Towards a music streaming economy – Scandinavia part 1

It’s no accident that Spotify was launched in Sweden during the culmination of the The Pirate Bay lawsuit in 2008. Spotify was promoted as the legal alternative to P2P files haring and the Swedish music consumers were the perfect test market for such a Freemium music service. Sweden’s neighbouring country Norway was in a similar position: wealthy inhabitants, a high penetration of broadband Internet access and a passion for music. Therefore, the Swedish digital entertainment company Aspiro launched the music streaming provider WiMP (the later Tidal) in cooperation with the Norwegian telecommunication company Telenor and music retailer Platekompaniet in Norway in February 2010. Two months later WiMP also started in Denmark as the first music streaming service for PC, Mac and Android mobile.[1] However, in December 2009, the Danish telco TDC had added an unlimited streaming option to its music download service TDC Play (now YouSee Musik) in cooperation with tech company 24-7 Entertainment.[2] Thus, all three Scandinavian countries were pioneers in establishing a music streaming economy. The fourth Scandinavia country, Finland, lagged behind for some years, but in 2017 the Finnish sound recording market was as streaming-lined as its Scandinavian neighbours.

 

Figure 1: The global phonographic market in 2017 by digital market shares

Source: After IFPI Global Music Report 2018.

 

A series of blog entries tells the story of how the Scandinavian countries have become the forerunners of the music streaming economy and highlights the background of this development. In this blog post a comparative analysis of market figures for all Scandinavian countries are presented.

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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 Japan, 1990-2013

Compared to other markets, the world’s second largest recorded music market is very different – at least in respect to digitization. Whereas the digital music segment is booming in other large markets, it is shrinking in Japan according to the latest report of the Recording Industry Association of Japan (RIAJ). In 2013, the total digital music sales were ¥ 41bn (EUR 290m) compared to ¥ 54bn (EUR 383m) a year before – a drop of 23 percent. The main reason for this surprising decrease is a shrinking mobile music market that lost 56.7 percent of its volume from 2012 to 2013. The drop was even more dramatic if we look back to 2008, when mobile music sales accounted for ¥ 79.9bn (EUR 566.0m) – fivefold in value than in 2013. The main driver for the sales drop was not – as might be supposed – the shrinking market for mastertones and ringback tunes, but tremendously falling single track download sales on mobile phones. Whereas mastertones and ringback tunes sales decreased by 75.9 percent and ¥ -21.8bn (EUR -154.4m) respectively from 2008 to 2013, the decline of mobile single tracks download sales was even more severe with 83.7 percent and ¥ -39.9bn (EUR -282.6m) respectively in the same period. We have to take into consideration, however, that RIAJ does not count downloads from smartphones and tablets as mobile music downloads, but as desktop downloads from the Internet, which strongly increased in the past few years. The value of single track downloads on the Internet was ¥ 14.8bn (EUR 104.8m) in 2013and Internet album download sales were at ¥ 14.8bn (EUR 104.8m) resulting in a growth of both segments of about 150 percent compared to 2008. Since the current value of Internet music downloads is much lower than the former volume of the mobile music segment, the total digital music sales have decreased in the past five years. In addition, the Japanese music streaming market is still underdeveloped. Spotify is expected to launch its service this year and other streaming services still evaluate the market potential in Japan.

Since the physical recorded music market in Japan also declines, the total music sales has been falling for more than a decade. RIAJ, however, does not report sales figures for physical music formats, but production values. Thus, we cannot assess the total music sales for Japan, but only the overall production value of CDs, vinyl discs and other physical formats such as music cassettes, SACDs and music DVDs. Thus, we can observe that the production value of physical music carriers has nearly halved since 2000.

The Japanese recorded music market, thus, is characterised by particularities which will be highlighted in the following analysis.

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”.

How Bad Is Music File Sharing? – Part 16

In the article “Do Artists Benefit from Online Music Sharing?”, which is based on a 2003 working paper, Gopal et al. (2006) present a model of music file sharing to explain the impact of technological and economic incentives to sample, purchase, and pirate music. The results of the model indicate that lowering the cost of sampling by file sharing will motivate more music consumers to purchase music online. In contrast, the restriction or even prevention of sampling will hurt the music industry in the long run. Read more here:

How Bad Is Music File Sharing? – Part 14

In his 2006 working paper Lee investigated how price and free music availability jointly affect the consumer’s willingness to buy and how price and non-price factors (rating of singers, genre preferences, number of songs on CDs, and music consumption style) change the “free” vs. “non-free” Internet availability conditions. The results of a survey of about 500 students of Korea University in Seoul indicate that there is a weak interaction of CD prices and free music availability, whereas in the non-free Internet availability situation price has a significant effect on consumer purchasing patterns for some CDs. More can be read here:

How Bad Is Music File Sharing? – Part 7

In their working paper Curien and Moreau (2005) proposed a model of the music industry under “piracy” in which they took into account quality, variety, as well as price adjustments and showed that P2P file sharing networks could have a positive impact on the music industry as whole (recorded and live music as well as complimentaries such as ringtones). However, record companies bear almost all of the negative effect, whereas artists rather benefit from it, since royalties are often the smallest amount of their income, whereas “piracy” tends to boost live performances.

The recession in the music industry – a cause analysis

Filesharing is made primarily responsible for the decline in sales in the phonographic industry, especially in the CD segment (see the current IFPI Digital Music Report). However, serious research on filesharing behavior (see Huygen et al 2009, Andersen/Frenz 2007, Oberholzer-Gee/Strumpf 2007 (working-paper March 2004), Blackburn 2004) shows that filesharing use does not necessarily have a negative impact on physical and digital sales. But if this is not the case, then there must be other causes for the now decade-long recession. In the following I would like to discuss alternative explanations for the recession in the music industry and try to substantiate them empirically.

The CD is dead! Long live the music download?

The economic crisis exacerbates the recession in the music industry. Recorded music sales have been in sharply decline for years. Digital music offerings on the Internet and via mobile phone cannot compensate for the losses. One reason: The wrong licensing policies of the record labels.

The music industry cannot escape the general economic and financial crisis. In 2008 a dramatic slump in sales of recorded music for nearly all markets was reported. But the economic crisis only reinforces a downturn in the market for recorded music that begun already in the late 1990s. Thus, in the largest music markets the CD unit sales dropped in the period from 2000 to 2008 between 35% (United Kingdom) and 59% (USA). This recession, however, is a symptom of a paradigm shift from music delivered in form of a physical product to music as a service delivered in form of online and mobile music offerings.