As we end 2012, many music business observers will no doubt begin to reflect and report on the state of the industry. It’s an appropriate time for reflection, partly prompted no doubt by the expected release of The Nielsen Company’s year-end summary of domestic music sales. Barring any major last minute shifts, overall sales volumes for 2012 will likely be down in the low single digits on a percentage basis (including “Track Equivalent Album” sales). Like many interested in the space, we’re eager to see this data. But nearing the end of the year, it’s a good time to think about what this information means for the industry. As we have argued in the past (here), the music industry has evolved in the last few years in ways that make some other numbers nearly (if not equally) as important in understanding the U.S. music market.
In 2011, Nielsen reported overall U.S. album sales (including TEA) of 458 million units. But because of the nature of “sales” measurement, there are some very significant ways in which consumers are accessing and purchasing music that are not reflected. This includes through subscription services like Rhapsody and Spotify, streaming services like Pandora, iHeartRadio, and thousands of online radio stations, mobile purchases like ringtones and ringbacks, and on-demand services like Youtube and Vevo. Based on total dollars, subscription, mobile, and digital performance royalties accounted for more than $800 million of the $7 billion US music market (here). That’s 12% of the market, and that contribution is likely to continue rising as those services continued growing in users and listener hours in 2012. In fact, Spotify and Pandora have already announced large subscriber increases, and SoundExchange already distributed more digital performance royalties through the first three quarters of 2012 ($327 million, see here) than it did in all of 2011. All this collectively demonstrates an industry that has diversified how it does business and offers fans music in a staggering array of models and services. It’s worth noting, that’s exactly one of these reasons why we and NARM (the music retailers) created www.whymusicmatters.com, a one-stop shopping website offering a detailed guide to the more than 50 digital music services.
We are busy collecting the data (sales, shipments and licensing revenues) for 2012 and do not have final numbers yet. Nonetheless, we believe that the diversification of music business revenues is an important element of any informed, comprehensive analysis of the state of the music business.
Joshua P. Friedlander
Vice President, Strategic Data Analysis, RIAA