German Market Set To Return To Growth In 2013

The German music market is set to grow again as of 2013 when digital revenues are expected to compensate for the losses made in physical sales, according to Stefan Michalk, CEO of the Federal Association of the Music Industry (BVMI) in Berlin.

The German record market lost more than 50% of its value in the last ten years and had a turnover of €1.6 billion ($2.3 billion) in 2008.

Digital business is expected to contribute some 20% to revenues in five years time. The figure was 7% in 2008. In the opinion of Michalk, growth in the digital market will come principally from the sale of digital albums as well as subscription models such as Spotify or Napster, and music depending on Internet access, as offered by Internet service providers.

The figures presented by Michalk are taken from a forecast published by the GfK market research institute in Nuremberg, based on data from consumer research with 25,000 consumers, supplemented by interviews with experts in the record industry and the digital sector. In this study the experts project an average annual decline of 5% in the physical market for the coming five years, but growth of 17% in digital sales. Further earnings will come increasingly from the licensing business for streaming products such as those on YouTube or MySpace. Whereas today only one in five buyers of music makes digital purchases, the number of digital buyers is set to treble to 15 million from the current five million. According to Michalk, many of the new buyers are to come through music bundles offered by Internet service providers. Increasing broadband penetration is creating new target groups.

The GfK forecast anticipates three different models in the future. In addition to the a-la-carte download with pure streaming offers, which in the future will be increasingly financed by advertising, Internet service providers (ISPs) with access-linked music subscriptions (streaming and download) are likely to penetrate the market and open up around 10 million new digital buyers, of which some 60% will also continue to buy physical products, according to the forecast.

Michalk commented: "Established streaming subscription services such as Napster are coming under price pressure from new providers, for example Spotify, Vivo and MySpaceMusic. Convergence of PC and cellphone-based download services: the different ways of purchasing music digitally will grow together for consumers in the future. This positive trend in the digital music market depends on the success of putting a stop to illegal competition. Today in Germany only one out of eight downloads is purchased legally."

The German download market reports that the album is finding an increasing number of fans in the digital market. For instance, sales of bundles grew by 50% from 2.6 million units in 2007 to 3.9 million units in 2008. The second most popular music format is the single download, with 44.6 million units sold in 2008 (2007: 39.9 million). This means that the number of music downloads has increased by a factor of six over the past five years.