January 5, 2017:Paid music-streaming was worth £418.5m in the UK in 2016

Paid music-streaming revenues in the UK grew by 65.1% to £418.5m last year, according to the Entertainment Retailers Association (ERA) in its latest annual figures.

That helped music revenues overall grow faster than games and video in the UK in 2016, even if music still lags behind those categories in value terms. In an interview with Music Ally, ERA CEO Kim Bayley expressed optimism about the years ahead.

“Now we have gone into a majority digital business and the digital part of the business is still growing, the declines in physical are more than offset by that growth in digital going forward,” said Bayley. “I don’t want to predict the exact percentage, but we are on a growth curve.”

Slipstreaming the BPI’s 2016 numbers at the start of the week, ERA’s retail-value figures include music, video and games, thus putting music in the broader context of overall entertainment spending.

Music spending was up by 4.6% to a value of £1.1bn, with streaming the driving force. While there was a token nod in the reporting to the “vinyl revival” – which is, frankly, just an interesting niche rather than a fast-track to recovery – it was all about streaming for music in 2016. Revenues jumped from £253.5m in 2015 to £418.5m in 2016.

(Important note: the ERA data does not include ad-supported income – so its figures do not include YouTube, Vevo or Spotify’s free tier.)

ERA’s figures showed the physical market dropping by 7.3% to £475.4m, while download sales tumbled 26.8% to £214.6m, meaning that 2016 was the year when paid streaming overtook downloads for music spending in the UK. Hardly a surprise, but a tipping-point worth noting.

Now That’s What I Call Music 95 was named by ERA as the year’s biggest album, reporting unit sales of 908.5k split between CD and download sales.

Bar outliers like Adele, the days of million-selling albums in the UK appear to be drawing to a close, although music bodies like the BPI have already moved on to ‘album-equivalent sales’ as the metric of choice in response to streaming’s growth.

“Last year, there was probably not a pinnacle album artist that came out that would have sold 1m copies,” said Bayley. “If you have Ed Sheeran or whatever coming out this year, you would like to think it would sell 1m copies.”

The fact that Now… 95 can still sell in huge numbers despite also being on streaming services without windowing will be picked over for clues about the persistence of ownership in an on-demand streaming age. If anything, it exposes the gulf between the truly casual consumer (i.e. the very heart of the mainstream) and the heavy-lifting music obsessives courted by subscription streaming services.

The casual consumers might only buy a few albums a year, but when they do it really counts. For them, subscription streaming, despite its convenience, range and immediacy, may still seem a false economy at £120 a year.

“I think there are two types of consumers buying now,” said Bayley. “There are the people who want to collect it and probably have all 95 Now… albums in their collection. But it is also that mass-market audience who don’t want to spend £120 a year [on a subscription] as they are happy with the radio for day-to-day use and just want to have a few albums in their collections. Physical and digital have different uses for different people.”

Music as a category reported the biggest value growth last year – with its 4.6% uptick being bigger than that for video (2.2%), games (2.9%) and entertainment as a whole (3%). That said, in terms of total value, music was the poor relation, generating almost exactly half of what video generated (£2.25bn) and just shy of a third of what games did (£2.95bn).

Netflix was hailed by ERA as a powerful model for video subscription proving its worth but Bayley feels that the music business would be extremely reckless to slavishly copy the fact that its appeal rests on investing in original content that it controls exclusively.

“I think it would be a really poor model for music services [to invest on exclusives in the same way],” she says. “For music it is a poor customer experience to have exclusive content. Whereas in video, because it is a one-time use, people don’t want to keep the content forever [like in a Spotify playlist] and are quite happy to dip in and out of individual services.

See below for the full interview with Kim Bayley on the numbers, about what they don’t include, what the future could hold for retail and what music can learn from other entertainment categories.

What’s your initial take on the 2016 ERA numbers?

“I would say they were overwhelmingly positive and a vindication of the investment all the digital services have made in creating new ways for consumers to access content. What we have really seen in 2016 was a continuation of the growth that kicked in the year before across all our sectors as consumers embraced new ways of accessing their favourite content.”

Streaming is once again the only major boom area. Is ownership now under threat?

“I don’t necessarily think that ownership is under threat. I think ownership has a specific place in the market and what we are seeing is that a lot of customers are choosing to own certain content while accessing other content. In the music market, they may well subscribe to Spotify but they’ll go out to buy the latest vinyl album from their favourite artist to add to their collection – hence the growth in vinyl.

If you extrapolate that to video, people might subscribe to Netflix so they can get hold of Orange Is The New Black but they’ll also go out and buy The Force Awakens on DVD. Of the 2.3m units of that Star Wars film that were sold, 2m of them were on disc – so clearly people still want to collect it.

Ownership is still really important in the gifting market because digital doesn’t really cut it as you can’t really gift someone a Netflix subscription for Christmas or gift them a couple of downloads. Ownership still clearly has a place in the market, but we have also seen, with the explosion of technology, that people want to consume content on the move and that is what is growing the digital market.”

