one-direction-2013

Happy new year! Fancy starting off 2014 with some music industry sales figures? British music body the BPI and the Official Charts Company have just released their official UK recorded music numbers for 2013.

They could answer some key questions: specifically whether streaming music services like Spotify are eating into download sales on stores like Apple’s iTunes, and whether they’re helping to increase overall music industry revenues as they are in countries like Sweden and Norway. Also: are One Direction still quite popular? (Answer: yes).

We’ll start with the main figures. Total retail-value sales of recorded music in the UK fell 0.5% year-on-year to £1.043bn in 2013. That figure includes CD, vinyl and download sales as well as streaming music subscriptions, but NOT revenues from ad-supported streams or online views of music videos.

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The overall value of album sales fell 3.6% to £772.1m, single sales dipped 1.6% to £167.8m and subscription streaming rose 33.7% to £103m in 2013, meaning that the latter category accounted for 10% of UK recorded-music revenues for the year, up from 7% in 2012.

According to the Official Charts Company, Brits streamed 7.4bn songs in 2013, which was double 2012’s total of 3.7bn. These figures DO include ad-supported as well as subscription streams, but still not music videos.

“The picture is even better than that presented by the figures…”

“The numbers we’ve released hugely understate where we are in terms of the transition. We’ve seen a doubling of the volume of audio streams, but the retail-value figures don’t include ad-funded. Overall the picture is even better than that presented by the figures,” BPI boss Geoff Taylor told Music Ally in an interview ahead of the announcement.

“It’s highly encouraging that streaming is growing so fast, and that we’re seeing a big uptake in subscriptions. Clearly we’re having to keep a close eye on the evolution of the market though. Everyone is focused on the change from physical to digital, but within digital we also have a transition going on, from downloads to streaming.”

Can we fill in the gaps missing from the BPI’s streaming-revenue figures? We can try. Spotify’s last financial results for its UK subsidiary revealed that in 2012, it generated £9,147,372 from advertising and £64,756,426 from subscriptions in the UK – £0.14 of ad revenue for every £1 of subscription income.

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If that applied to the UK market as a whole – a big if – we could start thinking about how an additional £14.4m of ad revenues from audio streams might be shared with music rightsholders, on top of the £103m of subscriptions.

(An interesting aside: if UK subscription streaming revenues were £77m in 2012, and Spotify Ltd’s subscriptions income that year was £64.8m, that means Spotify took an 84% share of the paid streaming market in the UK in 2012. We’ll have to wait to find out what Spotify’s share of the £103m in 2013 was.)

YouTube’s value to the British music market? That’s trickier to figure out, but important: Google’s video service is the world’s most popular streaming music service, and particularly so for teenagers, yet it’s not yet included in the BPI’s figures. As a rough guide, consider figures released earlier this year by Vevo, which runs many of the biggest YouTube music-video channels. Vevo’s British users streamed 932m music videos in the first six months of 2013 alone.

Spotify recently claimed that the average royalty payout – including publishing – for 1m music video streams on services like YouTube was $3k (£1.8k), which if true would scale up to just £1.7m (caveat: Spotify has an obvious interest in presenting YouTube’s payouts as low, and Vevo’s pre-roll ads will be more lucrative than standard YouTube ad-payouts).

All this is extremely fuzzy maths, though. With Spotify’s service now including a free, ad-supported mobile tier, and with Apple’s iTunes Radio expected to launch this year in the UK too, when will the BPI start factoring ad-supported audio streams (as well as music video views) into its end-of-year figures? “It’s a question of how quickly you can get the data,” said Taylor. “We’d like to have it all instantly, as would you!”

“There’s inevitably going to be a slowdown in growth in singles at some point…”

What else do the BPI and OCC figures for 2013 show? First, don’t forget that CDs are still very important to the British music industry. Album sales (not including streams) accounted for 74% of total recorded music revenues last year, and CDs accounted for 64% of album sales by volume – units rather than retail value.

The overall number of albums sold has been declining steadily: 128.9m in 2009, 119.9m in 2010, 113.2m in 2011, 100.5m in 2012 and now 94m in 2013. In that last year, the 12.8% drop in CD album sales wasn’t made up for by a mere 6.8% rise in digital album sales.

