By Emmanuel Legrand
The global recorded music market generated revenues of $21.6 billion in 2020, up 7.4% compared to the previous year, in what was described as "challenging year" by the International Federation of the Phonographic Industry (IFPI), which released the annual Global Music Report for 2020.
Speaking at a virtual launch event, IFPI Chief Executive France Moore, said the report shows a sense of "optimism" within record companies as they have been able to weather the pandemic, while continuing to operate and grow.
“Companies have continued to drive new, exciting experiences for fans whether it's gaming, exercise or beyond,” she said.
Six consecutive years of growth
It marks the sixth consecutive year of growth for the recorded music sector, boosted by streaming, especially by paid subscription streaming revenues, which increased by 18.5% year-on-year.
Total streaming revenues, including paid subscription and advertising-supported, grew 19.9% to $13.4bn and represented 62.1% of total global recorded music revenues. There were 443 million users of paid subscription accounts at the end of 2020, according to the IFPI's Global Music Report for 2020.
"The growth in streaming revenues more than offset the decline in other formats’ revenues, including physical revenues which declined 4.7%; and revenues from performance rights which declined 10.1% – largely as a result of the Covid-19 pandemic," noted the IFPI.
Acceleration of consumption trends
The 4.7% decline in physical sales to $4.2bn was also echoed by an even greater decline of download revenues (-17.3% to $1.2 bn), although vinyl saw revenues up 23.5%.
Performance rights for the use of recorded music in public spaces were down 10.1%. Moore said she expected the markets to recover in 2021 and enjoy a return to normal by 2022.
Sync rights were impacted by the disruption in the production of advertising, film, TV shows and video games (-9.4%).
Sony Music Entertainment President, Global Digital Business and Sales Dennis Kooker acknowledged during the virtual chat with journalists that the pandemic has transformed the way music is consumed, but with the proviso that "many of the trends were trends that were occurring before the pandemic,” and that the pandemic "accelerated some of those trends."
Immersive entertainment to expand
For Kooker, there is "a convergence of audio, video and gaming" that is purpose-built for consumer's experience and that space is "expanding." He added: "If we get this right, ultimately, immersive entertainment is going to continue to grow in the future.”
Overall, eight of the top 10 markets posted growth in 2020, with the Netherlands replacing Brazil as the tenth biggest music market.
Recorded music revenues grew in every region around the world in 2020, including:
> Latin America: The region maintained its position as the fastest-growing region globally (15.9%) as streaming revenues grew by 30.2% and accounted for 84.1% of the region’s total revenues.
> Asia: The region posted revenues up 9.5% with digital revenues surpassing for the first time a 50% share of the region’s total revenues. IFPI noted that excluding Japan, which saw a decline of 2.1% in revenue, Asia would have been the fastest-growing region, with "exceptional growth" of 29.9%.
Shridhar Subramaniam, President, Strategy and Market Development for Asia and the Middle East at Sony Music Entertainment, broke down the region into "three groups at different stages of development": China and South Korea, which are leading the region and are the fastest growing markets; India and some South East Asian countries, with a steady growth rate; and, last, countries “yet to fundamentally come online” but ready for growth. "Given its demographics and the size of its population, [Asia] will be a consumption powerhouse," said Subramaniam.
Warner Music Group's President, International, Recorded Music Simon Robson noted that Asia "is home to almost 60% of the world’s population" and concluded that its potential in the streaming world was "massive.”
He also reflected on the fact that "Asia has been driving a lot of recent innovation" such as livestreaming, virtual gifting and tipping, and said there was much to learn from the way China's streaming services/social networks provide functionalities to fans that do not exists elsewhere.
> Africa & Middle East: the region was featured for the first time in IFPI's report. Revenues increased by 8.4%, driven primarily by the Middle East and North Africa region (37.8%). Revenues from streaming were up 36.4%.
Sipho Dlamini, CEO of Universal Music South Africa and Sub-Saharan Africa, said the African music market, while relatively small, offers "significant potential" thanks to the combination of demographics factors (a large proportion of the population is under 35) and technology developments, with the growth of smartphone sales and cheaper mobile data packages.