Can you clarify precisely what streaming data you include here?

“It does not include YouTube or Vevo – they are audio-only figures. It was a slightly deliberate thing by ERA to exclude it as we just include retail revenues – i.e. where money is changing hands from the consumers [to the retailers]. So we also haven’t included in those numbers advertising-based freemium revenue on services like Spotify.

From our perspective, we purely talk about retail. We are talking here about subscription payments made or money going through the tills. Streams on things like YouTube have an important place in the market, but it is not until consumers actually pay for it that it features in the ERA numbers.”

Will you eventually have to factor that in?

“The wider industry will always factor that in. It’s like the fact that we only deal with video subscriptions and not TV subscriptions. So while we count revenues from Sky’s NOW TV and Sky Store, we don’t count revenues from Sky TV subscriptions as it’s slightly different.

Are your non-music members as worried about the value gap on YouTube as the music industry is?
That is probably something that the rightsholders need to comment on. As ERA, we would view YouTube as part of the industry; it fulfils a promotional role that some retailers don’t fulfil and how much they pay [or don’t pay] for content is out of my remit.

Clearly most of the ERA members don’t like it when someone gets content cheaper than they get it. But they [YouTube etc.] have a place in the market and they have a very valuable role to play in promoting music and video content. Plus, they have paid-for services as well [YouTube Red], so they are working as well on driving new revenues from consumers.”

The BPI’s 2016 numbers used album-equivalent streams to tabulate total “units”. Will we soon have to give up on the idea of units as a measurement?

“I don’t think so. Clearly the industry needs to understand how popular an individual track is or how popular an individual album is. But the reason we focus on value is that we know those numbers are right and we know it is real revenue passing from a customer to the industry; whereas an album equivalent measure is a little bit of smoke and mirrors in some ways as albums can have different numbers of tracks on them and the relative value from one album to another may be different

It is very hard to look at that measure and know where exactly Now That’s What I Call Music sits vis-à-vis Arctic Monkeys or whatever it is you are trying to look at. In terms of value, it is a very open and transparent measure.”

Music had the biggest growth as a category last year but still lags far behind in terms of value compared to video and games. Who is handling the transition into digital best?

“Personally I think all three categories [music, video, games] have handled it effectively. Games was the first to handle it effectively and what they did that other sectors haven’t necessarily done is to create a very different digital proposition to the physical proposition – so what you don’t do in games is necessarily cannibalise sales in quite the same way.

But what both music and video have created that games haven’t created is in subscription services – which is clearly where the massive growth at the moment is in terms of subscribing to something like Netflix or Spotify. They have all handed it successfully and have all dealt with it in a slightly different way.

The reason music has grown faster than the other categories is that it has suffered more in previous years. Music had a bad few years and now with the investment in Spotify, Deezer and so on they are bridging that gap faster to go back to growth. Also if you think about people using Spotify or Apple Music, it is still a minority of the population and as more and more of those people decide to embrace that way of consuming music we will see more growth.”

You highlighted Netflix as an example of a booming service. Its model is based on investing in original content and keeping it exclusive to the platform. Is this what music services should be doing too?

“I think it would be a really poor model for music services. The two very are very different. With film content and TV content, it is one-time viewing and people dip out of Netflix or Amazon Prime and they switch services constantly. In music, people expect to have all the content they want within a platform and they don’t subscribe to multiple platforms like they do in video.

For music it is a poor customer experience to have exclusive content. Whereas in video, because it is a one-time use, people don’t want to keep the content forever [like in a Spotify playlist] and are quite happy to dip in and out of individual services.”

Now… 95 was 2016’s biggest album but sold just shy of 1m copies. Is the age of the million-selling album now over?

“I don’t think so. Last year, there was probably not a pinnacle album artist that came out that would have sold 1m copies. If you have Ed Sheeran or whatever coming out this year, you would like to think it would sell 1m copies.”

What does the fact Now… 95 sold hugely and was still on streaming services tell us about the audience make up for music?

“I think there are two types of consumers buying now. There are the people who want to collect it and probably have all 95 Now… albums in their collection. But it is also that mass-marketing audience who don’t want to spend £120 a year [on a subscription] as they are happy with the radio for day-to-day use and just want to have a few albums in their collections. Physical and digital have different uses for different people.”

Can the growth in streaming continue or will it plateau?

“I think we are a long way from plateauing if you think about the percentage of people who use streaming services [now]. If we presume that 50% of the population buys music in some form or other, we are a long way from 50% using a streaming service. Even if we got to 40% of people using streaming services, that would be a significant rise in revenue for the industry.”

Will we see similar growth in 2017?

“I hate predicting what is going to happen over the coming year. Part of it will be dependent on product. If you have some really exciting new releases across the three entertainment categories, that always increases sales. But we are on a trend of all three categories increasing.

Now we have gone into a majority digital business and the digital part of the business is still growing, the declines in physical are more than offset by that growth in digital going forward. I don’t want to predict the exact percentage, but we are on a growth curve.”

Eamonn Forde
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