The UK Recorded Music Market in a Long-Term Perspective, 1975-2016

The UK recorded music industry body BPI (British Phonographic Industry) reported a remarkable increase of recorded music sales from 2015 to 2016. According to BPI the growth was mainly driven by music streaming revenue, which increased by 61.0 per cent in a year-to-year comparison. Thus, as BPI (2017) points out, “(…) streaming accounted for 30 per cent of overall label revenues in 2016 (compared to physical at 32 per cent).  Such a rate of growth will undoubtedly see the format overtake physical to become the leading contributor to label revenues in 2017.”

The sales trend, however, indicates that the UK is on the way to a music streaming economy – as the US market, a fact I have highlighted in an earlier blog post. In the following long-term analysis of the UK recorded music market I am highlighting not just the recent recovery of UK’s recorded music sales in the past few years, but also the seemingly irresistible boom of the recorded music market since the mid-1970s and the tremendous sales decline in the 2000s.

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The US recorded music market in a long-term perspective, 1990-2016

The Recording Industry Association of America (RIAA) recently published the shipment figures for recorded music in the US for 2016. The statistics highlight a tremendous shift from selling music (CDs and downloads) to accessing music (by streaming services). In the US, music consumers paid for the first time more for music access by ad-supported and paid streaming services (US$ 3.9bn) than for CDs, music downloads and ringtones (US$ 3.5bn).

 

Figure 1: Selling and accessing music in the US, 1990-2016

Source: RIAA Year-End Industry Shipment and Revenue Statistics, reports 1990-2016

 

Thus, the US turned into a music streaming economy last year. It was a long way from a pure physical recorded music market in the 1990s to a yet digitized and music streaming driven market. The following blog entry identifies different periods of the US phonographic market and explains the driving forces of the change.

Music Business Research 2016 – in retrospective

Dear readers of the music business research blog,

2016 seems to be the pivotal year in the recorded music industry. Although no annual statistics have been published until yet, we can take it for granted that the positive trend of 2015 continued in 2016. In 2015, the global recorded music market expanded by 3.4%. The US-market slightly grew by 0.9% and the German recorded music sales even increased by 4.4%.

The booming music streaming market was of course the main driver for the economic recovery of the recorded music business in 2015 and we can expect a further growth in 2016 and the upcoming year. The revenue growth of the streaming business compensated for the decline in CD sales, despite decreasing music download sales as highlighted in “The fate of the CD – an international CD-market analysis”. However, an in-depth analysis of the statistics unveils very different market dynamics in various countries. Whereas music streaming is the main business of the recorded music industry in Scandinavia, CD sales are still relevant in Germany and in Japan (see “The Music Streaming Market Revisited, 2011-2015”).

The fate of the CD – an international CD-market analysis

In March 2010, my first blog post in the music business research blog was entitled “The CD is Dead! Long Life the Music Download?” – with a question mark. The prophecy has become partly true. In some markets, e.g. in Sweden, the CD is only a by-product such as vinyl with a combined market share 12.4 percent (IFPI 2016: 92). In other countries, e.g. Germany, the CD is still economically relevant. Physical sales in Germany accounted for 60.0 percent in 2015 – with 83.6m CD units and 7.6m other physical units sold (ibid: 81). However, the CD is on the way to insignificance and will end up as a nostalgic collectors’ item. The following economic analysis of the international CD market shed light into the dynamics of different markets and explains, why some markets are still driven by CD sales.

The Recorded Music Market in Brazil, 2000-2013

Brazil is the ninth largest phonographic market in the world according to the latest IFPI report, despite the fact that the revenue from recorded music sales has decreased by 58 percent since 2000. However, the Brazilian market for recorded music is more or less stable for six years now due to relatively high music video sales and the considerable growth of the digital music segment. Thus, the digital music sales have increased by 82.2 percent from BRL 24.3m to BRL 136.7m with music streaming playing an increasingly important role in the sales mix. In the following I highlight the Brazilian recorded music market by figures reported by the Associação Brasileira dos Produtores de Discos (ABPD).

The Recorded Music Market in Germany, 2003-2013

The German Federal Association of Music Industry (Bundesverband Musikindustrie – BVMI) reported a slight growth of recorded music sales by 1.2 percent for 2013. The main reason for the first increase of music sales in the past 15 years were growing digital music sales by 11.7 percent from 2012 to 2013. At the same time, the physical music sales moderately declined by 1.5 percent to EUR 1.12bn. Whereas CD sales fell by 1.3 percent to EUR 1.0bn, the sales of vinyl records grew heavily by 47.2 percent to EUR 29.0m in 2013. Since the CD has still a market share of 69.8 percent, one should be cautious to speak about a turnaround of the German recorded music market. A stabilization of the physical music sales is unrealistic and the increase of digital music sales has to over-compensate the loss in the physical market segment. Although the revenue from ad-supported and subscription music services increased by 91.2 percent to EUR 68.0m, the single-track download sales fell for the first time by 4.4 percent to EUR 104.0m in 2013, which makes a turnaround scenario highly questionable.

In the following, the future development of the German recorded music market will be analysed based on the BVMI report as well as on historic empirical data.

The recorded music market in the US, 2000-2013

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.

How Bad Is Music File Sharing? – part 21

A widely discussed study on music file sharing is Felix Oberholzer-Gee’s and Koleman Strumpf’s paper ”The Effect of File Sharing on Record Sales: An Empirical Analysis”, which was originally made accessable online to the public as a Harvard Business School working paper in 2004 and was eventually published, after revisions, in the Journal of Political Economy 2007.

How Bad Is Music File Sharing? – Part 19

The study of Tanaka (2004) “Does File Sharing Reduce Music CD Sales?” was based on the the one hand on micro data of CD sales, which were collected on a weekly basis of 30 best selling CDs from June to November 2004 in Japan. On the other, download figures were obtained on each weekend in the sample period from the completely decentralized and most popular Japanese file sharing network Winny. In addition, the author also carried out a non-representative user survey among students on file sharing and CD purchases. Neither the micro data based estimation results nor the students’ survey indicated a negative impact of music file sharing on record sales.

How Bad Is Music File Sharing? – Part 18

After several revisions (Hong 2004, 2005, 2007), Hong published in July 2011 a working paper entitled “Measuring the Effect of Napster on Recorded Music Sales”, in which he tried to measure the effect of file sharing on recorded music sales. Since he did not directly observe file sharing activity, the author compared a treatment group of Internet users with a control group of non-Internet users before and after the advent of Napster in 1999 and attempted to eliminate the time effect and isolate the so-called “Napster-effect”.