Over the past two decades, a combination of music piracy and unbundling drove significant decline across the music industry. But by 2015 it appeared to have adapted to the digital age, as a number of key milestones were passed:
- a return to global industry-wide revenue growth;
- significant increases in music consumption; and
- the point where digital became the primary revenue stream in the global music market, finally overtaking sales of physical formats.
This growth is set to continue. Goldman Sachs estimates that the overall music industry (incorporating recorded music, music publishing and live music) revenue is set to double over the next 15 years to $104bn from $54bn in 2015, with c. 65% of this revenue coming from the recorded music segment.
This transformation was predominantly led by the emergence of music streaming services - providing consumers with convenient, personalised, accessible music that they are willing to pay for, whilst ostensibly creating more value for rights holders.
However, there are still widespread concerns over the value gap whereby the rights holders are not yet fully reaping the benefits of the increase in music consumption.
Music streaming goes mainstream and drives greater monetisation for music owners
The ever-growing demand for music consumption has been met with multiple streaming options, now the sector's largest and fastest driver of growth. As download revenues continue to decline, the spread of smartphones, increased availability of high-quality subscription services and connected fans migrating into licensed music have all contributed to the rise of streaming services.
Music streaming services have improved the monetisation of music content by:
- differential pricing amongst those willing to pay: offering a range of subscription options at multiple price points;
- monetising users unwilling to pay: ad-funded streaming, free to the user; and
- Improving the discoverability of catalogues, thereby increasing their overall value.
This growth is set to continue, with a range of macro drivers encouraging the trend:
- Penetration of subscription services in developing markets with significant room to grow;
- Nascent music markets in emerging markets stand to benefit from new business models (ad funded, prepaid, etc) and innovative payment capabilities;
- Complementary media consumption habits of Generation Z and Millennials, who are the target market for streaming services given their focus on digital experience and convenience; and
- Further benefit from telcos which increasingly leverage music content to drive differentiation in their service offerings.
However, the Value Gap still needs to be filled
Despite the explosion in legal, paid-for music consumption over recent years, the share of revenues to rights holders remains much lower than it was. This runs the risk of choking off investment, and the narrowing of this value gap is now in the hands of the regulators. Future regulatory reviews, notably of safe harbour rules could drive further redistribution of revenue pools in favour of the rights holders.
Streaming has revolutionised the music industry, leading to revenue growth for the first time in decades, however the return of more value to the music community is vital to fund future innovation and to enable this growth to be sustained.