Features
2017 IFPI Report Points To Hot Music Market As Global Music Biz Hits $17.3 Billion
– IFPI Streaming Growth
2017, for the music business, was the year of the switch: for the first time, global streaming revenues exceeded physical sales $6.6 billion to $5.2 billion. Global revenues rose 8 percent to $17.3 billion, the highest in 10 years—not counting for inflation —according to the new Global Music Report by the IFPI, the global trade organization for the recorded music industry.
Positive stories are nearly everywhere. Large music markets like the U.S. have embraced Spotify, Apple Music and the other on-demand services most responsible for global gains. Smaller markets, some plagued by piracy for years, are experiencing upward movement thanks to streaming.
The global business has been on a remarkably steady journey. In both 2016 and 2017, total global revenues jumped $1.3 billion and streaming sales jumped $1.9 billon. In 2014, when revenues bottomed out at $14.2 billion, streaming accounted for about just $1.9 billion in digital market worth $5.9 billion. Digital formats have since traded placements. Because download and ringtone sales have fallen sharply, streaming was worth $6.6 billion in a $9.4-billion digital market last year.
Here’s a quick overview of the main data points:
— Streaming revenue was up 41 percent after rising 60 percent in 2016 and 45 percent in 2015.
— Digital share of global revenue is 54 percent, up from 50 percent in 2016 and 45.2 percent in 2015.
— Download revenue down 20.5 percent in 2017 after declines of 20.5 percent in 2016 and 10.5 percent in 2015.
— Physical revenue fell 5.4 percent after dropping 7.6 percent in 2016 and 4.5 percent in 2015.
— Ed Sheeran was the No. 1 artist and had the No. 1 song (“Shape of You”), and No. 1 album (Divide).
— The top 3 markets, in order, were USA, Japan, and Germany (in 2016 it was USA, Japan, UK).
— China is No. 10 market after being 12th in 2016 and 14th in 2015.
— South Korea is the #6 market, up from #8 in 2016
— Brazil improved to #9 from #11 in 2016
To be clear, the IFPI reports trade revenues, not retail value. The RIAA reported U.S. revenues for 2017 at $8.7 billion, but note the RIAA reports revenues at retail value, not trade value (and so the figures it makes public will seem large in comparison to the numbers other countries report).
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A transformation became evident in 2017. Last decade, the streaming service’s pitch was basically, “We’re a legal alternative to piracy.” Spotify used the theme for years. To grow the music business, legal services needed to be better—in terms of ease of use, convenience, unique features—than illegal alternatives. But when downloads were the standard format, illegal sources could provide the same music found at legitimate stores like iTunes. Streaming changed the dynamic. Only a well-capitalized, legitimate company can create an all-you-can-eat streaming service with tens of millions of licensed tracks.
Legitimate, licensed streaming services have put China at No. 10 after ranking at No. 12 in 2016 and No. 14 in 2015. Record labels are seeing a return on the time and resources they’re put into the world’s most-populated country. Just seven years ago, when Chinese company Baidu licensed music for the first time, the country’s only “significant source of licensed digital income for rights holders was ringtones, with the digital market dominated by unlicensed players,” the IFPI explained in its report for 2014. Today the Chinese market is dominated by Tencent, a tech giant that operates QQ Music, a streaming service with 700 million daily active users and 120 million users who either stream or buy music, according to reports (the subscriber figure has been reported at 10 million).
Another notable mover was Brazil. As with other countries, digital was responsible for the immense improvement. The Brazilian market grew 17.9 percent in 2017 to $296 million. Digital’s share of revenues grew to 60 percent from 46 percent in 2016. Interactive streaming revenues, from services such as Spotify and Apple Music, grew 64 percent to $162.8 million. According to Pro-Música Brasil, the country’s trade group, Brazil has 177 million smartphones, the point of contact for services to reach consumers.
A handful of streaming services operate in Brazil, the world’s sixth-most populated country of 208 million, and have developed a strong foothold. Napster and Deezer have operated there since 2013. Spotify and Google Play Music launched there in 2014. Apple Music debuted in 2015. A few other pioneers are out of business: Rdio, Rara, and TIM Music, a partnership between local mobile carrier TIM and the in-house streaming service of Cricket Wireless. TIM Music is now powered by Deezer.
If there’s room for improvements it’s the advertising-supported royalties paid for video streams. The IFPI’s report highlighted what’s called a “value gap” between royalties from audio and video streaming. Numbers provided in the report show audio streams from both paid and ad-supported services average about $20 per user. In sharp contrast, video royalties average about $1.50 per user. The IFPI blames the discrepancy on “a fundamental flaw in legislation underpinning the market” that treats user-uploaded video services differently than audio services. If countries can get the legislative solutions they seek, improved royalties from video services would add fuel to an already hot global market.