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Streaming now the US record industry’s biggest revenue generator, so streaming really has to work then

By | Published on Wednesday 23 March 2016

RIAA

The biggest recorded music market in the world yesterday published its figures for 2015, and they neatly conformed to the key global trends. So, over there in the US, physical and downloads continue to decline while streaming income booms, with the latter set to become the key revenue stream for the record industry.

This trend is also enabling the recorded music sector to finally turn the corner – just – and grow again in terms of revenue. While that growth is tiny, it’s always worth remembering that digital is more profitable than physical, especially once your distribution channels and royalty processing systems are built, so as revenues grow slowly, profit margins should be increasing too, and probably at a faster rate.

The top line figures released by the Recording Industry Association Of America yesterday were that overall revenues were up a whole 0.09% to $7.016 billion, while wholesale income was up 0.08% to $4.95 billion. With download income down 9.6% and physical sales down 10.1%, it was the 29% boom in streaming income that enabled the slight growth overall.

It also means that streaming – which includes premium and ad-funded platforms, and those licensed via SoundExchange – is now the single biggest revenue stream for the US record industry. Streams account for 34.3% of revenue, while downloads are just behind at 34% and physical is at 28.8%. Sync is up but still only accounts for 2.9% overall.

Billboard compared the RIAA’s money figures with consumption data from stats firm Nielsen to note that the per-stream rate is dropping as the market grows, though I think we should all agree that we need to stop obsessing about per-stream rates and focus on overall income, and how it is shared between stakeholders.

Though the dropping per-stream rate does link in to the so called ‘value gap’, which is to say the issue raised by the wider music rights sector that free services account for the most consumption but the least income, when compared to paid-for streaming services like Apple Music and Spotify Premium.

Or in the words of RIAA boss Cary Sherman: “While today’s data is encouraging, the challenges facing us are significant. The consumption of music is skyrocketing, but revenues for creators have not kept pace. In 2015, fans listened to hundreds of billions of audio and video music streams through on-demand ad-supported digital services like YouTube, but revenues from such services have been meagre  –  far less than other kinds of music services. And the problem is getting worse”.

Opting for ‘value grab’ as the buzz phrase instead of the customary ‘value gap’ (get this guy on message, will you?), Sherman continues: “This is why we, and so many of our music community brethren, feel that some technology giants have been enriching themselves at the expense of the people who actually create the music. We call this the ‘value grab’ -  because some companies take advantage of outdated, market-distorting government rules and regulations to either pay below fair-market rates, or avoid paying for that music altogether”.

In the US, the ‘value gap’ is partly about the statutory rates paid by those digital services operating under America’s compulsory licence for online radio (including personalised radio), which labels reckon are too low. It’s also about the fact that AM/FM stations in the country still pay nothing to the record industry at all. And, as with the rest of the world, it’s about those services, like YouTube, exploiting the safe harbours in copyright law that allow them to run ‘opt-out’ rather than ‘opt-in’ streaming set-ups.

As much previously reported, the music industry hopes to get safe harbour rules revised so that YouTube-type services have to take responsibility for all the unlicensed content on their platforms, which in turn would strengthen the labels and publishers’ negotiating hand, enabling them to demand higher rates, and that YouTube et al offer guaranteed payments on unmonetised content.

The safe harbours are currently being reviewed in both the US and Europe. The music industry seems quietly confident of safe harbour reform in the latter, if probably not the former. Though our sources outside the labels and publishers seem less certain even about the European Union, despite there being a couple of champions for the music rights owners’ cause in the European Commission.

Meanwhile, beyond safe harbours and YouTube griping, the US figures confirm that streaming will become the single most important revenue stream for the wider record industry in the near future. And as most people in music still rely on the labels for primary new talent investment, that means that everyone has an interest in making premium streaming work. Which means everyone needs the Spotifys and Apple Musics of the world to sign up as many paying users as they can.

A more coordinated industry-wide strategy to help make that happen would be a good Plan B for if and when the safe harbour reforms are denied by law-makers. Because yes, that would mean helping tech giants, digital entrepreneurs and venture capitalists (who are almost certainly evil) get rich on the back of “our content”, but at the same time, possibly the biggest concern for the music industry just now is that the single biggest revenue stream in the single biggest recorded music market is wholly dependent on wholly loss-making services. That’s just not sustainable.

So, advances and guarantees are a great way for the record industry to return to growth in the short-term, but these services need to become properly profitable to assure growth in the longer term.



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