Moving Forward

For nearly two decades, the music industry did not sustain year-on-year global revenue growth.

Digital peer-to-peer sharing services, such as Napster, were scrutinised as the main contributors to the decline in value we placed on our music. These controversial services faced significant cases of copyright infringement and have since ceased to operate.

However, it was the fall of these services that opened the doors for digital streaming platforms through which we now consume our music, i.e. Spotify, Apple Music, Soundcloud and YouTube.

After two decades of almost uninterrupted decline, we have witnessed a breakthrough for the growth and stability of the digital music space.

In 2015, digital music consumption grew at an unprecedented rate, of over 26%. We observed digital sales surpass physical sales for the first time, contributing 45% of total industry revenues compared to physical sales of 39%. Streaming emerged as the digital preference over downloads, accounting for 43% of digital revenues.

And, total industry revenues grew by over 3%, marking the industry’s first year-on-year growth since the disruption of digital peer-to-peer sharing services.

Following its inception, the maturing digital music space has since grown to it’s healthiest state, driven predominantly by the growth in consumption of digital streaming platforms. This should be great for music fans, artists and rights holders. But, we aren’t celebrating.

International Federation of the Phonographic Industry (IFPI) CEO, Frances Moore, outlines the matter at hand.

“It is simply that the revenues, vital in funding future investment, are not being fairly returned to rights holders. The message is clear and it comes from a united music community: the value gap is the biggest constraint to revenue growth for artists, record labels and all music rights holders.”

The value gap depicts the difference between the sizeable and growing levels of digital music consumption, compared to the stagnant rate of revenue generated by these platforms.

The single largest source of digital music consumption is generating only 4% of industry revenue. This is the result of user-uploaded, ad-supported platforms generating only $US 634M of industry revenue with over 900M total users. This quantifies at an estimated $US 0.70 average annual revenue per user.

These platforms exploit inequitable digital-rights management practices, in order to restrain from negotiating music licenses, and conclude licenses at artificially low rates. This results in a substantial mismatch between volume and rewards.

The music industry maintain that in order to progress on the value gap between consumption and revenue, policy makers need to drive legislative change. However, we can proceed, as a community, to overcome these and other pressing pain-points, through innovation and partnership with the industry.

There is an absence of variation amongst the market leaders established systems. These leaders are imitating one another, stagnating into alike channels, and pursuing no additional incentive to music fans, artists or rights holders.

The digital music space certainly isn’t at its growth end-point. However, market leaders need to pursue individuality, in order to further nurture the digital space.

We need to strive for the education and transparency behind the present-day revenue system. If these systems aren’t deemed to be equitable, than we need to progress with alternative, even-handed methods. We need to empower the industry with control over price management and provide access to their analytical data. If each artist doesn’t have the tools available to value their own trade, how are we to place value on our music?

Moving forward, the digital music space has built a firm foundation for the industry to further grow and prosper. While legislation changes are well-overdue, it will be the innovative partnership of the music community and industry which will restore the value of our music.

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