The 2013 edition of the IFPI's annual Digital Music Report has 31 pages of informative reading. Two things came to mind when reading it. I wondered how much digital revenue is coming from big, developed markets and I wondered how much revenue could come from less developed markets.
Size matters when talking about global growth of digital music revenues. The report says digital channels account for a majority of recorded music revenue in an "increasing" number of markets, including Sweden, Norway and the United States. Frequent readers will recognize Sweden and Norway as the poster children for digital innovation as adoption of music subscription services is remarkably high in those countries. Keep in mind the relative sizes of these recorded music markets. Sweden's population of 9.5 million isn't much bigger than that of New York City -- not the metropolitan area, just the five boroughs. Norway is half the size of Sweden and has roughly the population of Kentucky.
We don't hear much about Germany and Japan, the world's second and third largest recorded music markets, respectively. They have been slower than others to adopt paid downloads and subscription services. CD sales were actually up in Japan last year. But the German market is growing. Digital transactions, most of them individual songs, increased 22.4% in Germany last year. A quarter of German Internet users have paid to download, according to Ipsos MediaCT numbers in the IFPI report. That's just three percentage points lower than the United States.
And how much revenue can be found in developing markets? The music industry sees great potential in monetizing music through mobile phone ownership in developing markets. (The latter part of the IFPI's report focuses on some of these markets.) The worst cases have little to no retail infrastructure and rampant piracy. Local pricing will mean low average revenue per user (ARPU) but high revenue in the cases of countries with large populations.
Case in point: the report claims "some within the business" believe India can crack the top 10 and notes the country has 900 million mobile phone subscribers. It seems like India has potential: a low ARPU multiplied by India's massive population. The average smartphone bill in India costs $9.25, according to a recent Nielsen report. That may not sound like a lot of money, but it's still 3% of monthly per-capita gross domestic product (at purchasing power parity, according to the CIA World Factbook). That's about on par with the $93 the average American pays for monthly a smartphone bill, which is 2.3% of U.S. monthly per-capita gross domestic product.
If Indian consumers were to pay an amount comparable to the $10 per month paid for a music service with mobile access by Americans, they would pay $0.75 a month for a music service. That amount would account for the differences in gross domestic product and purchasing power. The countries have different economies, different standards of living and should have music services priced to fit their local markets. An ARPU of less than $1 may seem low, but India's population is 1.24 billion and the country has a large and growing middle class of about 300 million people.