> Europe: revenues in the second-largest recorded music region in the world grew by 3.5%, thanks to strong streaming growth of 20.7%, which offset declines in all other consumption formats.
> US & Canada: the region grew 7.4% in 2020, with the US market up 7.3% and Canada by 8.1%.
> Policy priorities:
IFPI has outlined in the report a series of policy points or "principles" that it wants to introduce across markets "to enable music to thrive globally." One of the main issue for IFPI is recognising the value of music.
Public policies, says IFPI, should "ensure that all services that distribute music, regardless of how they operate, negotiate market-rate licenses with music creators and right holders (those who create and own the music) in a fair, competitive marketplace."
Policymakers around the world should also "ensure that ‘safe harbour’ provisions are not misused by online platforms to claim exemption from copyright liability and undermine the value of music in the online marketplace." With regards to that issue, IFPI urges member States of the European Union to transpose and implement the Copyright Directive "faithfully, or it will undo the public policy goal for which it was enacted."
IFPI also noted with satisfaction that at the end of 2020, China established full performance rights for the use of recordings in public performances and broadcasts (neighbouring rights). For the first time, wrote IFPI, "revenue for right holders will be generated for the use of recordings in public performances and broadcasts, enabling further re-investment in the Chinese music community."
In addition, Singapore has also agreed "to recognise public performance rights and is working to implement them." In future, the industry "still needs to ensure full performance rights protection in Japan and the US."
Other countries have have also unveiled market figures for 2020:
> In Japan, the world's second largest market, revenues were down in 2020 by 9% to 272.6 billion yen ($2.64bn), despite a 25% growth in streaming revenues, according to the Recording Industry Association of Japan(RIAJ). Digital sales reached 78.3bn yen ($719.2m), with streaming audio revenues accounting for 50.7bn yen ($465.9 m). By contrast, physical music sales were down 15% to 129.9bn yen ($1.2bn).
> In the UK, the world's third largest market, recorded music revenue rose by 3.8% in 2020 to reach £1.118 billion ($1.53bn), according to music industry trade body the BPI, which noted that this was the highest figure since 2006 and the fifth consecutive year of growth. The rate of revenue growth slowed in 2020, compared to a 7.3% growth rate in 2019, due to the effects of the pandemic.
Revenues from streaming rose to £736.5m (up 15.4%), with subscriptions revenues were up 14.7% to £650.3m, with ad-funded streaming income up 17.5% to £42.4m and income from video streaming platforms, such as YouTube, were up 24.4% to £43.8 million, but the BPI noted that they only represented half of the amount generated by vinyl. Streaming now accounts for 80% of UK music consumption, with consumers listening to 139 billion audio streams in 2020, up 22% on 2019's figure.
Physical revenues decreased by 2.6% to £210.3m. Revenues from vinyl increased by 30.5% to £86.5m, the highest total since 1989, while CD sales were down 18.5%.
from streaming, which now accounts for 80% of UK music consumption
> In the Netherlands, the world's tenth largest market, revenues reached €225.8 million in 2020, up 9.8% over 2019's figures, according to local trade body NVPI. Streaming revenues were up 15.6% at €185.6m and now represents 82.2% of the market's revenues. Physical sales were down 10.1% to €36.5m in 2020, and for the first time in decades, sales of vinyl, up 11% to €17.1m, over-performed CD sales, down 25.9% to €16.9m.
> In Spain, the recorded music market grew by 4.4% to €354 million in 2020, according to trade organisation Promusicae. Streaming revenues were up 24.4% year-on-year to €250.8m, with paid subscriptions accounting for €157.4m, up 13.5% over 2019 figures. Adverting-financed streaming generated revenues of €55.8m, up 81.5% year-on-year, thanks to a massive use of social media platforms such as TikTok, Instagram, Facebookand Snapchat. Physical sales were down 24.5% to €55.21m in 2020.
> In Italy, the recorded music market reached €258.6 million in 2020, up 1.4% compared to 2019, according to trade body FIMI. Streaming income was up 29.5% to €165m and represents 78% of total sales, while physical sales were down 25% to €40m.
