Tuning into music's digital struggle

Legacy revenue sources in the music industry are still declining, but digital is yet to make up the shortfall. And the increasing popularity of pirated music spells more pain ahead.

The global music industry has been under siege for more than a decade, and newly-released figures show how far off it is from reversing the downward trend.

Recorded music revenue fell a further 3.9 per cent in 2013, to $US15.03 billion, according to the International Federation of the Phonographic Industry. This was a $623 million drop on the previous year.

The majority of the decrease was due to a dramatic drop-off in recorded music sales within the Japanese market, with global revenues excluding Japan only down 0.1%

The challenge facing recorded music is strikingly similar to that facing the media industry: the rapid erosion of legacy revenue sources just isn’t being matched by the take up of digital.

In the case of recorded music, physical sales dropped by $1.02 billion in 2013. For the same period, digital revenue increased by $235 million. It’s once again a case of analog dollars being replaced by digital dimes.

The fact that social media has allowed prominent music acts to supercharge their marketing and consumer connections hasn’t trickled through to recorded music revenue.

Australia in particular had a rough year -- recorded music revenues were down 11.6 per cent, with $47 million ripped out of the recorded music industry. Physical revenue dipped 25.5 per cent, while digital revenue increased by only 7.8 per cent -- the first time in eight years digital revenue failed to grow by double digits.

There is an upside -- if you look at the top 10 acts in terms of sales for 2013, it’s far from a bunch of legacy musicians. Only three acts in the top 10 -- Eminem, Pink and Daft Punk -- released their first music in the 1990s, with One Direction, Macklemore and Ryan Lewis, Rihanna, Michael Buble, Katy Perry, Bruno Mars all relatively contemporary acts.

Touring revenue is more often than not dominated by legacy acts appealing to an older, more cashed-up audience, such as Bruce Springsteen, Roger Waters, Fleetwood Mac, Paul McCartney and The Rolling Stones.

But when you compare recorded music revenue to touring revenue, there are striking differences: One Direction sold four million copies of their 2013 album, which most likely would have generated somewhere between $40-$50 million of gross revenue. Meanwhile, their 2013 touring activity generated $114 million in gross revenue, lagging behind acts such as Bon Jovi ($259 million), Beyonce ($188 million), Pink ($170 million) and Justin Bieber ($169 million).

While recorded music revenue brings in far less than touring for most large acts, music records still provide the marketing bedrock for these artists. Records are played on radio and music TV, they appear in ads, and it’s this material that artists tour with. It could indeed be argued that recorded music is more important than ever.

But with physical sales still falling, digital growth slowing, and streaming services -- despite their growth – failing to become significant revenue contributors, the future looks less than bright.

Still, premium streaming services did manage to crack the $1 billion mark in 2013. But they account for just 6.6 per cent of total recorded music revenue. For all the hype around the likes of Spotify, there’s only 28 million paying subscribers worldwide for these services, according to the IPAA.

Physical music may be considered archaic to some, but it contributes more than 50 per cent of revenue, equivalent to $7.7 billion in 2013. If digital sales growth continues to flatten, streaming services will need to grow at a rate close to $1 billion in revenue a year to make up for the current rate of physical decline. There’s not much hope in that, judging by the latest trends.

Piracy, particularly the impact of non-licenced streaming services, is another major concern. Unlicensed services earned $226 million from trading in piracy in 2013, revenue the IPAA feels quite rightly should flow back to the creators of the content. The IPAA is also calling on Google to make it harder for people to access music illegally, claiming that “Google's policy to demote results from unlicensed services in results has not been effective” and that “search engines have both the technical expertise and a social responsibility to help tackle the problem.”