2015 has already been a huge year for the music industry, with a number of significant launches and announcements which will heavily impact the way in which consumers interact with content providers and the way that organisations within it will have to operate.

These events all have one thing in common - they are reactions to the changes in the way music listeners want to own and consume music.

The chart below gives a great breakdown of consumer expenditure in recent years with forecasts for the future. There are a couple of key takeaways from this, which I will provide some insight into.

Enders Analysis – Global Recorded Music 2015

Physical sales are still alive and kicking

Firstly, we need to recognise that globally, Physical sales still make up over half of the market. However, we can see clearly that sales for both Physical Ownership and Download-to-own (DTO) have peaked and are both at different points of their decline.

Physical sales have been long in decline, however the sheer scale that this market once had, and its legacy to consumers (e.g. collectors of special editions or those with legacy music players) means that it is still the dominant revenue stream.

Looking in depth at the breakdown of sales by market, (Enders Analysis – Global Recorded Music 2015) it is regional variations that are keeping certain channels alive. For example, in Germany, Physical Sales are contributing approximately two thirds of all consumer expenditure, with streaming only providing 4.7% of this total.

Within the totals for physical sales, there are also smaller trends taking place. One of the most significant is the resurgence in popularity for Vinyl. This is causing disruption for record labels as the number of pressing companies has significantly reduced since the introduction of the CD meaning lead times for ordering a batch of releases is much greater and therefore requires a strong level of analytics and forward planning to predict demand. There are even stories of vinyl pressing companies going back to the museums that they sold their legacy equipment to in order to find a way of increasing their output!

Subscription services are going to take over

Secondly, expenditure on subscription services is growing rapidly (circa 45% year on year growth) and forecast to become the largest of all channels in the coming years.
The forecasts predict continued strong growth however after some of the recent announcements from Apple and YouTube (highlighted at the start of this post) will in my opinion cause this to be even greater.

Apple's entrance to the streaming market has its obvious benefits - making this consumption channel available to a much larger number of markets however I know that there are concerns and therefore a lot of attention being given to the impact this will have on sales of Digital tracks from its own iTunes store. Whilst on the decline, DTOs are a major revenue source, with Apple being the clear market leader. The transition between DTO and Subscription for Apple loyalists might cause a tricky situation for record labels.

The greatest impact this will have, in my opinion, is the creation of predictable revenue streams. With a fast growing number of consumers signing up to monthly subscriptions, revenues generated by Digital Service Providers will no longer fluctuate with release schedules, but rather be much smoother throughout the year. This will bring a host of untold benefits to the back office functions at organisations within the industry as they look to prepare financial planning documents and manage their supply chains.

Unlimited music, at your fingertips

For me there is one clear reason for the huge shift in consumption – the proliferation of smart devices. Over 32 million phones are purchased yearly in the UK and this is opening up content across demographics (as older but still capable devices are handed down (or up) across age groups) and giving access to a huge library of music.

Adapt and thrive

As with other key parts of the media industry (e.g. online consumption of Films & TV shows and digital subscriptions to online journalism), the music industry is next in line to adapt to a significant change in consumption habits. The rise in subscription services has shaken up the way we consume music, is reducing barriers to entry to newer artists and giving those from yesteryear a second wave of income. I'm personally looking forward to seeing how this develops even further as competing Digital Service Providers drive innovation.

References

Enders Analysis – Global Recorded Music 2015

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