The big story right now, of course, is what is taking the place of digital download is streaming. So streaming, that’s a representation of a dozen streaming services. There is more than that. There are some you probably never even heard of because they’re not available in the U.S. Streaming is the big story. Let’s take a look at the revenues though for the music industry as a whole because there’s some interesting pieces here where streaming fits in.
Here’s global revenue for the music industry in billions of dollars. So, this is 15 years of data. If I told you there was a company that was a $26 billion company 15 years ago and this year, it is a $15 billion company. What would you think about the likelihood that that company was going to fade into irrelevance? It’s not a positive story. You could see a year-on-year loss from… This actually goes back even further. There’s been year-on-year loss since 1995, but you might have to squint. Take a look at 2015, it’s a tiny bit higher. This, by the way, is huge news. This came out two weeks ago. In 2015, the total revenues of the global music industry went up. This is a headline. You heard it here.
So what produced that bump? Well, it wasn’t CDs. Here’s an interesting chart. Here’s 10 years of CD sales. This is units in millions. We went from 650 million CDs sold in 2004 to only 150 million in 2014.
That is, percentage-wise, a significant drop. 2004, what I find interesting is this like a seismic change in our culture. You all bought CDs when you were younger. You bought zero last year. This is a huge cultural shift in the way that we consume music. And 2004 was not that long ago. That was the year of “American Idiot.” You remember “American Idiot.” You remember “Hey Ya!” That was not that long ago.
Okay. So if it was not CDs, is it digital downloads? Is that providing us the boost? Well, I already gave away the end of this story. No. Digital downloads has been doing great, right? 2003 was the advent of iTunes. Here we are. Oh, look at this, it’s amazing. We’re making our money back. We’re gonna recover. Everything is gonna be okay. 2012, we peak and it’s been a downwards decline ever since. And that is certainly going to continue. Okay. So it’s not CDs. It’s not digital downloads.
Here’s an interesting quote, “Music consumption exploded,” I love that, “exploded in 2015.” Remember that tiny little bump? “Music consumption exploded in 2015 helped by a surge in streaming worldwide.” This is from an international body called the International Federation of the Phonographic Universe Industry. It’s one of those old names but a modern org. This was released. This is actually a tweet and a sign of the times from April 12th in conjunction with the release of their 2015 report which has, like I said, happened 2 weeks ago.
You notice the word “consumption.” I think we can all identify with that. Has your consumption increased of music since the days when you had to stick a CD in a machine in order to listen to it? Nowadays, you might be on a subway, you might be listening to music. You could be listening to music right now. You could be listening to music on your way home, when you wake up. You could be listening in places that you don’t even have internet access because maybe you’ve got an offline mode in your Spotify subscription, right?
Here is U.S. streaming revenue in millions. I’m just looking at U.S. data but it’s similar worldwide. This is an interesting story. You remember CDs declining, digital downloads declining, streaming increasing. This is the bright spot right now in the recording industry and this is responsible for that tiny bump that you saw from 2014 to 2015.
Top line is total streaming. The next one down, the gray one, that’s paid subscriptions. The next one down, internet radio. Below that, on-demand ad-supported. This will become important in just a moment. So let’s dig into this a little bit. You notice on-demand ad-supported, the bottom line, it’s flat. Internet radio went up a little bit and then it’s flat. The only one that continues to go up is paid subscription and that’s responsible for that total line going up.
So what are these things? Paid subscriptions, well that’s Spotify if you pay for it. I won’t ask how many of you pay for it but some of you might. TIDAL, no free option, that’s the Jay Z-owned streaming service. Apple Music, that’s also…there was a three month trial, but that’s a paid-for subscription service. Those represent the paid subscriptions. In the internet radio, we have, of course, Pandora, major player and also the way these statistics are compiled. It also includes Sirius Satellite Radio.
And at the bottom, what is on-demand ad-supported? Any guesses? What does it even mean? What’s that?
Thomas: Indeed. It’s you don’t think about it but on-demand means you chose the song. I wanna hear “Uptown Funk,” you then go online and you google “Uptown Funk.” Immediately, what comes up is the Vevo or YouTube link. You click on that and then you watch a 30-second ad for an insurance company and then you get to watch “Uptown Funk.” That is on-demand ad-supported. So that’s YouTube and Vevo. It’s also actually the free version of Spotify when you get to listen to, often it’s not Spotify ads, between songs on Spotify.
That’s an interesting collection there. I’m only giving you representative. There are other players here besides these but that’s important to understand. The important thing here also to remember is on-demand ad-supported is the bottom line. That will become important later.
Here are U.S. revenues from the industry. On the upper right is digital downloads, 34%. The big story here and this is the headline, so you wanna take this one home to tell your friends. Streaming is at 34.3%. That is higher than digital downloads. 2015 was the year we crossed making more money for the industry on streaming than on digital downloads. Physical, i.e., CD sales generally speaking also includes vinyl, it’s still 28% so it’s still healthy. But the digital downloads actually crossed and made more money for the industry than physical several years ago. I think it was two years ago that we saw digital downloads becoming dominant. This is the year streaming became dominant.
The last one, synchronization. Obviously, it plays a small role. It’s any time music is played in conjunction with a moving image, with a moving picture. So commercials, movie placements, things like that. It actually is an important source of revenue for up-and-coming artists but it’s not important to the industry as a whole, as you can see. So this is an important story.
So streaming, if we take for a moment that that’s the most important story, let’s read this quote from our CEO over at Spotify Daniel Ek. This is a response to a Quora interview from just this February, just a few months ago. “The music economy – like so much of the rest of the economy from cars to publishing to news – is changing at it moves from an ownership model to an access model.” So think about that a moment. When you buy something, you expect to own it. When you bought a CD, you owned it.
What we are shifting to is an access model. When you subscribe to Netflix, you don’t expect to own the movies or “Orange is the New Black.” You just have access to them. This is a big shift. It’s much harder for older people. I know lots of older people who say, “I will never use streaming because I like to have it.” Adele, she said, “I not only download the album, I go out and I buy a physical copy of the same album because I know someone else won’t.” She doesn’t strike me as that old but she has an old person’s attitude toward ownership. Young people find this very easy, I pay for access. I only characterize old versus young not to make any of you feel bad. But because the young people’s attitude is the future of the industry.