The Digital Potential in African Music Markets: Where Growth Could Come From

Music Photos of the Year 2012

December 1: Lady Gaga teams up with the United Nations and spreads her "Born This Way" message of compassion in Isibindi Safe Park in Naledi.

PwC forecasts $43 million and $19 million for Nigeria and Kenya, respectively, this year. How much more can they improve?

Hopes are high for music sales in emerging markets. As smartphone ownership becomes commonplace and more legal options become available, a huge number of consumers from Africa to South Asia can tap into legal music services. But what can be reasonably expected of these emerging markets?

Take two of sub-Sahara Africa's bigger economies, Nigeria and Kenya. PricewaterhouseCoopers has forecast consumer spending on recorded music revenues to hit $43 million and $19 million for Nigeria and Kenya respectively this year. Both markets are undergoing shifts also seen elsewhere in the world, meaning digital gains will roughly offset physical losses. PwC expects Nigeria's physical market to decline $3 million to $14 million by 2017, while its digital market is predicted to grow $2 million, to $28 million. In Kenya, a $2-million decline in the physical market in 2017 is expected to overshadow a $1-million increase in the digital market.

Just how much growth can be achieved in Nigeria and Kenya? For clues, one can look to the other African county in PwC's report, South Africa.

South Africa, with a population of 53 million, is expected to generate $85.3 million in consumer spending on music this year, a figure multiples larger than expected spending in either Kenya or Nigeria. And on per-capita basis, South Africa's music spending of $1.61 is far greater than $0.43 in Kenya and $0.25 in Nigeria. By this measure, Kenya and Nigeria have much room for improvement. However, under further analysis these numbers lead to different conclusions.

South Africa has the trio's highest per-capita gross national income (PGNI) at $12,240. (This and all following PGNI numbers are based on expected 2015 spending). Nigeria, owners of the trio's largest population of 173.6 million, has a PGNI of $5,360. Kenya's PGNI is $2,780. But while the three countries have very different PGNIs, they're more alike than they first appear.

A more accurate way to compare these countries' music markets is to compare the countries' PGNIs relative to their music spending. This allows a country's spending to be judged in the context of a person's income. A country with a higher PGNI would naturally be expected to have higher per-capita music spending than a country with a lower PGNI. This is a sensible metric -- after all, regardless of the country or its income, a person can only spend so much of total income on music or some other good.

But the amount of per-capita income spent on music will vary from country to country. Kenya it tops with highest ratio of music spending to GNI of 0.015 percent, slightly higher than South Africa's 0.013 percent and three times Nigeria's 0.005 percent.

These numbers suggest music spending in Kenya is no worse than music spending in South Africa -- a country with more legal services and the presence of major record labels -- when the differences in the size of their per-capita incomes is eliminated. Nigeria has room for improvement, however. Relative to its GNI, Nigeria's record industry gets about a third of the revenue compared to Kenya and South Africa.

A number of factors influence a country's digital music spending: adoption of smartphones, affordability of mobile broadband, digital services' marketing capabilities, the pricing of digital services, and competition from physical and digital piracy. There are also more complicated factors that impact overall music spending, such as the role of music in its culture and the ability for music companies to launch and operate. The availability of payment options will also come into play. The more roadblocks to spending, the lower a country's music spending relative to gross national income.

All three of these countries have room for improvement. As a point of comparison, 2014 music spending in the United States was about 0.04 percent of PGNI, or about 2.5 times that of Kenya and 2.9 times that of South Africa. Put another way, Americans spend a far greater share of income on music than Kenyans, South Africans and Nigerians. People in these African countries could very well have a greater appreciation of music, but they put a lower share of their income toward recorded music.  

Recorded music revenues in African countries will grow as their GNIs continue to grow, but income growth isn't the only factor here. Keep in mind the United States is full of record labels and legal music stores and services. Its citizens may not be the most avid music spenders in the world, but it shows that a more efficient marketplace offers greater potential for consumer spending -- African countries need to develop better music marketplaces for music spending to reach its potential.

Western record labels stand to benefit from improvements in these markets. A trend at Indian subscription service Saavn provides the example: English-language music has grown from a negligible amount of listening to 15 percent in the last year. Given access to music, young consumers will seek out music popular elsewhere in the world.


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