Driven by new streaming businesses, the global record business will return to growth by the end of the decade, according to a new report by MIDiA Research -- but not before it peters out.
"Global Music Forecasts 2014 to 2019: The Shift to the Consumption Era" portrays a global marketplace running towards a standstill. The loss of revenue from older products offsets gains from the emerging services that provide a path to the future. The challenge will be to offer new services at prices that will attract mainstream consumers in markets of varying income and tech adoption levels.
Here's a snapshot of MIDiA's forecasts for 2014 and beyond:
- In 2014, global recorded music revenues will drop by 3% and Japan will suffer a 9% decline.
- Total global revenues will slowly bottom out over the following four years, averaging an annual decline of -1% through 2017. A 0.2% increase in 2018 will return the global industry to growth.
- The top ten markets will decline 11% through 2019, while the rest of the world will grow 62%. Most notably, MIDiA forecasts a 34% decline in Japan and a 19% decline in Germany, two markets where the CD still accounts for a relatively high share of total revenues.
- Streaming revenue will grow 238% through 2019 and will account for 71% of all digital revenue and 41% of total revenue.
- Purchase revenue will fall as consumers shift to streaming platforms. Physical revenue will drop by 44% through 2019 but will still account for 32% of total revenue. Download revenue will decline 39% through 2019.
- Ad-supported services and downloads will be the most mainstream ways to consume music at the end of the decade. MIDiA expects 337 million users of ad-supported music services in 2019. Music downloaders will outnumber subscribers 210 million to 138 million in 2019.
The music industry is undergoing another painful transition. The shift from CDs to downloads -- both illegal and legal -- precipitated a downsizing and retooling of record labels and distributors. As consumers went online and brick-and-mortar retailers closed, the industry's infrastructure was transformed from shipping physical product to marketing artists and their music online.
Don't confuse transition with growth. Confirming beliefs held throughout the industry, the report warns that streaming "seems to be growing, in part at least, at the direct expense of downloads."
Now the market is shifting again. At different paces in different markets, streaming is replacing downloads and the CD continues its long decline. MIDiA calls the current phase the "rise of curated and listen services," the fourth in a series of consumption models following piracy networks, download stores and streaming services. Today's streaming services expertly guide the listener through immense music catalogs. Beats Music, U.K.-based MusicQubed and Songza -- acquired last week by Google -- represent this new breed of services that deliver personalization through human-curated playlists.
But MIDiA doesn't expect the download to completely disappear. Not all consumers will want to swap ownership for access. MIDiA's Mark Mulligan tells Billboard the download will continue to be the "natural entry point" for later digital adopters and consumers in emerging markets with less access to high-speed Internet. The high price of current subscription services is also expected to drive some consumers to downloads. "Until we see more widespread availability of affordable subscriptions, especially with [pay-as-you-go mobile services], downloads will also remain a natural entry point for less wealthy music consumers," he says.
Although MIDiA's report offers a global perspective, the picture gets more complicated at the country level. Because of market-specific conditions, the rate of new business model growth varies from market to market -- some will be able to more quickly adopt new business models than others.
As the report notes, streaming services have achieved the highest penetration in countries that had little success with downloads. Take Sweden, a country frequently hailed for its adoption of subscription services. Downloads never accounted for more than 8% of Swedish recorded music revenues. In contrast, the download peaked at 43% of U.S. revenues. Other factors will play a part in how markets evolve: piracy, per-capita music spend and GDP, and the adoption of mobile devices and other technologies.
And what's the result of the industry's effort to battle piracy, its moves towards access models and its management of the CD's decline? The proverbial cliff may have been avoided, but the industry is unlikely to reclaim its glory years. Mulligan says the market is returning to a level last seen before the CD boom of the late '90s. "Even those markets, such as Nordics, where digital is driving growth, markets are still well below the pre-bust levels."