The Economics of Music – 2nd Edition

In July 2021, the fully updated 2nd edition of “The Economics of Music” has been published by Agenda Publishing, which was reviewed by the eminent cultural economist David Throsby in the TIMES Literary Supplement: https://www.the-tls.co.uk/articles/the-music-business/

 

Promotional text:

The music industry is one of the most dynamic business sectors. It has had to evolve and adapt to continually changing technologies and business models. Its latest challenge has been Covid-19 and the loss of live music at a time when live performance outstrips music sales as the primary source of income for today’s artists. The second edition of this much used introduction to the economic workings of the music business explores the impact of the pandemic at every level of the sector and considers how the business model may need to change going forward as different stakeholder positions shift. The new edition also examines new trends in the music industry such as the increasing dominance of tech companies and data, the increasing importance of CMOs as market players, the increased role of artist management, which has impacted on new business contracts, as well as changes to how we use music in our everyday lives and how this impacts on new entrepreneurial behaviours around music.

The Economics of Music SECOND EDITION

Peter Tschmuck

Hardback  €79,71 | £60.00  |  $90.00   ISBN 9781788214261

Paperback €26.57 | £18.99  |  $30.00   ISBN 9781788214278

e-book      €18,38 | £18.99  |  $30.00   ISBN 9781788214292

 

264 pages   |  210 x 148mm   |  08 July 2021

 

Series: Economics of Big Business

 

Book order: https://www.agendapub.com/books/165/the-economics-of-music-second-edition

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Towards a music streaming economy – Scandinavia part 3

Part 1 of the blog series highlights that the Scandinavian countries are the world’s music streaming avant-garde due to a well-established broadband Internet infra-structure, a high smartphone penetration rate and domestic business innovations (see also part 2). The most influential Scandinavian business innovation was Sweden’s Spotify, which was launched in October 2008 at the culmination of The Pirate Bay lawsuit. However, several other services early offered music access to music in Scandinavia. In 2009, Finnish smartphone company Nokia launched the Comes-With-Music service, which allowed unlimited music access for a year on special Nokia Comes-With-Music phones. In the same year, Swedish Sony-Ericsson in collaboration with Norwegian Telenor offered the PlayNow plus service on its special edition of Sony Ericsson Walkman phones (IFPI 2009: 8). However, the mobile phone manufacturers failed to meet the music consumers’ convenience. Nokia’s music was DRM protected until 2010 and limited to special Nokia devices, whereas Sony Ericssons’ music was DRM free, but limited in time and to special devices.

In 2011 both services were, therefore, were discontinued,[1] when Spotify, WiMP and TDC Play started to dominate the digital music market. In 2009, the Danish TDC Play was the first ISP music service offering unlimited music streaming from 6.1 million tracks without any additional costs (IFPI 2010: 8). Spotify’s ad-supported unlimited streaming tier was also bundled in ISP TeliaSonora in Sweden and Finland and the premium tier could be directly paid on the broadband bill (ibid.: 9). WiMP’s subscription service also succeeded in Norway due to its bundling in Telenor’s mobile phone contracts (IFPI 2011: 9).

Consumer convenience, therefore, was the key success factor for music streaming services in Scandinavia. It was easier to access music by a streaming services than downloading music from P2P file sharing networks with the risk of malwares and viruses. Music consumption studies in Norway and Sweden highlight this shift from P2P file sharing to music streaming as outlined in the following analysis.

Towards a music streaming economy – Scandinavia part 2

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 the second part of the  series on Scandinavian’s way to a music streaming economy technological and business innovations that fostered music streaming are highlighted.

The Scandinavian countries are forerunners in broadband Internet penetration. From 2000 until 2006 the share of households with broadband Internet access increased from almost zero to 70 percent in Denmark and Norway, even to 80 percent in Finland and Sweden. Currently, almost all Scandinavian households have a broadband high-speed Internet access (figure 1).

 

Figure 1: Recorded music revenue and broadband Internet penetration in Denmark, Finland, Norway and Sweden, 1996-2017

Source: Wlömert and Papies (2019: 56).

 

Spotify goes public – an economic background analysis

April 3^rd 2018 is a historic moment in the digitized music industry, when the Swedish music streaming company Spotify is listed at the New York Stock Exchange. Spotify’s stock exchange listing is not just a touchstone for the music streaming service’s business model, but for the entire recorded music industry that is back on a path of growth. Spotify is the darling of the big music industry players. It provides a legal business model that can be monetized by hefty advances and royalty payments. This allowed the music majors and the indie label licensing agency MERLIN to become Spotify’s shareholders in return for advance payments Spotiy could not afford. Sony Music Entertainment’s Spotify stake of 5.7 percent (Spotify 2018: 148) e.g. is worth US $500m to 1.3bn.[1] The following analysis highlights Spotify’s success story, but also outlines potential risks of going public. It also analysis who benefits from Spotify’s stock exchange listing and assesses the impact on the music streaming market.

Music Majors in the Streaming Economy: Warner Music Group

In its last annual report Warner Music Group (WMG) exhibited a total revenue of US $3.58bn – the highest since the recorded music company was sold by Time-Warner to the Investor Group in 2003. Although overall costs also increased to US $3.15bn (WMG 2017: 38-39), the operating income is remarkably high with US $222m (WMG 2017: 40) especially compared to the disastrous results of the early 2000 years with annual losses of about 1 billion US$. The main driver of the revenue growth is the music streaming boom. In the recorded music segment streaming revenue increased by US $434m to US 1.34bn in the fiscal year ending on September 30, 2017. The music publishing segment contributed a further increase of US $58m of streaming revenue (WMG 2017: 36). Thus, WMG earned almost US $500m more with music streaming in 2017 compared to 2016. The further analysis highlights how the music major’s business model has shifted to the music streaming economy.

Music Business Research 2017 – in retrospective

Dear readers of music business research blog,

The music streaming boom dominated 2017. Market statistics highlight that music streaming revenue has become the most important income stream for the phonographic industry. The US figures for 2016 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). In the UK, the massive growth of music streaming revenue also increased overall recorded music sales in 2016. Gains of £103m in the music streaming segment, thus, compensated not just for the loss of £5.8m of physical sales, but also for the £56m decrease in download sales in a year-to-year comparison, as a long-term analysis of the UK recording sales indicates. We can, thus, expect a further massive growth of music streaming revenue in 2017 also on markets with a still strong physical segment such as Germany.

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.