The recorded music market in the US, 2000-2014

2014 seems to be the watershed year in the recorded music business in the US. According to the recently published sales figures (shipment value) of the Recording Industry Association of America (RIAA), the revenue of US $1.87bn from music streaming (SoundExchange distributions as well as subscription & ad-supported streaming) accounted for 41.4 percent of the digital music sales. Whereas music streaming revenue increased by 30 percent in 2014, digital album sales declined for the first time by 6.7 percent to US $1.16bn and digital singles’ sales by 10.2 percent to US $1.41bn. Additionally, the CD has become a by-product with a market share of just 27.4 percent (US $1.86bn). CD sales again decreased by 12.7 percent in 2014. All in all, digital music sales accounted for 66.5 percent of the US $6.78bn overall recorded music sales (except synchronization royalties). The total recorded music revenue slightly decreased by 0.4 percent compared to 2013.

 

In the following long-term analysis of the recorded music market in the US, the digitization process in past fourteen years is also highlighted as well as the tremendous change in the digital music market segment.

 

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$ 1.85bn fourteen years later – a drop of 86.0 percent. 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 718 percent or US $1.25bn. If we add digital album sales to the CD sales, still a decline of 76 percent or US $10.5bn remains for the overall album segment.

 

Figure 1: Album and singles’ sales in the US, 2000-2014

Source: RIAA Year-End Industry Shipment and Revenue Statistics (2000-2014)

 

In addition, the digital album sales decreased by 6.7 percent to US $1.15bn for the first in 2014 that indicates a market saturation in this segment. Since single track download sales, however, again decreased – after 3.3 percent in 2013 –by 10.2 percent in 2014. This indicates a shift from music downloading to music streaming, since the revenue for music streaming (SoundExchange distributions as well as subscription & ad-supported streaming) increased by 30 percent.

 

Figure 2: Change of digital album and singles’ sales in the US, 2005-2014

Source: RIAA Year-End Industry Shipment and Revenue Statistics (2005-2014)

 

In the period from 2005 to 2014 we can experience a several fundamental changes of digital 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 93 percent (US $ -910.6m). In the same period, download sales were booming, but growth came to a halt in 2013. Instead, revenues from ad-supported 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 four years, streaming and subscription revenues increased by 415 percent or US $881.5m. (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 779 percent or US $1.65bn. In its current annual report, RIAA estimated that 7.7 million internet users paid for on-demand streaming in 2014, more than double than two year ago when 3.4 million people paid for music subscriptions. Paid subscriptions generated US $799 million in revenue in 2014, up 25 percent from 2013.

 

Figure 3: The digital music market in the US, 2005-2014

Source: RIAA Year-End Industry Shipment and Revenue Statistics (2005-2014)

 

The market entry of Swedish streaming service Spotify in July 2011 undoubtedly fuelled the boom and Appel’s acquisition of Beats Music and YouTube’s plans for a streaming service 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 executives 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 increased by 1,153 percent since 2006, vinyl has just a market share of 4.7 percent in 2014 (not considering the revenue from licensing synchronization rights). In total, digital music sales dominated the recorded music market with a share of 66.5 percent in 2014, followed by CD sales, which account for another 27.4 percent, vinyl sales with a share of 4.7 percent and music video sales (mainly DVD sales) with a share of 1.3 percent (fig. 4).

 

Figure 4: The market share of different recorded music formats in 2014

Source: RIAA Year-End Industry Shipment and Revenue Statistics (2014)

 

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.

 

Figure 5: The recorded music market in the US, 2000-2014

Source: RIAA Year-End Industry Shipment and Revenue Statistics (2000-2014)

 

Remark: This blog post is an updated version of an earlier post: The recorded music market in the US, 2000-2013

 

 

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