sales went up. The upward growth in both traditional and radically new platforms displays an interesting trend. Subscriptions are dethroning downloads in the French digital space, while the steadfastness of physical media remains unaffected—if not supported—by the shift.

In Sweden, a country particularly known for championing streaming services, record companies generate one-third of their primary revenues from music streaming. “According to figures published by Swedish trade association, earnings from streaming eclipsed those from sales of all other formats last year. Although the sales boost meant that annual trade revenues increased for the third year running, the overall growth rate for recorded-music sales was much lower in 2013 than in 2012, with all other format sales suffering big falls”.3 Swedish consumers have taken a huge preference towards streaming, which has indelibly impacted the sales of all other formats.

The dominance of streaming in Sweden will likely be mirrored in other countries as knowledge of streaming platforms continues to grow. With the presence of companies like Rdio, iHeartRadio, Spotify, Pandora, and the recent newcomer Beats—which advertised their platform in the Super Bowl—the mass proliferation of streaming amongst mainstream society in America, and consequently the rest of the world, is only a matter of time.

In the United States, the rise in streaming has yet failed to atone for the continued plummeting of recorded music sales. As streaming continues to make itself known to new audiences across the country, physical sales continue to drop all across the United States. “According to Nielsen SoundScan, the number of music unit sales (albums, singles, music videos and digital tracks) last year slipped 6%, to 1.6 billion from 1.7 billion in 2012. Album sales were down 8 %, from 316 million in 2012 to 290 million in 2013, and album sales plus sales of track-equivalent albums (10 digital tracks equal one album) fell another 8%, from 550 million to 415 million”4.

If recorded music consumers in America are in fact no longer supporting older models of media consumption, they will likely flock to online streaming. According to Nielsen, “while overall music sales (including albums, singles, music videos, digital tracks) were down 6 percent year over year, streaming consumption grew a whopping 32 percent since 2012; Nielsen Consumer Research is showing that 68 percent of U.S. consumers reported streaming music in the past year, [and that this type of] music consumption should continue to surge forward into 2014”5.

The end goal of most streaming services is to have a dominant market share in the music industry. But right now, the streaming market is segmented and no single streaming service is commanding top dollars from the advertising industry. Since advertising is the primary form through which streaming companies generate revenue, profits will likely remain uninspiring until one or two services claim a dominant market share.

As streaming continues to take a foothold in America, the rest of the world is most likely to follow. In the meantime, Sweden can be viewed as a predictor of future outcomes in regards to what streaming can bring to the music industry’s table. There, the size of venture capital investment in the medium is staggering. Spotify, for example, has $600 million in international funding for a market cap of $5.2 billion—proof that the optimism of big money may be well founded. The affordability of the service, paired with ease of access, makes it a highly appealing platform capable of cannibalizing digital media sales and emerging as the top contender among equals.

In short, the growth of streaming is already changing the way music is accessed. There will be more to come. But it must be remembered that the allure of physical product will not go away suddenly, and the case of Finnish data of recorded music sales is illuminating. In that country, also a North European nation, CD and vinyl album sales continue to be attractive even as the market trades tangible mobile and download sales for the more intangible format of music streaming.

By Christian Florez

 

Endnotes

1. (US – Music Industry Country Report, January 2014, 2014)

2. (Music & Copyright Issue 498, 2014)

3. (Music & Copyright Issue 498, 2014)

4. (US – Music Industry Country Report, January 2014, 2014)

5. (U.S. Music Industry Year-End Review: 2013, 2014)

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