By Emmanuel Legrand
For the first time in over 15 years, the United States' recorded music market enjoyed a two-digit year-on-year growth rate. The positive trend noticed during the first half of 2016 accelerated during the second half with full year estimated retail revenues from recorded music growing 11.4% to $7.7 billion, compared to $6.9 billion in 2015. At wholesale value, the industry was up 9.3% to $5.3 billion.
"The primary driver of that growth was a doubling of paid streaming music subscriptions which helped the American music business experience its biggest gain since 1998," said Josh Friedlander, SVP, strategic data analysis, at the Recording Industry Association of America, which compiles market data. Friedlander, however, puts the achievement into perspective: "Although our 2016 revenue report catalogues substantial overall improvement for the industry, revenues are still only about half what they were in 1999, and revenues from more traditional unit-based sales – physical products and digital downloads – continued to decline significantly."
Cary Sherman, chairman and CEO of the RIAA, wrote in a blog post that "a year of growth in the US music business is welcome news. It suggests that years of patiently nurturing a nascent streaming marketplace has begun to pay off. But it does not erase 15 years of declines, or continuing uncertainty about the future."
He added, "As excited as we are about our growth in 2016, our recovery is fragile and fraught with risk."
With revenue growth from both subscription streaming services (Apple Music, Tidal, Spotify Premium) and ad-supported services (YouTube, Vevo, Spotify's free tier), as well as growing collections from neighbouring rights society SoundExchange (Pandora, Sirius XM, iHeart...), streaming now represents 51.4% of the industry's total revenues, against 34% in 2015 and 9% in 2011.
Total revenues from streaming platforms were up 68% to $3.9 billion, with the bulk coming from paid subscription services at $2.48 billion, up from 1.15 billion in 2015, more than doubling year-on-year (+114%). Friedlander said that growth was driven by "very strong new user adoption, as the number of paid subscriptions to full on-demand services grew 109% to average 22.6 million for the year, compared with 10.8 million in 2016." On-demand, ad-supported services brought in $469 million, up 26% from $373 million in 2015. Collections from SoundExchange reached $884 million, up 10% from $803 million in 2015.
Due to the evolution of the subscription market, with a greater variety of service offerings and features, the RIAA is now differentiating revenues between full-service paid subscriptions and some “limited tier” services. This new category includes paid subscriptions for services limited by factors such as mobile access, catalogue availability, on-demand limitations, or device restrictions, which comprises services like Amazon Prime, Pandora Plus, and other subscriptions services. In 2016, these services accounted for $220 million in revenues, or 11.4% of the $2.5 billion subscription total.
For the first time, the RIAA is also reporting an “other ad- supported streaming” category that reflects revenues from direct payments from ad-supported digital streaming services that are not distributed by SoundExchange and not included in the on-demand category. This category contributed $101 million in 2016.
Digital downloads and ringtones accounted for 24.1% of total revenues, physical sales for 21.8% and sync for 2.7% at $204.3 million. The rise in streaming usage seems to have accelerated the demise of downloads. In 2016, revenues from sales of digital tracks and albums "declined faster than in any previous year," noted Friedlander. Overall digital download revenues were $1.8 billion, down 22% compared to 2015. Individual track sales revenue was down 24%, and digital album revenue was down 20% versus 2015. At $876 million, revenues from sales of digital albums represented 49% of the download total, their highest share ever.
The total value of shipments of physical products decreased 16% to $1.7 billion. The share of the market from physical music products fell to just 22%, down from 29% in 2015, with CDs down 21%. However, shipments of vinyl albums were up 4% to $430 million, and comprised 26% of total physical shipments at retail value – their highest share since 1985.
"Driven primarily by growth in paid subscriptions, these results build on the 2016 mid-year data," commented Friedlander. "The industry showed another increase, albeit from levels that remain well below their peak in the late 1990s. The growth of streaming music and prevalence of digital platforms show that music consumption is higher than ever – which is great for fans. But challenges remain significant as physical shipments and digital downloads, two of the industry’s three major revenue sources, continued to decline in 2016."
Sherman used the RIAA announcement to reiterate the music industry's claim that there was a value gap created by platforms like YouTube using safe harbour provisions in US copyright law to pay below market rates to rights holders.
"The unfortunate reality is that we have achieved this modest success in spite of our current music licensing and copyright laws, not because of them," wrote Sherman. "That’s not the way it should be. For example, it makes no sense that it takes a thousand on-demand streams of a song for creators to earn $1 on YouTube, while services like Apple and Spotify pay creators $7 or more for those same streams. Why does this happen? Because a platform like YouTube wrongly exploits legal loopholes to pay creators at rates well below the true value of music while other digital services?—?including many new and small innovators?—?cannot. It may be the same song requested by the user, on the same device, but the pay-outs differ enormously because of an unfair and out-of-date legal regime."
To address the issue, sixteen music organizations (A2IM, AFM, AMA, CMPA, CMTA, GMR, Living Legends Foundation, MMF-US, NMPA, NSAI, Recording Academy, R&B Foundation, RIAA, SAG-AFTRA, SESAC, SoundExchange) representing artists, songwriters, record labels, publishers launched www.ValueTheMusic.com, a new website to inform policymakers and music fans throughout the world about "laws enacted in the dial-up era that undermine the modern Internet music marketplace."
Wrote Sherman: "Government leaders can’t be satisfied with a dysfunctional and unsustainable status quo that devalues music."