The Recording Industry Association of America (RIAA) recently published the sales figures (shipment figures) for the recorded music market in the US for 2013. Accordingly, digital sales increased by 7.6 percent to US$ 4.36bn from 2012 to 2013. Nevertheless, overall sales (digital and physical) slightly decreased by 0.3 percent from US$ 7.016bn to US$ 6.996bn in 2013. Thus, the sales decline of 12.3 percent (US$ -325m) in the physical product (CD, vinyl, DVD, SACD) could not be compensated by the growth of the digital music market. All in all, digital music sales accounted for 64 percent of the overall recorded music sales in 2013.
The strong increase of digital music sales is fueled by the booming music streaming and subscription segment, which grew 39 percent in 2013, generating US$1.4bn in revenue. However, single track download sales shrank by 3.3 percent (US$ -54.6m) in the same period. Digital album sales have slightly increased by 2.4 percent or US$ 28.7m from 2012 to 2013. These figures seem to indicate a cannibalizing effect of music streaming on download sales, even if we consider recent price cuts by digital music distributors.
The following analysis does not only highlight the digitization process of the recorded music market in the US in past thirteen years, but also the tremendous change of the digital music market segment.
The recorded music market in the US, 2000-2013
If we look at the sales figures for recorded music in the US since 2000, we get a good impression how digitization has revolutionized the music industry. Whereas CD album sales accounted for US$ 13.36bn in 2000, they eroded to US$ 2.12bn thirteen years later – a drop of 83.9 percent (fig. 1). That very fact suggests that the recorded music market has turned from an album to a single track driven market. In the observed period singles’ sales (physical and digital) increased by 669 percent or US$ 1.16bn. If we add digital album sales to the CD sales, still a decline of 74 percent or US$ -10.3bn remains for the overall album segment.
In addition, we can observe that digital album sales show falling growth rates, which might indicate a market saturation in the near future. Whereas growth rates were about 50 percent in 2007 and 2008 as well as 20 percent in 2009 and 2010, digital album sales only slightly grew by 2.4 percent in 2013. Single track download sales, however, decreased even by 3.3 percent compared to 2012 (fig. 2).
A close look into the development of the digital music sales since 2005 reveals a fundamental change of music consumption behaviour in the US. Figure 3 highlights that mobile music sales (e.g. ringtones and ringback tones) have dominated the digital music market until 2008. Then the mobile music segment nearly collapsed dropping by 90 percent (US$ -879.5m). In the same period, download sales were booming, but growth came to a halt in 2013. Instead, revenues from streaming and subscription services, which were more or less on a constant level of about US$ 200m annually until 2010, took off then. In the past three years, streaming and subscription revenues increased by 287 percent or US$ 635.7m. (fig. 3). If we also consider the payouts of SoundExchange, which collects licensing fees from internet and satellite radios in the US and Canada, streaming revenue grew even by 577 percent or US$ 1.2bn. In its current annual report, RIAA estimated that 6.1 million internet users paid for on-demand streaming in 2013, nearly double that of 2012 when 3.4 million people paid for music subscriptions. Paid subscriptions generated US$ 628.1 million in revenue in 2013, up 57% from 2012.
The market entry of Swedish streaming service Spotify in July 2011 undoubtedly fueled the boom and recently launched services such as iTunes radio and Beats will of course expand the streaming market further. However, what will be the consequences of this new music consumption behaviour – accessing instead of possessing music? If there is a substantial cannibalization effect of streaming on download sales, the overall revenue from digital music sales will decrease despite a booming streaming segment. In particular, we have to expect a further decline of CD sales, which makes it difficult to stabilize the market on a still low level.
The recently published sales figures of RIAA give no reason for musicians’ optimism. Since streaming, subscription and SoundExchange payouts account for nearly a third of the revenue from digital music sales, the musicians’ income from digital and physical music sales will further decrease. Just a small group of superstars, whose songs are streamed millionfold – besides solid CD and download sales – will benefit from such a development.
The situation is different for the major music companies. They can cash in their vast music catalogues and profit from the licensing business with the streaming services. The majors also need not to care about if the digital music distributors cut prices, since they get a fixed price for their rights. The streaming services, however, have to ask themselves if the current losses are affordable and if there is the perspective of long-time profits. It is, therefore questionable, if the turnaround, which is evoked by music industry exectives is around the corner. It strongly depends on the further growth of the number of premium subscribers whether the cannibalizing effect of streaming on CD and download sales can be over-compensated. In fact, vinyl sales will not save the music industry. Despite vinyl sales have octuplicated since 2006, vinyl has just a market share of 3.14 percent in 2013 (not considering the revenue from licensing synchronization rights). In total, digital music sales dominated the recorded music market with a share of 64 percent in 2013, followed by CD sales, which account for another 31 percent, vinyl sales with a share of 3 percent and music video sales (mainly DVD sales) with a share of 2 percent (fig. 4).
In a long-term perspective the trend towards a fully digitized recorded music market in the US is highly visible, as also highlighted in figure 5. The revenue from music streaming and subscription services will be, therefore, more relevant in the future that download sales.