Recorded music revenues up 5.9% in 2016: ‘This isn’t mission accomplished…’


At the end of 2015, 68 million people were paying for a subscription to music-streaming services like Spotify, Apple Music and their rivals.

A year later, that figure had grown to 97 million, according to industry body the IFPI, which published its annual Global Music Report this afternoon.

Once family plans, where up to six people in a household access a streaming service through one subscription, the number of ‘paid subscription users’ at the end of 2016 rises to 112 million.

It’s this growth in streaming subscription services that’s the driving force behind the recorded-music industry’s overall growth in 2016, with global revenues up 5.9% to $15.7bn.

Within that, streaming revenues – from paid subscriptions and free, ad-supported services – grew by 60.4%. Revenues from physical music sales fell by 7.6%, while those from downloads fell by 20.5%.

2016 was also a tipping point for the industry: the first year when digital music accounted for half of labels’ overall revenues

The 5.9% overall growth follows a 3.6% increase in 2015: two consecutive years of growth, although the IFPI and its major-label members spent a decent proportion of their press conference in London this morning emphasising the 40% decline over the 15 preceding years.

There was also a determination not to crow too much about the growth: the IFPI’s chosen rallying call this year is “modest growth, limitless potential” with a hefty ‘but’ added on. Modest growth, limitless potential, but a pressing need to solve the ‘value gap’ challenge posed by YouTube.

It’s a delicate line to tread: celebrating accelerating growth while also trying to convince legislators that YouTube’s ‘safe harbour’ protections need to be whipped away, forcing it to strike new licensing deals that will pay rightsholders much higher royalties.

The IFPI’s report claimed that in 2016, 212 million users of audio music-streaming services – including free and paid ones – who generated $3.9bn of revenue for rightsholders. By contrast, it claims that 900 million users of “user upload video streaming services” generated just $553m.

Here are the other highlights from the IFPI press conference and its report:

“It hasn’t happened by chance,” said IFPI CEO Frances Moore, referring to the 5.9% growth. “As an industry, we’ve had years of investment and innovation to make it happen, and we’re starting to see the shift now: from adapting to the digital age to driving the digital age.”

Moore was firm in her belief that the music industry should rein in any tendency to over-celebrate the last two years’ growth.

It’s important to remember the context in which this announcement is being made. It’s 5.9% growth after a period of almost 15 years and 40% decline in value of the industry,” she said.

“The story of recorded music over the last couple of decades has really been one of transformation. From physical to digital; from downloads to streaming; from ownership to access. We want to achieve one more transformation, and that is from decline to growth.”

The representatives of the three major labels – independents didn’t get stage time at the event, which as in previous years is an unfortunate omission, given their collective market share – offered a similar mix of praise and caution.

“We are only two years in to our recovery. We’re no longer running up a down escalator, but that doesn’t mean we can relax,” said Stu Bergen, CEO of international and global commercial services at Warner Music Group.

“60% streaming growth is deceptive, not least because that growth is being undermined by some services that are exploiting safe harbour… We’re still in the early, vulnerable stages of our transformation.”

Bergen hailed the success of WMG act Ed Sheeran, whose latest album ‘Divide’ has been a big seller physically and digitally, as well as breaking streaming records. And he also called for more innovation from the labels.

“Whatever growth we see in the future, we will always need to stay vigilant about every opportunity. We are not sitting back and waiting for streaming to do the heavy lifting. We are constantly asking ourselves what’s next?” said Bergen.

Examples? “Hi-res audio, new types of video content, augmented reality, virtual reality and beyond.”

Dennis Kooker, president of global digital business and US sales at Sony Music, focused on the growth of paid subscriptions.

“It’s paid subscriptions that is ultimately really driving the growth of the business, and the return to growth,” said Kooker.

“The growth in 2016 has been fuelled by the competition in the marketplace. The competitive marketplace ultimately has helped to drive growth for everyone across the industry,” he continued.

We will look back at 2016 and look at it as a tipping point for the industry. The point at which we moved from an early-adopter stage to moving towards mass-market. The opportunity to continue to penetrate into the mass-market is tremendous.”

Kooker said he has high hopes for new music services coming to market, with “different feature sets… different configurations, some that focus more on younger demographics, some that focus more on older demographics”.

Michael Nash, EVP of digital strategy at Universal Music, also mixed enthusiasm with caution about the opportunities and potholes ahead for labels and their artists.

It was a year of solid accomplishment, but to declare mission accomplished is to fundamentally misunderstand the mission itself,” said Nash.

Nash dropped what’s becoming another key phrase for the labels in their campaign over safe harbours – that music must be “fully and fairly valued” in the marketplace – and like Bergen called for more experimentation.

“To breathe a sigh of relief and to rest on our laurels as if we’ve reached our destination would be to completely misread the landscape. Technological change shows no signs of decelerating,” he said.

This isn’t mission accomplished, but it’s also not mission impossible. It won’t be easy: it’ll require hard work and real investment.”

Nash hailed the “megatrend” of “mass consumer adoption of network-based services, otherwise known as the cloud”, and pointed to voice-controlled smart speakers as one of the most exciting hardware trends that could fuel future growth.

“The very concept of music-based entertainment is being brought beyond records and songs,” added Nash, citing messaging apps, live-streaming services, VR and AR as examples.

