Nielsen Music's Year-End: Streaming Is Not Killing the Record Business

Another year, another record business in flux.

A great deal of attention will be given to last year's decline in U.S. music purchases -- it's a trend that is hard to ignore.

Once again, declines in sales of CDs and downloads overshadowed a relatively small gain in vinyl LP sales. Total album sales dropped 11.2 percent to 257 million units, according to Nielsen Music. Track sales declined 12.5 percent to 1.1 billion and are down 17.5 percent from the high of 1.34 billion in 2012. Vinyl is a small victory: sales were up 51.8 percent, but accounted for just 3.6 percent of album sales.

But there's more to the story. Recorded music looks better when streaming gains are taken into account. And not all genres are going through the same changes at the same time. Dig deeper into the year in U.S. recorded music with these six observations.
 
1. Purchases aren't the entire story. On-demand streaming rose 54 percent to 164 billion songs, according to Nielsen Music. That increase of 57.5 billion tracks is equivalent to an increase in album sales of 56.1 million units -- a number that exceeds the decline in track-equivalent albums (or TEA, a combination of album and track sales) of 47.9 million units.
 
There were actually more streaming gains in 2014. Not included in the streams tracked by Nielsen Music are non-interactive digital services like Pandora and Sirius XM. This is a big chunk of money. The growth in Pandora's royalties to rights holders in the 12 months ended September 30th is equivalent to about 16.3 million album sales.
 
In all, streaming gains may have helped the U.S. record business break even, or come close to it, in 2014. Recall that label revenues were down 4.9 percent in the first half of the year. Revenues could also end the year down, but the final tally won't be as bad as one might expect from looking just at sales trends.
 
2. Taylor Swift's switch to pop from country had a huge impact on the two genres' sales in 2014. The 0.1-percent increase in pop album sales was entirely due to Swift's 1989 -- the top album of 2014 with sales of 3.66 million -- being classified by SoundScan as pop rather than country. This helped make pop the only major genre to experience an increase in album sales last year.

Without sales of 1989, pop album sales would have dropped 10.6 percent. Had 1989 been classified as a country album, that genre's album sales decline would have improved been only 7.5 percent instead of its actual figure of 16.6 percent. Of course, this is entirely hypothetical. The success of 1989 is at least partially attributed to Swift's musical shift. But it's safe to say the country genre -- not only sales but also radio and televised events -- is weaker without her.
 
3.  Rock isn't dead. In fact, the rock format was the only major genre other than pop with a better-than-average decline in album sales. Rock albums dropped 9.1 percent compared to the overall decline of 11.2 percent. Although rock's digital album sales declined 12.5 percent -- worse than the overall decline of 9.1 percent -- its CD sales decline of 11.2 percent was far better than the overall drop of 14.9 percent. The hard rock sub-genre fared best, with an overall decline of just 5.1 percent.
 
4. R&B and hip hop album sales took the deepest plunges in 2014. The total/CD/digital percent declines were 25.1/29.0/19.6 for R&B and 24.1/29.6/21.8 for hip hop -- roughly double the percentage declines for overall sales. Just as with the overall numbers, it's important to keep streaming mind when looking at these genres' sales. R&B and hip hop are popular on streaming sites, and streamed tracks increased 54 percent last year.
 
5. Two genres that were among the last to digital downloads are among the last to abandon the format. Country digital album sales were down 7.8 percent (compared to 20.2 percent for CDs). Latin digital album sales were down 2.8 percent (compared to 26.3 percent for CDs). Buyers of both genres were late to adopt digital downloads. And CDs still account for higher-than-average proportions of total sales in both genres -- 69.1 percent for country and 81.0 percent for Latin compared to 54.8 percent for total sales.
 
6. "Happy" was the lone bright spot in track sales. The 6.41 million tracks of the Pharrell hit sold last year were 3.3 percent greater than sales of 2013's top track, "Blurred Lines" by Robin Thicke. Other popular tracks couldn't keep up. Last year's top 10 sold 9.9 percent fewer tracks than the top 10 of 2013 while the top 100 sold 14.7 percent fewer tracks. Another good comparison is the number of tracks that sold 1 million or more units: 78 in 2014 compared to 95 in 2013. The trend line for track sales is going down, but "Happy" was able to connect with consumers and seriously outperform the competition.