Despite positive signs of growth from many European and Latin American markets, coupled with an increase in the global uptake of streaming and subscription services, the music industry is not out of the woods quite yet.
Trade revenue generated by the global recorded music industry in 2013 fell by 3.9% to $15.0 billion, down from $15.6 billion the previous year (adjusted to the 2013 exchange rate), according to the International Federation of the Phonographic Industry's (IFPI) annual "Digital Music Report,” which was published in London today (Mar. 18).
A major contributing factor in the drop was a massive 16.7% decline in music sales in Japan -- the world’s second-biggest music market, accounting for more than a fifth of total global revenues. IFPI attributes Japan’s sharp decline in music sales -- which totaled $3.01 billion in 2013, down from $3.61 billion -- to falling demand for physical format and “legacy mobile products” such as downloads and ringtones, while streaming and subscription services are yet to establish themselves.
Excluding Japan, the global recorded music market was broadly flat, declining in value by 0.1%, with many of the world’s leading territories reporting positive growth.
Trade revenue for recorded music sales in North America grew by a modest 0.5% to total $4.89 billion in 2013, up slightly from $4.87 the previous year, according to IFPI. Arresting over a decade of declining sales, Europe also saw marginal 0.6% growth to total $5.38 billion, with its top 6 markets -- the United Kingdom, Germany, France, Italy, Netherlands and Sweden -- all posting a rise in trade revenues.
Reflecting strong digital growth in emerging markets such as Brazil, Venezuela and Argentina, music sales in Latin America also grew by 1.4% to total $521 million, up from $514 million. Meanwhile, the continued growth of subscription services revenues suggests that better times are around the corner.
Global revenues from subscription and streaming services climbed 51% in 2013, crossing the $1 billion threshold for the first time. Streaming services now account for 27% of all global digital revenues, with IFPI estimating that more than 28 million people worldwide currently pay for a music subscription, up from 20 million in 2012.
Growth in subscription revenues and ad-supported services such as YouTube helped overall global digital revenues climb 4.3% to total $5.87 billion, up from $5.63 billion in 2012. That was despite a 2.1% fall in download revenues, which while maturing in many Western markets, still accounts for two-thirds (67%) of global digital revenues and remains a key driver in emerging markets, such as the Philippines, Slovakia and South Africa.
Physical format sales, meanwhile, fell by 11.7% in 2013 to $7.73 billion, down from $8.75 billion the previous year. Despite the year-on-year decline in physical format sales, the format still accounts for just over half (51.4%) of global revenues, compared to 56% the previous year. There was even a slight 0.8% growth in physical sales in France, which IFPI attributed to a boom in local repertoire.
Continuing its year-on-year gain, performance rights revenue, once again, experienced strong growth, climbing 19% to total $1.1 billion -- more than double the growth rate reported in 2012 and accounting for 7.4% of total record industry revenue in 2013. Income from synchronization deals, however, fell 3.4% to total $322 million.
“Last year, in the 2013 report, the theme was road to recovery and we are continuing down that road. Why do I say that? Well, most of the major markets have stabilized. Digital continues to grow and revenues streams have diversified. In addition we have the potential of the emerging markets,” said IFPI chief executive Frances Moore at the “Digital Music Report 2014” launch, which was held at IFPI’s London headquarters and was also attended by Max Hole, chairman and CEO, Universal Music Group International, and Edgar Berger, chairman and CEO International, Sony Music Entertainment.
Hole called 2013 “a year of good news and bad news.” On the positive side, he identified the global growth in streaming and subscription services, resilience of physical format sales, which he noted were “holding up much better than anyone could have predicted 5 years ago,” and emergence of new business partners like Beats, iTunes radio and Google’s streaming service creating a strong “portfolio business for the recorded music industry.”
“The bad news is largely all Japan,” Hole went on to say, citing “protectionism of the physical business and struggle to get consensus on digital” as contributing factors behind the country's sharp decline in music sales.
“The good news about a very bad year [for Japan] is that it is going to kick-start change. The major companies are playing a part in trying to lead the industry into taking more chances,” he continued, adding that he expects the adoption of streaming and subscription services in Japan to drive it back to growth within the next 18 months.
“Our outlook remains optimistic,” added Edgar Berger. “Music has always been at the forefront of the digital revolution, leading the way for other creative industries. Music is defining the future of digital entertainment and today the digital revolution in music is moving to the next phase.”
Berger continued: “Today we have 28 million paying subscribers on a monthly basis paying for music subscriptions, up from 8 million just three years ago. I don’t see any reason why this won’t be more than 100 million in the near future.”
The “Digital Music Report” also included a breakdown of the world’s top-selling artists in 2013. Topping IFPI’s inaugural Global Recording Artist Chart, which takes into account physical sales, downloads and streams across multiple licensed channels, was One Direction, followed by Eminem and Justin Timberlake in second and third place, respectively.
One Direction’s third studio album, “Midnight Memories,” also topped the global albums chart in 2013 selling 4 million units. Eminem’s “The Marshall Mathers LP2” was in second place with 3.8 million sales. “The 20/20 Experience” by Justin Timberlake was third with 3.6 million sales.
Robin Thicke’s “Blurred Lines” was the biggest-selling global single of 2013, moving 14.8 million units. “Thrift Shop” by Macklemore & Ryan Lewis was the No. 2 biggest-seller with 13.4 million sales. Avicii’s “Wake Me Up” was No. 3 with 11.1 million sales.