The Future of Music Consumption
This article was written by João Guerra. Due to our partnership with Beta-i we are fortunate to bring João from Portugal. He recently conducted an intensive analysis of modern music consumption, and his findings are summarised below.
The times when sales of physical music products such as the CD dominated are part of the past. Publishers of the pre-internet era were the center of the market, and the music experience was limited to albums and radio. The industry itself was confined to producing albums and consequent concert tours.
That world no longer exists.
In this digital age, piracy, peer-to-peer sharing, online music stores and, more recently, streaming services, have had the power to change the foundations of the music industry and to revoke the relevance of the CD. The music consumer behaviour has been changing, as services like Napster or iTunes are allowing people to build their own on-the-go playlists. The International Federation of the Phonographic Industry (IFPI) collected data regarding the use of the CD as a product for listening to music, and the results were conclusive: by 2015, digital revenues were already surpassing those of physical products.
In fact, the year 2015 marked a turning point in the negative sequence of losses in the music industry since the beginning of the new century. Last year earnings reached $15B, up 3.5% from the previous year; much due to the increased access to music through digital platforms. Iconic countries for the music world, such as the U.K. and the U.S., reflect this trend. Streaming consumption increased by 87% and 100%, respectively, revealing a growth trajectory as opposed to the fall of digital downloads and physical products. However, looking at the contribution of each platform to the final total of revenues generated by the music industry, it is clear that income from physical products still represents almost half of the total value.
Consider the Australian market.
By 2015, although the downward trend of physical products was accompanied by the rising of streaming, the latter was at a relatively slow pace. According to an analysis conducted by Music Business Worldwide, revenues from physical products are still worth 38% of the total of $252M generated , while streaming only generates 21% of that value, that is, about $54M.
Incidentally, Dan Rosen, CEO of the Australian Recording Industry Association (ARIA) prefers to highlight the reappearance of earnings in the Australian music industry with input from various sources than addressing the different growth trends of the platforms, saying,
“Australian fans are consuming more and more music and this is done with the contribution of a number of unprecedented formats, from streaming to downloads through mobile devices, not to mention the purchase of CD’s and vinyl in the local record stores”.
Perhaps the death of the CD is not so close.
It is true, and must be taken into consideration that artists, specialised and online stores, and supermarkets are still selling catalogs of CDs at reasonable prices. Streaming can be more easily the substitute of downloads than the CD’s. The consumer market for the more digital access to music is different from that of the physical possessors of it. In theory, the CD’s consumer is older, listens to a more mainstream type of music and tends not to use any kind of streaming service. A consumer of CD’s might spend about € 20 to € 25 a year on the product if they buy a special edition or if their favourite band releases a new album. The alternative, on a more modern and digital platform may cost about €9.99 per month, 5 or 6 times the amount that particular consumer would usually pay.
Producers themselves can be catalysts.
Such changes of tastes are not entirely natural and take time. The decline of physical products is in fact quite constant and follows the natural characteristics of declining obsolete formats. It will be when the various channels (distribution, communication, etc.) of CD support are disinterested that the product will cease to be relevant in markets. Mark Mulligan of MIDia Research thinks this decision of disinterest is the music industry’s to make. In other words, it is up to agents to opt for either the slow death of the CD or for the immediate promotion of customer migration from one platform to another. He refers to an example of success: Netflix, which, by itself, created the basis for the transition from a DVD rental model to a streaming video subscription service.
This creates an opportunity.
Artists and publishers must take into account the changing tastes of their consumers and shift their creative and business strategies to monetise on these new behaviours. After all, the market for CD’s is getting smaller and younger generations are more focused on other of platforms. As Robert Kyncl, the Chief of Business for Youtube, points out, this shift from analogue to digital has the potential to generate a larger share of earnings by reaching a larger market. Different players in the music world can move from a situation where they only make money with the super-fans who bought CDs to where they can reach all music lovers through more easily accessible online services.
