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Music Industry Continues To Lead the Way in Digital Adoption, With A Bit of Vinyl On The Side

June 14, 2013

The announcement earlier this week of a new music streaming service by Apple has yet again drawn attention to the rapidly emerging digital music space.  Based on the announced description, iTunes Radio sounds like a great new entrant.   And it joins a long list of services (see: whymusicmatters.com/find-music) that give fans almost any type of listening experience they are looking for, and often for free.

The announcement also brings attention to two interesting, and seemingly contradictory trends in music listening that are occurring simultaneously. 

First, the release last week of the PWC Global Entertainment and Media Outlook highlights the importance of digital distribution to a number of industries.  In the US, music, movies, books, newspapers, and magazines all saw growth in the proportion of revenues they derive from digitally distributed sources.  But among those “traditional” media industries, the music industry is far ahead in its adaptation to the online world.  Based on RIAA shipment and revenue data, digital grew from 51% to 59% of total industry revenues in the US from 2011 to 2012.  Both the overall proportion and the amount of growth were much higher than for any of these other media (chart below).

On the other hand a recent NY Times article highlighted the continued growth of vinyl records, a format once considered dead with the advent of digital technology.  According to the article, Nielsen SoundScan estimates vinyl sales to grow to 5.5 million in 2013, the highest level since the early 1990’s.  Our own RIAA numbers, (which date all the way back to 1973 and are collected directly from the music companies) tell a similar story.  Vinyl LPs grew 29% from 2011 to 2012.  Though vinyl still remains only about 2% of the overall market (by value), it clearly holds an interest for fans. 

So why is it that a format less convenient to use (can’t be organized as a playlist, much harder to take with you to the gym) is gaining in popularity?  It could be that audiophiles still love to listen to vinyl for the classic sound quality, or that they prefer the more tactile experience of a physical product.  But maybe the dramatically increased availability of digital music through so many new distribution models is actually enabling the purchase of such a nostalgic product.  Where vinyl owners previously would have to go to the effort of ripping music from the record, or finding digital copies if they wanted to include the music on their digital devices, now they can have the best of both worlds.  They can buy the record, but then listen online very easily.  And many records now come with codes for digital copies of the music as well.  So even with just the analog purchase, more and more the listener can also have the digital experience.

Recent user data suggests this may help explain what is happening.  According to research from The NPD Group people who purchased vinyl records in 2012 were three times more likely than the average respondent to use paid on-demand or paid Internet radio services.  They were also significantly more likely to use free online music services.  Everyone’s music listening habits are different, but we think it’s certainly possible that this is an example where the development of the newest, latest and greatest is letting fans connect with their favorite music and artists in ways surprising to us all.

Joshua P. Friedlander
Vice President, Strategic Data Analysis, RIAA


Apple Gets Into "iTunes Radio" Business: What It Says About The Market For Online Music

June 10, 2013

Apple’s announcement of the launch of its iTunes Radio service is understandably generating a lot of attention on the expanding number of streaming services and what it might mean and say about the online music marketplace.  Here are some initial thoughts from my perspective. 

It’s not really a surprise that Apple would want to expand its music footprint to include a streaming service.  Music, more than ever, is driving online commerce and conversation.  Music and musicians dominate Twitter and Facebook conversations and leading technology companies are rushing to introduce and expand a broad array of streaming business models.  Everything from on-demand audio and video services like Spotify, Vevo and Rhapsody, to digital radio outlets like Pandora, Sirius XM and iHeartRadio.  It’s clear that there’s plenty of consumer demand for all sorts of platforms – the “lean forward” model where the fan picks exactly what he or she wants to the “lean back” model where a playlist or particular genre of music is served up to the user.   And permutations or hybrids of each, such as what Apple is now offering.  What connects it all is instant, easy, seamless access, often to smartphones and other connected devices.

The growing popularity of these services is borne out by the user numbers and the revenue figures: 
               
According to an NPD report issued earlier this year,  “subscription-based and free Internet radio services accounted for nearly one quarter (23 percent) of the average weekly music listening time among consumers between the ages of 13 and 35, an increase from a share of 17 percent the previous year.”  Listenership is booming.

Music streaming and “access” services have quickly become significant revenue contributors for the music industry and its partners.  Collectively those models have grown from just 3% of total recorded music industry revenues in 2007 to 15% in 2012, totaling more than $1 billion last year.  

Collectively, this paints a picture of a booming market that’s already enormously successful and with even more potential.  It’s no wonder that leading technology companies want to be major players in this space.

One addendum:  two other recent initiatives developed by the RIAA speak to the growth of this marketplace.  With NARM, we recently launched whymusicmatters.com, a go-to guide for the leading digital music services.  The marketplace had become so robust, so extensive, that a one-stop shopping guide was necessary.  We also recently announced that we would be counting on-demand streams as part of our historic Gold & Platinum Program.  The industry’s premier program for recognizing artistic achievement in the marketplace should keep pace with evolving consumer habits.

Cary Sherman
CEO