There's a good reason the global music industry pays attention to progress of new business models in a Scandinavian country with 9.5 million inhabitants. Sweden leads a handful of countries that have used the controversial streaming business model to reclaim big chunks of revenue lost in the post-Napster crunch of the 2000s.
Thanks to high adoption of services like Spotify, Sweden is rebounding when many countries are still seeking the bottom. Information released on Sunday by IFPI Sweden shows streaming growth drove a 5% gain in recorded music revenue. As streaming gains were able to compensate for declines in purchases, total recorded music revenues grew to 991.2 million SEK ($152.2 million). Although revenue is 40% below the peak in 2000, 2013 was the third straight year of growth and revenue is up 27% over the last five years.
Streaming revenue grew 30.3% to 705.9 million SEK ($109.8 million) to account for 71.2% of total recorded music revenue, up from 57.4% in 2012.
Purchases fall sharply again in 2013. CD losses deepened as revenue declined 164 million SEK ($25.5 million) after dropping 192 million SEK ($29.9 million) in 2012. Download sales declined 22.6%, or 12.9 million SEK ($2 million), after falling 24.7%, or 18.7 million SEK ($2.9 million), in 2012.
Spotify launched in a handful of countries in late 2008. Sweden was one. Another was Norway. Like Sweden, Norway has seen its recorded music revenues rebound as consumers flocked to subscription services. Last year Norwegian recorded music revenues grew 10.6%. Digital revenue increased 39.7% and streaming accounted for 84.1% of digital revenue.
How does this matter to the United States and other markets? Sweden is seen as a model for the new business after early and quick adoption of-demand subscription services. A variety of factors, from abundance of high-speed Internet to telecom partnerships, have made the country a successful testing ground for these services. These early successes have made Sweden a frequent talking point. When people wonder what subscription services will do in the United States, music executives point them to the best-case scenario: Swedish.
The billion-dollar question is to what degree the U.S. market will follow Sweden. Will subscription services, with the help of mobile carrier partners, push into a more mainstream market? Beats Music's partnership with AT&T is the first step to such an outcome. Will most consumers opt for free streaming because Internet radio got a head start on the subscription model? Or will the market be a mix of purchases and free and paid streaming? And what will that mix look like?
There should be little doubt streaming, in all its forms, is the future of music in the United States. What's unknown is when that growth will come. Streaming is currently experiencing tremendous growth -- Nielsen says activity was up 32% last year -- as the quality of services improves and consumers have greater access to them. The U.S. market may suffer some painful years as it sheds CD and download sales; last year unit sales of CDs, digital albums and tracks all declined. But, just like in Sweden, streaming will be the force that lifts the market from the bottom.