I was forwarded this piece on the state of the recorded music industry in the past 24 hours and was inspired by the big claim it made.
Music industry can see the light after least negative sales since 2004
Well – I guess that’s a positive. Although, I’m not so sure.
So I thought I’d have a dig around and see how the recorded music industry in Australia is fairing according to industry body ARIA. It publishes yearly wholesale figures generally a few months after the conclusion of each calendar year. Since 2005 the revenue figures have decreased every year aside one (in 2009 the industry grew about 7%) and unfortunately, 2011 was another year of lower revenue for the industry.
The recorded music industry in Australia has been punished since 2005 in a revenue sense. In 2005 it saw revenue of $528m. In 2011 it saw revenue of $383m. It has lost 28% of its value over that 6 year period. Despite all the bluster about digital channels, these channels are proving inadequate at plugging the losses they create … the loss of physical sales volume and revenue is simply not being replaced with revenue from digital channels.
Combine these numbers with the serious lack of revenue the industry makes from radio airplay and it’s difficult to see how the local recording industry can continue without some serious downsizing.
Let’s look at 2011 a bit closer. (the numbers are here)
– physical CD album sales down 11.9% (down $28.9m YOY)
– digital album sales up 45.3% (up $14.4m YOY)
– net album sales down $14.5m YOY
Combined, album sales account for a large chunk of industry revenue – close to $269m – or 70% of the entire market (which includes everything from vinyl to CD singles, DVDs, digital singles etc. So … whilst digital singles might be strong in a volume sense (which it is, there were 68.5m digital singles purchased in 2011, compared with 49.2m in 2010) … in a revenue sense it only accounts for $68.5m of revenue, which works out at 20.7% of the total market.
There’s the problem – digital singles are inflating the impact of digital on record sales. They account for 70% of unit volume but only 20.7% of revenue.
The real battleground is the album battleground and that is a tough battle right now. The reality of these 2011 numbers is that album sales were down – album sales that really represent the strength of the recorded music industry – from 26.8m albums sold in 2010 to 25.3m albums sold in 2011. Net revenue loss is over $14m from 2010 to 2011.
That drop is not insignificant – 1.5m less albums sold in 2011 to 2010. That’s 4,109 less albums sold EVERY SINGLE DAY in 2011 compared to the previous year. No amount of individual digital single sales can assist here.
In 2012 the challenge for the industry is significant – maintain album sales and continue to grow digital single sales. One part of this should take care of itself – digital single sales have risen every year for the past 6 and grew at over 40% in 2011. Assuming 40% growth again in 2012 digital single sales will account for 111m in 2012 – up $32m YOY. Not bad.
Album sales are not so clear cut. Assume physical album sales drop 12% in 2012 (this is hard to model as you never know what albums will do, but is possible without an Adele 12x Platinum release to really supercharge sales). This 12% drop would take sales to $195.9m. Digital album sales would need to generate 73m in revenue in 2012 to just match the reduction in physical album revenue, which would require a 59% YOY increase. Ambitious but not impossible.
This illustrates the challenge facing albums – a 59% growth in one format just to plug the hole created by a 12% drop in another format. This is a huge challenge and poses a load of questions that 2012 is set to answer. One … what happens when digital growth slows (like it has in many other markets such as the UK and US)? What happens if physical album sales decrease faster than they have been previously? And lastly, what impact will subscription services have on album sales. There are over 25m albums sold in Australia per year, can this level be sustained when entire albums will be available on demand?
Whilst digital has made music more accessible in the short term, in Australia I am not so sure it has benefited many in the long term. You could argue it’s made one retailer very rich and powerful (Apple – who sell the majority of digital singles and albums), closed many others (physical retailers) and overall eroded significant value out of the recorded music industry (hard to argue for a positive around a $140m drop in revenues over the past 6 years).
Honestly, I feel for the challenge facing the recorded music industry. They are fighting a bloody, brutal fight. They are constantly mocked by the digital community for missing the boat and they don’t seem to be getting much help at all from anyone – government or otherwise – to protect their IP. It sees other industries that rely on its content making significantly more revenue (FM radio) or significantly higher valuations (streaming on-demand services). I can’t help thinking that 2012 is a really important year for the recorded music industry and those who support it. Recorded music needs a win.