SHIFTS IN THE MUSIC INDUSTRY – Part 1: “THE CONTEXT”

Screen Shot 2015-09-05 at 12.29.29The Music industry is currently undergoing major changes.

This trend has started more than a decade ago but the new equilibrium is yet to be reached, with the growing digitalization only intensifying this process.

It is apparent in the structure and power balances of the market, with changes in the identity and behavior of the main players, the distribution systems and gate-keeping roles, and the emergence of new dominant business models. The shift is also observable on the consumer side. The value of the physical object associated with music is disappearing, and the need to purchase it is decreasing. The general shift from an ownership based economy towards a sharing one is even more relevant in this industry. The fact that it is increasingly easy to access music anywhere instantaneously further strengthens this phenomenon as music is now seen as a sort of commodity, something that should be accessible on demand and almost freely.

It is no surprise in these market conditions that streaming emerges as the future of the music industry. Last year, for the first time, streaming revenues actually overtook CD sales in the USA ($1,87bn vs $1.85bn). While digital downloads still represent the highest share of revenues (37%), before overall physical sales (32%) and streaming (27%), a few clear trends stand out (data from RIAA).

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First, digital and physical sales are on a declining path, with total album sales having decreased by 11.2%, including an almost 15% drop in CD sales and 9.4% in digital ones (surprisingly enough, this is somewhat offset by the “new life” of Vinyls whose revenues rose by 52%!).

On the other hand, streaming demand is rapidly expanding: its market share tripled since 2011, while the demand for music through online streaming grew by more than 50% according to Nielsen’s data, reaching 164bn streamed songs in the US.  Their analysis shows that “consumers might not be buying as many CDs, but they are still spending on music” and depending a lot on it.

It is clear that a new paradigm is developing in the Music industry. Cattura1The traditional high margin CD sales model lost its prominence with the advent of internet and the MP3/digital format. Digital download services such as Apple’s Itunes were created to fill the gap, but it appears today that these were not the solution either as the revenues they generate started decreasing as well. Now, the impressive growth and demand for streaming services suggests that they will gain a leading position in the market within a few years. The question (and hope) that thus arises is whether streaming will be able to sustain and save the music industry (ft.com) , helping it to finally reach a new equilibrium.

Dominated by a few companies (different from the Majors and other traditional actors) so far, notably Spotify for audio streaming, a number of influential players have recently announced their will to enter and establish themselves in this promising new area.

The competitive framework will become a lot more complex and dense, it will be interesting to analyze what each new player will bring into the market and how this will influence the streaming services and the industry as a whole (see Part 2: “THE PLAYERS”… coming soon).

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Stay tuned dear Storm-Troopers !

(Yes, this is indeed the term we coined for our loyal readers… Oh and yes, we are Star Wars fans).

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