Global revenue from recorded music grew 3.2% to $15 billion in 2015, first big gain in 20 years
April 12, 2016 8:00 a.m. ET
Subscription streaming services pumped up the recorded-music industry’s revenue last year, but music consumption on free, legal sites grew faster, threatening the industry’s future growth, according to the International Federation of the Phonographic Industry’s annual report.
Global revenue from recorded music grew 3.2% to $15 billion in 2015, the first significant increase after two decades of declines or negligible gains.
The uptick owed largely to a 45% increase in streaming revenue, which now amounts to $2.9 billion and makes up nearly half of the world’s digital-music revenue. Digital-music revenue for the first time outweighed the revenue from sales of physical products such as CDs, which continued their long decline.
Despite the growth, the IFPI’s report highlighted the industry’s concern about the widening “value gap” between the volume of music consumed on free, “user-upload” services such as Alphabet Inc.’s YouTube, and the amount of revenue that they generate for the industry.
An estimated 900 million nonpaying music consumers on these legal sites resulted in revenue of $634 million last year for the global recorded-music industry, or 4% of global revenue. The world’s 68 million paying music subscribers—up from 41 million subscribers in 2014—generated about $2 billion. The number of on-demand streams on ad-supported, free sites roughly doubled last year in the U.S., and grew 88% in the U.K., the report said.
“The market-distorting value gap must be resolved if music is to thrive in the long term,” the report said. The problem has a “serious impact” on subscription services, limiting their ability to draw paying customers, it said.
In a statement, YouTube said that to date its parent company “has paid out over $3 billion to the music industry—and that number is growing significantly year on year.”
“Only about 20% of people are historically willing to pay for music. YouTube is helping artists and labels monetize the remaining 80% that weren’t previously monetized. The global advertising market is worth $200 billion. This is a tremendous opportunity,” YouTube said.
Major and independent record labels have licensed their catalogs to YouTube for years to bank what revenue they could from the ad-supported site. In part, they’ve worried that if they didn’t license their music to YouTube, users could upload their tracks anyway, protected by so-called “safe harbor” rules that essentially allow sites to post content without permission and negotiate for the rights later.
Last year, 94% all of the “take down” notices sent by IFPI to last year pertained to “recordings uploaded repeatedly” to sites that had already been notified that the content had been posted without permission, the report said. To help labels and other copyright owners remove unsanctioned user uploads on an automated basis, YouTube introduced its so-called “Content ID” system in 2008.
While record companies have been trying to negotiate better terms from YouTube—including higher rates per stream and more control over what they make available free—they have relatively little leverage. The artists rely on YouTube exposure to grow their fan bases and sell concert tickets which are their primary source of income. Some record company executives fear that pulling their music from YouTube could scare their top artists away.
YouTube launched its own video-subscription service in December, YouTube Red, offering ad-free and offline viewing, but it hasn’t disclosed subscriber numbers.
Revenue growth from subscription streaming services such as Spotify and Apple Inc.’s Apple Music, launched less than a year ago, more than offset a 11% decline in download sales and a 4.5% decline in sales of physical products such as CDs.
Buoying the overall global results was Asia, which posted nearly 6% revenue growth after clocking a nearly 2% revenue decline in 2014. Asia’s gains came not just from streaming but from increases in CD and download sales, thanks largely to Japan, where music fans still favor buying physical music, especially collector’s editions of albums bundled with merchandise. Japan is one of the world’s biggest music markets.
Latin America posted nearly 12% revenue growth, Europe’s revenues grew 2.3% and U.S. recorded music revenues grew 1.4%.