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Record industry sees slight growth for first time since Napster

By | Published on Wednesday 27 February 2013


So good news, people. Revenues generated by the global record industry were 0.3% higher in 2012 than they were in 2011, though if you’re good news averse, that means the recorded music sector is now just 40% smaller than it was in the late 1990s. Party time.

But with 2012 the first year since 1999 (aka the birth of Napster) in which the global record industry saw any improvement in its fortunes, the International Federation Of The Phonographic Industry was in good spirits yesterday morning as it published its rather glossy 2013 Digital Music Report. “It is hard to remember a year for the recording industry that has begun with such a palpable buzz in the air”, said IFPI boss lady Frances Moore.

The continued growth of digital is, of course, key in the albeit nominal revival of the record industry, even though physical music products still account for more revenue overall. The wider digital revenue stream is still growing rapidly partly because many consumers are still only just making the switch to digital platforms, but also because, as the market develops, a greater variety of services are being launched on a greater variety of devices in an increasing number of territories.

Major music services were available in just 23 countries at the start of 2011, the IFPI report notes, and now they are live in more than a 100. Concurrent growth in smartphone and tablet usage – finally enabling the potential of the long hyped mobile music market – has also been key, and, along with the arrival of the internet to the car dashboard, is likely to shape much of the next phase of growth in the digital music domain. Though that said, for all the innovation, for the time being, in the same way CDs still outsell digital overall, iTunes-style downloads still actually dominate in the digital space worldwide.

Nevertheless, the record industry’s tendency in recent years to licence less conventional digital services, and a general appetite in particular to back subscription, ad-based and mobile-centric platforms, has certainly played a big part in the recent maturing of the digital market, and in building a foundation for the future that isn’t based on just one or two major digital partnerships (ie with Apple and Google).

Of course there remain concerns about the long-term viability of some of those alternative (to straight a la carte downloading) services, and a sizable part of the 10% of digital revenues that came from subscription platforms in 2012 was in essence subsidy from the venture capitalists and tech firms currently bankrolling those companies.

But the optimists – of which there seem to be more in the label community these days – hope that if and when these services reach critical mass in terms of user-base (either through organic growth or by merger with similar on-demand telly and movie platforms), then they will become more viable long-term. And if mobile subscription operations can take off in places like Brazil and India, on a global basis there are massive new revenue opportunities for labels that were never available in the CD age.

And in the meantime, with the success of ad-funded platforms like Google’s YouTube and the industry’s own VEVO, coupled with iTunes-style stores that can provide global access to new tunes with minimum effort, there are plenty of new opportunities for labels to generate revenues, and to capitalise on an unprecedented level on short-term pop phenomena – whether that be ‘Gangnam Style’ or ‘Harlem Shake’, or whatever reality show story is pleasing the tabloids today.

So that’s all rather rosy isn’t it? And even if you prefer to focus on the 40% slump in revenues since 1999, it’s worth remembering that the IFPI’s figures relate only to the record industry, and specifically the money generated by the single copyright that exists in any one sound recording.

The burgeoning merch and brand partnership strands of the music industry – of which the labels, especially the majors, are seeing an increasingly large slice – are not included here (which makes the IFPI’s “labels invest 26% of their revenues in A&R” claim a little circumspect, even if you accept the inclusion of marketing costs in the A&R column of the spreadsheet). And, of course, publishing income and the live sector – for established artists, always the bigger cash cow – are outside these stats too.

Though, even if we question the IFPI’s 26% talent investment claim, it’s true that the labels in the main remain the entities that make the serious cash investments into new talent, and new works by existing acts, which in turn drive everything else, which is why the fortunes of the record industry are always of relevance to the wider music business, even if it’s tempting for those elsewhere in the sector to secretly smile when they see the labels they’ve resented for years take a wobble.

And with digital now starting to deliver, not to mention the labels’ newly acquired interests in merchandise and brand partnerships (which the IFPI says it’s considering including in these annual stats at some point in the future), the record industry does seem to have turned a big corner, which is actually good news for the rest of us.

Though we are talking less than 1% growth. And it does remain to be seen if that can be sustained. And Spotify’s about to ask for its royalty rates to be cut. Just as the streaming services reach the car and start competing head-on with the royalty-paying radio sector. And what will really happen when the CD finally dies? Hmm, perhaps the IFPI shouldn’t have wasted so much on printing that very glossy report after all.

No, let’s not end like that. Let’s instead note that, while the UK recorded music market itself hasn’t seen the growth that occurred on a global basis, British music did more than its fair share to drive the worldwide uplift, by providing the two biggest album selling artists (by some margin) of 2012 in the form of Adele and One Direction. Indeed some reports yesterday were spinning these stats as proof that 1D are single-handedly saving the music industry. Though if the future of the entire music business really does rely on One Direction, someone should probably be doing more to protect poor Harry Styles’ balls from his fans’ shoes and bandmate’s microphone.