RotD looks at the facts from the IFPI Digital Music Report 2015

16 April 2015 - Press release

There were two big stat takeouts from the IFPI report this week; first was the fact that revenues from digital and physical are for the first time completely equal and the second showed overall revenue decline beginning to level out.

With global income falling by just 0.4% to US$14.97bn (from US$15.03bn in 2013), it’s widely been reported that we’re beginning to turn the tide on years of decline (save for 2012’s anomaly 0.3% growth). Frances Moore, Chief Executive of IFPI, commented that: “Music companies are charting a path to sustainable year-on-year growth. That path was never going to be straight, but we are making great strides along it, embracing new models, licensing, investing and improving consumer choice.” 

The vaguely positive stat comes after 2013’s global revenue drop of 3.9%, which was largely put down to a particularly sharp drop in Japan. This year however the territory claimed an increase in digital revenue for the first time in five years as streaming services begin to flourish. The IFPI in fact reported that streaming is now the primary source of digital income in 37 markets.

The streaming sector had a lot to celebrate as its revenues reached $1.57bn (up 39%) and now represents 23% of total digital income. The figure was nicely boosted by an extra 14m paying subscribers across the platforms, taking the total from 28m to 41m. New services including YouTube’s Music Key, Jay Z’s TIDAL and Apple’s expected entry to the market makes it look as though these figures are only set to rise over the coming 12 months. Edgar Berger, Chairman and CEO, International, Sony Music Entertainment, commented: “The industry has shifted from an ownership model to access. I’ve not met anyone who can see beyond streaming. So this looks like a final destination.”

Bolstering digital’s somewhat predictable ongoing importance, the statistics also report that income from digital and physical music have, for the first time, become even - with each representing 46% of revenue for the industry. However, as pointed out by MBW, this year’s digital income total includes SoundExchange collections in the US, which had previously been counted under the performance royalties column – adding an additional $773.4m to digital’s final tally. Outside of the dominant two, the final 8% of market income is made with performances rights and synchronisation. Of digital’s 46% share, 52% is still made from downloads compared to the 23% from subscription streaming mentioned above. Mobile personalisation still manages a minor 3% while 12% is classed as ‘other’. However, it was the 9% share from ad-supported streams, such as YouTube, that has caused the biggest stir.

Outside of the hard stats, Moore made a call for legislation against the likes of YouTube and Daily Motion who are accused of taking advantage of ‘safe harbour’ laws in Europe. The oft-controversial platforms are able to claim that they are hosting services, rather than digital distribution services such as Spotify, which entitles them to benefit from exemptions to copyright law. In the report, IFPI states:

‘This legislative issue is the primary reason, along with piracy, why, despite offering consumers better choice, access and value than ever before, the recorded music industry has not achieved sustainable year-on-year revenue growth.

An illustration of this can be seen in comparing the share of revenue derived by rights owners from services, such as Spotify and Deezer, and those derived from certain content platforms, like YouTube or Daily Motion.  IFPI estimates music subscription services have 41m paying global subscribers, plus more than 100m active users in their “freemium” tiers.  This sector generated revenues to record companies of more than US$1.6bn in 2014.  By contrast, YouTube alone claims more than one billion monthly unique users and is thought to be the world’s most popular access route to music. Yet total global revenues to record companies generated by certain content platforms including YouTube amounted to just US$641m in 2014, less than half the total amount paid to the industry by subscription services such as Spotify and Deezer. ‘ 

Moore said: "The value gap is a fundamental flaw in our industry's landscape which sees digital platforms such as Dailymotion and YouTube taking advantage of exemptions from copyright laws that simply should not apply to them. Laws that were designed to exempt passive hosting companies from liability in the early days of the internet - so-called 'safe harbours' - should never be allowed to exempt active digital music services from having to fairly negotiate licences with rights holders".

She added: "There should be clarification of the application of 'safe harbours' to make it explicit that services that distribute and monetise music should not benefit from them".