[Analysis:
As a preamble, the amount of data made available by the IFPI was extremely limited. In the summary provided to journalists, there were no itemised data-sets per region or country. Similarly, it was difficult to figure out the weight of streaming revenues per region. Nonetheless, here are a few takeaways from the IFPI report:
> Streaming is Covid-compatible:
The figures released by the IFPI are clear about one thing: without streaming, recorded music revenues would have plunged during the pandemic. This is overall good news. It shows that there is now a dominant model and it is resilient. The downside is that there is now a dominant model, and it tends to overpower all other sources of revenues. It is almost certain that streaming will generated some 90% of the industry's revenues in a couple of years. This means that the debate about the sharing of streaming value will become even more important.
> Subscriptions drive the business:
No matter how much they try, ad-supported platforms only represent a small fraction of streaming revenues. The bulk of the money comes from subscriptions, and even in times of a pandemic, it seems that the level of subscriptions has not gone down, which is a credit to the value that consumers find in their services. Now the question is how elastic can the subscription rates be? The 9.99 a month pricing point has not changed in a decade. This should be an important part of the discussion on the future value of streaming.
> YouTube anyone?
You can look at the figures any way you want, there is definitely a gap between the levels of consumption of music via YouTube, and the platform's financial contribution to the industry. YouTube will tell you otherwise but don't be fooled. This is why the implementation of Article 17 of the European Copyright Directive (which has been delayed in most EU countries so far) will be an important test in assessing if rights owners can finally negotiate with the Google-owned platform real market rates for the use of content. A fully licensed YouTube should contribute more to the overall pot of revenues.
> Cancel CDs:
Within three to five years, at the current rate, CDs will probably stop having any significance in terms of revenues. It's been a good run for the format since the early 1980s, boosting revenues to close to $40 billion at the start of millennium. It also brought the music industry into the digital world, and it also created the seeds of its own demise once the digital routes became virtual and no longer physical.
Even in CD-solid markets such as Germany and Japan, sales have gone down in 2020 at a faster rate than in previous year. It could well be that Covid has accelerated the retirement of the format. CDs will probably continue as a tool for special products such as box-sets or for a small portion of releases.
> Vinylmania gets stronger:
Even with countries in lockdown, and despite closed record stores for parts of the year, vinyl sales continued to grow in virtually every country. This is a sign that vinylmania is a long-term trend and that vinyl will represent a significant part of the industry's revenues in years to come.
> China is the market to watch:
China is the world's seven largest music market and its weight is becoming increasingly significant on a regional and global basis. Following a massive clean-up of illegal online sources of music, the Chinese music market hasn't stopped growing and streaming has been the engine of growth. Platforms operated by Tencent and NetEase have been converting more and more users who previously were accessing music via illegal sites.
But China (alongside South Korea) is also showing what the future could be with a greater integration of social media functions within streaming platforms and a higher monetisation of the relationship between artists and fans. It is not simply about selling music, but also the lifestyle that comes with it. This is something that has not yet reached the regions that started the streaming revolution, mainly Europe and North America.
> Gaps in data in a changing market:
A week before the IFPI released its figures, MIDiA Research put out its own set of figures, and there's a discrepancy: IFPI's figures show that the global recorded music revenues grew 7.4% to $21.6bn; MIDiA's figures puts it at $23.1bn, up 7%. "The gap between the IFPI’s and MIDiA’s figures is steadily widening each year, in large part because of the way in which the market is changing," explained MIDiA's Mark Mulligan in a blogpost. "The traditional market, which is of course the easiest to measure, is being out accelerated by an increasingly diverse mix of non-traditional revenue streams."
He cites revenues from music production library sector, "of which the revenues do not flow through any of the channels that traditional music industry trade associations track," and the long tail of independents as key area of variance.
For Mulligan, "whichever measure you use, the recorded music market is transforming at pace" and, in turn, "it is becoming more difficult to measure."
But what does not seem to be in question is that the market keeps on growing. We are still far from the pre-Napster-era figures, but we're getting there.
Emmanuel Legrand]