In fact, the year-on-year growth in digital album unit sales has also fallen steadily: 30.4% in 2010, 26.7% in 2011, 14.7% in 2012 and 6.8% in 2013. While a 100.8% rise in vinyl album sales to 781k units last year is great news if you love vinyl, that was still only 0.8% of overall album sales in the UK.

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How about singles? It’s looking like 2012 may have been a peak in that part of the market.

That year saw 188.6m single sales with a retail value of £170.5m, including a record 183.3m digital track downloads.

In 2013, the retail value fell 1.6% to £167.8m, while the volume of single-track download sales fell 4.2% to 175.6m. Bright spots – four tracks selling more than 1m downloads, 1m single downloads on Christmas Day for the fourth year in a row, 685k sales of One Direction’s ‘Midnight Memories album in four weeks and 1.1m sales of the latest NOW! compilation – don’t hide the feeling that in 2014 and beyond, the UK may be entering a period of managed decline for selling recorded music, upping the pressure on streaming to take up the slack.

“It’s too early to say that’s the trend. We’ll have to see how the releases are in 2014. There’s inevitably going to be a slowdown in growth in singles at some point, but there are release-schedule factors as well. We’ll keep a close eye on it,” said Taylor. “More important for the future of the business is continuing growth in digital albums. Obviously digital singles will be affected by people moving into streaming.”

“Nobody should be scared of this evolution towards streaming…”

On the streaming-cannibalising-downloads question, there is some interesting data in the BPI and OCC figures. Bastille, for example, were the second most-streamed artist in the UK behind Arctic Monkeys in the UK, but their ‘Bad Blood’ was also the most-downloaded album. One Direction’s 685k ‘Midnight Memories’ sales came alongside a day-and-date release to streaming services, helping the band become the fifth most-streamed artist of the year.

Big sellers tend to be big streamers too, although this shouldn’t come as a big surprise. Beyoncé’s 829k sales in three days on iTunes alone of her eponymous fifth album would be the most obvious example of an alternative windowing strategy for global stars paying off.

“Depending on the artist, the mix is going to be different, but broadly speaking, what’s popular for purchases is also popular for streaming. They are to a degree complementary. But nobody should be scared of this evolution towards streaming,” said Taylor.

“First, it won’t be for everyone. There will still be people who want to purchase – look at the resurgence of vinyl – people who want to own, to collect. Our job is to release great music and give consumers the choice as to how they enjoy it. More deluxe editions and vinyl editions for people who want to buy, and then for people who want the spontaneity and instant access to a wide catalogue of music, streaming is a phenomenal experience.”

And phenomenal for artists too? This remains the most heated part of the debate around the streaming transition: the impact of that shift from sales to streams not just on the One Directions and Beyoncés of the world, but on other kinds of artists: those just starting out, or who have smaller fanbases.

What the BPI and OCC stats show is that the music industry needs subscription music services to grow rapidly, especially if digital sales have peaked. Not all artists agree. That’s why addressing their concerns – not just busting myths and promising future growth (although both are important) but also ensuring artists play an active role in helping shape the evolution of the streaming music services.

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“We’ve seen 20 or more artists who’d previously held back their repertoire going into Spotify and Deezer, but there’s still a debate, with some artists concerned about the payouts from those services,” said Taylor.

“But this is growing very fast, and there’s a delay in payments coming through from streaming, so one doesn’t necessarily see the impact of the growth immediately. Most importantly, you can’t compare getting paid once for the sale of an album to getting revenue year by year by year from a streaming service. People will become more familiar with that over time.”

What should 2014 bring for the British music industry? Taylor is looking forward to the launch of Beats Music and other new streaming services, while warning that “any new entrant is going to have to innovate to gain market share”. He sees innovation coming through “editorial, discovery and features” but also through partnerships between streaming services and mobile operators, consumer electronics firms and carmakers.

“As more people see the benefits of having music all around their house or in their car, I think we’ll see enormous growth. The concept of streaming music will become much better understood as it’s integrated with trusted consumer brands,” said Taylor.

“Cars is the area I’m most excited about, once we have streaming services with 4G and Wi-Fi in cars, properly integrated into the voice-control systems, so that it can just instantly play. Cars [through radio] have always been important for the music business, and this is a huge opportunity to monetise listening to music possibly better than we have in the past.”