Revenue generated by streaming music services surged 60% in 2016 – Financial Times

The global music industry grew by 5.9 per cent in 2016, its fastest rate of growth since 1997, as revenue generated by streaming services surged 60 per cent.

Yet the world’s largest music companies warned a recovery remained “fragile” and there was no certainty that growth would prove sustainable, coming on the tail of 15 consecutive years of revenue decline.

Stu Bergen, chief executive of Warner Music’s international and global commercial services division, said: “We are no longer moving up a down escalator, but that doesn’t mean we can relax.”

The annual Global Music Report compiled by the IFPI, the industry trade body, showed revenue generated by the sector hit $15.7bn in 2016 compared with $14.8bn in 2015. That was driven by growth in paid-for streaming services such as Spotify, Apple Music and more localised companies like Tencent in China, with overall digital revenue accounting for 50 per cent of global sales. Overall digital revenue grew 18 per cent to $7.8bn as the streaming boom — driven by 112m users of subscription services — offset a 20 per cent drop in download sales.

We are no longer moving up a down escalator, but that doesn’t mean we can relax

It was the best result since 2009, but remained well down on the $23.6bn that the global music industry generated at its peak in 2001.

Michael Nash, head of Universal Music’s digital business, pointed to that decline as a reason for caution. “How many industries have recovered from a 40 per cent value decline? That gives you a sense of what we are up against,” he said.

The industry continued to highlight what it calls the “value gap” that has been created by user-upload sites — namely YouTube — that do not pay the same royalties as streaming services like Spotify.

Frances Moore, chief executive of the IFPI, would not quantify the impact of the “value gap” on the music industry’s growth but did point to an estimated revenue per user of $20 for Spotify compared with less than $1 for YouTube. She said that changing legislation to force YouTube to negotiate licences with music companies was a “global challenge”, with the EU set to take a lead later this year.

Record industry caution is belied somewhat by the admission that the opportunity for the music industry could be larger than it has ever been, with billions of smartphones in circulation and markets like Mexico and China becoming big users of streaming services as opposed to piracy.

Voice-controlled home assistants such as Amazon’s Alexa also offer new avenues for streaming growth, according to Mr Nash, as do in-car entertainment systems, mobile messaging platforms and virtual and augmented reality systems.

Dennis Kooker, head of Sony Music’s global digital business, argued that competition in the streaming market has also played a part, with Amazon, Apple, Tencent, Tidal and others challenging Spotify. “It’s an amazing value proposition. We need to continue to convince consumers it is important and worth paying for,” he said.

The streaming boom has also paid off for independent labels. Charles Caldas, chief executive of Merlin which represents 20,000 independent labels, said: “A music consumption and discovery ecosystem, devoid of the old-school limited channels that could be dominated by whichever record companies were able to wield the largest cheque books, has created the marketplace of the future.”

Merlin has distributed $300m to its labels in the past year, up eightfold from the $36m it paid out in 2012.

Mark Mulligan, an analyst with Midia Research, said: “Without streaming, the recorded music market would have declined in 2016. Streaming is driving revenue growth by both growing the base of users and, crucially, increasing the spend of more casual music spenders.”

Sales of physical music fell by 7.6 per cent last year, but the CD and booming vinyl markets remain resilient. Only 25 markets derive more than half of their overall music revenue from digital, with Japan, Germany and France still dominated by sales of traditional physical music formats.

Beyoncé’s Lemonade was the biggest selling album of 2016 with 2.5m sales, according to the IFPI, with Metallica’s Hardwired . . . to Self-Destruct, David Bowie’s Blackstar and The Rolling Stones’ Blue & Lonesome among the top 10 albums of the year.

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