The Australian Record Industry Association’s double digit decline in recorded music sales last year shows an industry still in transition. IFPI’s global recorded music sales released this week, showing the global market slowed again last year, tell a similar story. Locally, although digital download sales were flat year-on-year for the first time, the Australian digital market still delivered overall growth on the back of increased revenue from subscription streaming services such as Spotify, Rdio, MOG, Deezer and Google.
While last year’s results in Sweden, Norway, France and Italy appear to support the story that digital streaming is finally turning music sales around in leading global markets after years of decline, in Australia’s case this story is still very much unproven.
Locally, the industry is concerned that streaming services are not growing fast enough to outstrip the decline in downloads. The year ahead will be crucial.
The industry should not place all hope in current streaming services, potentially missing the boat on new emerging opportunities. Although cultural differences play a part, there are already some rumblings from Asia that should be closely watched.
Breaking into the mass market
If the trend seen in the back half of last year is to continue there will be a reduction in the total Australian digital music market this year for the first time. And with physical sales expected to continue their decline, unless streaming services break into the mass market, 2014 could be a painful year for the local music industry -- the first to see both physical and digital annual revenues decline.
While streaming leaders such as Sweden and Norway have now delivered multiple years of overall growth on the back of streaming, those markets have rebounded from a lower base than Australia. Before streaming turned those markets around they sat at around half of their previous sales peak; Australia has not reached that point yet. Additionally, both Nordic markets have never seen download sales reach higher than 10 to 20 per cent of total sales, whereas downloads have reached almost half of the total market in Australia.
That could suggest that there’s still more to lose and further to fall in Australia.
Bundling your way to success
To prevent any further fall streaming services such as Spotify, Rdio, Pandora and MOG (or Beats as it is likely to become) must become mainstream in Australia in 2014. The expected launch of YouTube’s paid music streaming service could also help, although Google’s track record with paid subscription services -- as opposed to free ad-based ones -- is poor. For Australia to repeat the trends seen internationally there is still a long way to go, given streaming only accounted for just over 10 per cent of all local digital sales last year compared to 94 and 84 per cent last year in Sweden and Norway respectively.
Mass market adoption in those countries has been on the back of bundling with partners such as mobile operators, broadband operators and cable and satellite television providers. This tight integration -- which wraps up music streaming fees within existing customer bills -- has seen music become part of the basic functionality of service provider offerings.
It has also improved customer satisfaction, reduced subscriber churn and allowed existing brands to reinvent themselves with a younger digital-focused demographic. Notably, Beats has just launched in partnership with AT&T in the US with this type of integrated bundle; Spotify recently partnered with Telecom New Zealand.
Without this integration it is difficult to see how the Australian market can reach the mainstream levels needed for streaming to deliver the growth stories seen in other countries. Separately, as wireless networks evolve, a push into the car dashboard via partnerships with auto manufacturers could extend the reach of both paid and ad-funded music streaming services. Apple and Google are also working with car manufacturers in a race to make iOS and Android standard in vehicles.
Even so, streaming as we know it might only be part of the picture. Streaming providers are no longer the disruptive upstarts they were five years ago when they were eyeing off download players such as iTunes and Amazon. The landscape is changing and there could be new opportunities on the horizon that are as unexpected as ringtones and ringback tunes were in the '90s.
Rumblings in Asia
The rapid ascent of Messaging Apps such as WeChat (China), LINE (Japan) and KakaoTalk (Korea) has seen them evolve beyond simple SMS-like services into fully-fledged in-app mobile platforms.
WeChat and LINE both reached 200 million users in just two years -- around three to four times faster than both Facebook and Twitter. And they are making money. On the back of messaging “stickers” (think animated -- and sometimes branded -- emojis or emoticons) and gaming, LINE generated $US194 million in quarterly revenues in its third quarter last year compared to Twitter’s $US167m.
The platforms have now become wider e-commerce and banking platforms for both physical and digital retail offerings. For example, WeChat users in China can pay for McDonald’s purchases directly from WeChat. In Korea, KakaoTalk users can “gift” vouchers to friends for Starbucks and Baskin Robbins to redeem via KakaoTalk.
Many also offer their own in-platform virtual currencies, which users might be able to earn playing a game within the platform or receive for recommending a friend to a brand’s product.
This ecosystem appears a natural fit for music and could help it wrestle back some of the spending that has flowed towards mobile apps and games over the last decade. Although Paul McCartney, Katy Perry, Snoop Dogg and PSY have dabbled in offering paid stickers within the platforms, the real opportunity for the music industry lies in the integration of music streaming and download services directly into the platforms, which already have upwards of one billion users between them.
As a point of comparison, WeChat’s 270m active monthly user base alone is already more than 10 times Spotify’s number of global active users.
But this is not mere speculation. The first steps were taken late last year when KakaoTalk and LINE both announced their own paid music services. Although KakaoMusic is currently only available in Korea, LINE indicated that its LINE Music offering would be offered outside Japan in the future.
The services build on the social focus of the apps -- KakaoMusic, for example, allows users to purchase tracks that are then available for listening by the user and their friends in their own “listening room”. Importantly, these services are being launched legally through deals with record labels and music publishers.
Although messaging apps are at present mainly an Asian phenomenon, the services are rapidly expanding into the US, Europe and Australia. But whether they are successful locally or not, they offer a reminder that current streaming offerings might not be the only hope for the music industry as traditional CD and download sales drop.
History has shown that the future is not always as expected -- even if it’s a ringback tune or a musical sticker in a message from Asia.
Andrew Harris is principal analyst at APRA|AMCOS, the non-profit organisation that collects and distributes songwriting royalties to over 80,000 songwriter, composer and music publisher members throughout Australia and New Zealand.