UK Recorded Music Revenues Up: First Take

The BPI has just published numbers recording 1.4% year on year growth in the UK music market during 2009. With more than half an eye on the wider political context, the BPI’s press release treads a careful balance between reporting the good news and casting it in the context of a wider malaise. Whatever the motives though, the ‘glass half empty’ perspective is appropriate. The UK recorded music market has lost close to 40% of its value since 2003. Though this isn’t necessarily a dead cat bounce, it is going to take a lot more than 1.4% annual growth to turn things around.

Downloads aren’t replacing the CD. Digital sales in 2009 boomed - growing by 48% - offsetting the impact of CD sales decline for the first time … just … (online digital revenue growth was 53m GBP compared to a CD decline of 48m GBP). But this isn’t a simple downloads versus CDs picture. In these days of plummeting CD sales, recorded music numbers encompass a pretty diverse portfolio of products and revenue streams, including DVDs, mobile, ad-supported streaming, etc. 

The digital model is far from fixed yet. The download market will not save the music industry. It will be one small part of a multifaceted product portfolio. 48% digital growth may sound good but it is important to keep a sense of scale: download revenues are just 21% of CD sales and mobile revenues actually *declined by 14%*. The CD remains the bedrock of sales not because it is a robust product but because the competition is so weak.

Monetizing consumptions needs fixing too, and quickly. Spotify is of course the current darling of the UK digital music market, but it and YouTube combined generated just 1% of recorded music revenues. Granted, this doesn’t account for publishing royalties nor for the joint venture revenue that goes direct to labels. Nonetheless, it highlights how far the record labels are from building meaningful revenues from the epicenter of music consumption and behavior.

Ultimately a 1.4% growth in 2009 is neither here nor there. Not enough significant progress has been made and next year could easily go either way. Only when we have 3 years plus of steady growth can we talk with confidence of the corner being turned. These numbers are a welcome glint of sunshine in a depressingly dark tunnel but there is much work to be done before we can be sure it’s not just the light of an onrushing train.

Comments

Hi Mark. Interesting to see

Hi Mark. Interesting to see the BPI issue a press release saying ad supported models i.e. Spotify & We7 et al. only accounted for <1% of recorded music revenue for last year. Surely this is disingenuous as they separated subscriptions and ad supported revenues but went with the lower figure. To combine them both, you get 2.4% as Music Week have done in this weeks issue. With the passing of the Digital Economy Act, obviously the next step for the BPI is term extension and it will have to continue to play the glass half empty card to acquire future support.

We can no longer look at overall revenue for the year and take it as face value. For instance, no doubt that they haven't included equity acquired from various deals with Spotify etc. This revenue seems to have been swept under the carpet in this sense. I shudder to think how the revenue is split to artists on their roster. But it's important to note that these deals have been done and to really say it only brings in <1% is misleading at best.

Secondly, with regards to the 40% decline... something that has to be looked at further is rather than the yearly overall increase/decrease, instead we should make note of the profit margins. With the introduction of digital acquiring a significant market share, the fact there are virtually no manufacturing to speak of, has to be noted.

I of course don't need to tell you all of this, we can no longer merely look at annual figures for the full story. As you've stipulated in your title though, this is only your first take so I look forward to further analysis. Thanks Mark.

Thanks for your thoughtful

Thanks for your thoughtful comments Anthony. We're largely on the same page here. The joint venture revenue is key and I actually pulled it out in the original post: "...or for the joint venture revenue that goes direct to labels.". JV revenue form the likes of MySpace, YouTube and Spotify is of course not subject to artist royalty payment deductions so goes straight to the bottom line of record labels but bypasses the official revenue statistics. Also add to that bucket the burgeoning sector of brand partnerships.

The future revenue of record labels (crazy that we're still calling them 'record' labels) is not just going to be about product and experience innovation. It will also be about changing accounting practices, facilitated in no small part by a progressive move further along the value chain via JV investments. Thus labels become part of the distribution ecosystem and take revenue directly as a business partner, not as a label with artist payment responsibilities. This provides a crucial bulwark against the incessant pressure of declining sales revenues for labels, but of course leaves artists competing for a smaller share of digital revenue. And of course that is what happens with value chain evolution: some one taking a larger share of a value chain is by definition at the expense of another party.

With regards to splitting out ad supported streaming versus subscriptions, I'm with the BPI on this one. I've been modeling music sales revenue for a decade now and in my experience the split between ad supported and premium is much more meaningful than streaming versus downloaded. The latter is of course useful from a consumer behaviour perspective (and we track that also via our Technographics survey data) but even those distinctions are becoming moot. Spotify's 'off line playlists' blur the distinction between download and stream. And so they should. The distinction is a technology company one, not a consumer usage one. Consumers just want to listen to music when and where they want. Whether the data is stored remotely or in the cloud should not only be a non-issue to them, it should be invisible.

Thanks Mark, just for

Thanks Mark, just for clarity, I also agree that ad supported and subscription revenues should be split up as it's useful and interesting. I only took exception to the fact that the BPI only associated companies such as We7 and Spotify with the ad supported figures without mentioning they also contribute to another category.

And to that point Spotify are

And to that point Spotify are now a major player in the premium subs game