The U.K. pie grew in 2008 but an increasingly fractured music industry means more pie slices and a greater disparity between top earners and everybody else. According to a new paper by PRS for Music, "Adding Up The Music Industry for 2008," the U.K. music industry grew 4.7% to £3.627 billion ($ 6 billion) in 2008. Most of the year's growth came from business-to-business revenues such as licensing, advertising and sponsorships. Live music fared well in 2008 - especially top-tier artists.
The report gives a very broad look at the total market. "What this work does is help us understand what's at stake and appreciate how it all hangs together," said Jeremy Fabinyi, acting CEO PRS for Music.
Download a PDF of the seven-page report here .
The retail value of recorded music sales, a number reported by BPI, dropped 6% to £1.31 billion ($2.17 billion) while PRS for Music's estimated value of the live music industry increased 13% to £1.39 billion ($2.29 billion). (For purposes of this report, the live music industry is considered to be consumer spending that ends up with music and music-related companies. Primary and secondary ticket sales, merchandise sales and venue operators' share of concessions are included in PRS for Music's figure. Spending that goes elsewhere, such as parking fees kept by parking operators, are not included.) The trade value of the digital market, as calculated by the IFPI, increased 64% in 2008. Digital collections increased 51%.
Business-to-business revenue is representing a larger share of the industry's total revenue. Record companies' licensing revenue rose 7% and now accounts for almost a fifth of their total revenue. Revenue from sync licensing dropped slightly, a reflection of the economic downturn's impact on the advertising industry.
"Ultimately we're going from a market which lots of revenue came from one very big source," said Will Page, chief economist at PRS for Music, "to one where we're generating many different sources of revenue, some will be big some will be small - but they will all matter more going forward."
The report incorporated advertising and sponsorship data generated by marketing agency FRUKT. These revenues, traditionally left out of industry analysis, have been included by PRS For Music and for good reason. Such business-to-business revenue will be increasingly important in the future. FRUKT's work revealed television to be the largest part of entire advertising and sponsorship pie (with 28% of revenue), followed by advertising support (27%), live music sponsorship (27%), event creation (10%), digital (5%) and artist endorsement (3%).
Music is a key component of big marketing and advertising spends. Singer Joss Stone was celebrity "Flake Girl" for the £5 million ($ 8.27 million) campaign for the Cadbury Flake. The group Girls Aloud took part in a £9 million ($ 14.88 million) campaign for Kit Kat. Artist fees represent a small percentage of the total media spend for national campaigns, but can amount to considerable revenue without taking into consideration the sales lift that may result from increased awareness.
In both digital sales and live music, claimed the report, there is a growing income disparity. "This growing inequality between heritage acts and the rest of the pack mirrors a separate trend identified in digital music," wrote PRS, "where more choice led to a widening gap between the hits and niches." Popular, older artists are demanding higher ticket prices. The growth of secondary ticketing services - their revenue is included in the study - has fueled the growth in ticket prices. But mid-tier artists, those who cannot raise prices seemingly at will, are a cause for "real concern." The same can be said for sponsorship and advertising dollars, which often are titled in favor of the most popular artists. In effect, advertising agencies now act as a gatekeeper that benefits the select few who pass through.
Recorded music may reach a plateau by 2011, according to trends cited in the paper. PRS, however, urges caution and points out "recent history tells us nothing about the short term future, never mind three years ahead." The current state of recorded music is fairly balanced. Prominent music-based retailers have gone through shocks in recent years, but music-based retailers still exist and are proving to be quite resilient. "I would stress caution when people herald the size of the US digital market," Page said of the country's relatively quick adoption of digital music. "The UK situation looks more favorable by comparison. The physical market has shown remarkable resilience, whilst the digital market is the largest in Europe - almost like trying to get the best of both worlds.
Because the study takes into account only historical numbers, it does not take into account recent retail closures. It did not attempt to project how digital growth may stifle physical music sales - although it did raise questions about such substitution effects.
Nor does the study take into account government investment or other involvement that benefit the local industry. Government investment helps U.K. artists compete on the global scale and results in greater revenue not just in foreign countries but in their home country through licensing and performance royalties. U.K. Trade and Investment (UKTI), a government organization that claims to generate £15 ($ 25) in revenue for every £1 ($1.65) it invests, helps promote U.K. artists abroad. UKTI provides funding for artists, has trade missions to key markets (U.S., Japan, China and India) and offer the help of trade advisors for working in other countries.
In addition, the U.K. grants tax benefits to music venture capital trusts (VCT). As a result, venture capital firms like Ingenius Media have raised millions of pounds for VCTs that invest in the music sector. Although not the same as direct government funding, VCTs represent a government-enabled competitive advantage that is further evidence of the U.K.'s desire for a strong music industry.
And music-related technology companies are benefitting as well. Earlier this month, the U.K. government announced it contributed £150 million ($248 million) to the £1 billion ($1.65 billion) Innovation Investment Fund. The fund, to spur innovation across a variety of fields, is likely to help startups and existing small companies create new music services.