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China Rising & Downloads Falling: 5 Takeaways From the IFPI's Global Music Report
Five key trends from the IFPI's annual report on the health of the global recorded-music industry.
This week on April 25, the International Federation of the Phonograph Industry, or IFPI, released its annual Global Music Report, analyzing the health of the global recorded-music industry in 2016. And while the overriding storylines -- 5.9 percent growth worldwide to $15.7 billion, the highest percent growth since the IFPI began tracking data in 1997; digital reaching 50 percent of revenue -- no doubt deserve the boldest headlines, the extensive, 50-some page report contained a wealth of information on the industry at large.
It's a mild surprise that the streaming boom has led to a second straight year of growth for the business -- after 15 years of decline -- particularly in the United States, the world's largest market by revenue; earlier this month, the RIAA noted that streaming revenue overtook sales revenue in the U.S. business for the first time ever. But while streaming revenue ballooned by 60.4 percent globally in 2016, according to the RIAA, drilling down reveals a more complicated reality.
After combing through the IFPI's report, here are five takeaways to consider.
It's Not Just Growth That's Accelerating
Yes, the market grew faster in 2016 than it did in 2015 -- 5.9 percent over 3.2 percent -- but it wasn't just the topline numbers that improved. Digital revenue as a whole (+17.7 percent in 2016 over +10.2 percent), streaming revenue (+60.4 percent over +45.2 percent), performance rights revenue (+7.0 percent over 4.4 percent), new streaming subscribers (+44 million over +27 million) and total revenue growth in every continental region all grew at a faster pace than the year prior. But it's not just growth that's accelerating -- it's also decline. Physical revenues are down 7.6 percent after decreasing 4.5 percent the year before and digital download revenues are down 20.5 percent over 10.5 percent in 2015. The divide between streaming and sales is pulling revenue streams in opposite directions -- but luckily, growth is far outweighing decline.
Physical Is Still Formidable -- Globally, At Least
Despite that rapidly declining global revenue from physical sales, it still accounts for 34 percent of the total global market -- not insignificant by any means, and accounting for the highest single source of revenue -- if considering digital download sales (15.1 percent) and streaming revenue (29.1 percent) separately -- in the global music industry. And of the five biggest markets in the world -- the U.S., Japan, the U.K., Germany and France, in order -- physical still remains the largest single source of revenue in all but the U.S., accounting for more than half in both Japan (a whopping 73.5 percent) and Germany (51.9 percent) despite huge streaming gains in both.
Vinyl, Vinyl, Vinyl
It's starting to sound like a broken record -- sorry -- but physical's saving grace, so to speak, is still vinyl. As revenue from three of the four physical sales categories -- CDs (-11.5 percent), singles (-6.3 percent) and videos (-4.1 percent) -- all fall, vinyl surged once again, growing 23.5 percent year-over-year to $563.6 million, with 37.5 million units sold. (That's around $15 a pop, for those counting at home.) Granted, that total revenue is still well behind CDs ($3.82 billion) and just shy of videos ($613.3 million), meaning it's still a drop in the bucket. But according to the IFPI's data, that revenue from vinyl is still higher than that from ad-supported audio streams like Spotify's free tier ($512 million) and video streaming services, as with YouTube ($553 million). That sure seems like an argument for the value gap.
Digital Downloads Dropping Alarmingly
While sales overall are dropping at an accelerating rate -- see point one above -- it's easy to gloss over the increasing drop in digital downloads, particularly when one of the topline numbers here is that digital revenue as a whole now accounts for 50 percent of global revenue for the first time ever. But over the past four years, digital download revenue has declined by 2.0 percent in 2013, 8.0 percent in 2014, 10.5 percent in 2015 and 20.5 percent in 2016, declining by well over $1 billion in that time frame. The main factors involve the rise of streaming and the consumer trend towards widespread acceptance of the access model, and the revenues are more than making up for the drop. But digital downloads stood at only 15.1 percent of the market in 2016.
All Eyes On China?
Traditionally, China's recorded-music industry has been defined by piracy, and little else; despite being the world's largest country with 1.36 billion people, China was just the 14th largest market by revenue in 2015. But in the past year China's revenue grew 20.3 percent, rising to become the 12th-largest market by revenue -- driven by a 30.6 percent rise in streaming -- leading to what Sony's CEO, China and Taiwan Samuel Cho called "the first year of a new era for music in China." The country's Tencent Group owns its three largest streaming services -- QQ Music, Kugou and Kuwo -- with a combined total of 15 million paid subscribers and 600 million monthly average users. It's a conversion rate of just three percent, but with streaming now accounting for 81.2 percent of revenue -- much higher than even Spotify's native country Sweden at 68.7 percent -- there is plenty of opportunity, and room, for explosive growth.