Music companies must seize the initiative, drive further transformation, and align our business model innovation with technology innovation,” he said. “Our success is dependent on the harmonious convergence of media and technology.”

But Nash too returned to the ‘value gap’ debate. “The scale of this inequality casts a shadow over the entire landscape that cannot be ignored,” he said.

“The longer this is permitted to continue, the greater the threat to the music ecosystem… The value gap must not be permitted to derail our mission. We have worked too hard to get here.”

“Modest growth, limited potential,” said Frances Moore. “To get to that sustained growth, we have to deal with a major problem. We need to work in a fair digital marketplace.”

IFPI event

Labels, of course, aren’t shunning YouTube entirely while the safe-harbour debate rumbles on. Bergen was asked why, if YouTube is such a danger, did WMG upload every track from Sheeran’s ‘Divide’ to YouTube on the day of its release?

I think there’s a certain acceptance in today’s environment that the music will be there – whether we put it there or whether the billion or billion-and-a-half users will upload it,” he said.

“If you have to accept given the reality – and that’s why we’re working so hard to change that reality – that it’s going to be there, it’s better to be there in a controlled and presented environment.”

The label digital bosses were asked for an update on their policies regarding streaming exclusives: making big albums available on a single service. Universal reportedly barred its artists from such deals last year, after Frank Ocean’s infamous Apple tie-up.

“Our general position is that our artists and our labels want to have the broadest possible audience for their new music,” said Nash. “We think that the best thing in supporting a competitive and vibrant ecosystem is to work with all partners.”

Nash played a very straight bat indeed to a follow-up question on whether Frank Ocean had spurred that policy.

“It is a posture we have assumed as the market has matured… a lot of things went into our determination that we had passed a point in time when it made sense to focus on strategic marketing opportunities [with individual services],” said Nash.

A question about stream-ripping – tools and websites that help people ‘rip’ music from streaming services and turn it into downloads – saw Moore point to a survey suggesting that 40% of 16-24 year-old internet users are doing it.

“Our action is to take litigation. We’ve taken litigation against some of the top [stream-ripping] sites, which is still under legal privilege. But watch carefully in the coming weeks,” she said.

Moore also parried a question about whether artists are benefitting from the streaming growth to the same extent that labels are.

“We’re beginning to see a slight shift. I’ve seen comments from the managers forum [industry body the MMF] where they are saying maybe streaming is starting to provide incomes towards artists,” said Moore.

The biggest thing to remember is a rising tide lifts all boats. We believe that for artists or producers, the solution is the value gap.”

“We have services like Spotify that deliver $20 per user [per year] back to the industry, and UGC services like YouTube are delivering less than a dollar. The artists are losing out, everybody is losing out. We believe the solution for everyone is the value-gap solution.”

The panelists were also asked about potential consolidation in the streaming market. If Apple, Google, Amazon and Spotify are in the global streaming market for the long haul, what will that mean for the likes of Pandora, Deezer, Tidal, Napster – can they also survive and prosper?

Kooker declined to speculate too much. “What we’re seeing already is there is good global competition, but we also see the strength of regional players,” he said.

“If you look at markets like China and India, it is the local players. In Asia in general, the local players definitely have a bigger role to play, and are a significant part of the ecosystem.”

“It will be very competitive on a global level, and hopefully with a broad number of companies. But we shouldn’t underestimate the impact of regional players, who will understand the markets better.”

Emerging markets are a key theme in the IFPI’s report, which notes that Latin America was the region with the highest growth in 2016: 12%. As the report came out, Spotify issued a statement from its director of economics Will Page hailing the region’s growth.

“Spotify’s success story has expanded beyond established markets, with Brazil and Mexico now making up two of our top four countries worldwide by reach,” said Page.

“Back when the industry peaked in 2000, Brazil and Mexico were 7th and 8th biggest markets in the world respectively. A combination of increasing smartphone adoption [reaching far more users than CDs ever did] and Spotify’s success makes the potential for these emerging markets to ‘re-emerge’ and to exceed previous peaks.”

Back at the press conference, UMG’s Nash suggested that journalists and music executives alike should resist the temptation to focus too much on “the competition around the first 100 million subscribers” when there are billions of smartphone owners to try to target globally.

“We’re less concerned by market consolidation happening because of the competition around 100 million existing subscribers of services,” said Nash.

A follow-up question asking how big the ultimate music-streaming subscriptions market could be saw Nash decline to set a target.

I wouldn’t think of it in terms of an end-game, and I’d be hesitant to put a number on the table,” he said.

“It’s not our expectation that you’re going to see most consumers with smartphones paying for subscription services. but you’re going to see a substantial percentage of consumers that have supporting technology adopting those services over time.”

“It’s too early to cap that out and say ‘we would expect that the market potential is X’. What we’re finding is that what we thought the market potential was is expanding year over year, as streaming surpasses expectations.”

Kooker was bolder. “I truly believe we can get the majority of people into a paying type of proposition, if we’re smart about it and creative in the way we approach the consumers,” he said.

“And with 100 million consumers enjoying it [already] we have 100 million evangelists out there that can spread the word,” added Bergen.

Nash had the final word. “How many industries have recovered from 40% revenue decline? What we’re undertaking right now would be a historical transformation of a business that went through serious decline,” he said. “That gives you a sense of what we’re up against.”

Stuart Dredge

Leave a Reply

(All fields required)