In late March, the International Federation of the Phonographic Industry (IFPI) released its annual estimates on recorded music industry trends. It detailed that global revenues fell 3% to $16.6 billion. For most industries, negative growth would be seen as extremely disappointing, but the demise of recorded music from stores through the sale of compact discs (CDs) has been on a decline that has lasted the better part of a decade. Overall, the annual declines continue to be less severe and indicate that piracy is no longer crippling the industry as a whole.
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Online Music Continues to Grow
The saving grace in recent years has been the growth in online music revenue from legitimate sources. Pirated music from the Internet has steadily declined as appealing offerings from reputable (and legal) companies have become available. IFPI estimated that global digital revenues grew 8% to $5.23 billion, or nearly a third of total industry revenues. Apple's iTunes has been a huge driver to online music, but new sources including streaming sites such as Pandora and subscription models including Spotify continue to burst onto the scene.
Many industries are benefiting from rising income levels in emerging markets, and the recorded music industry is one of them. With higher incomes, consumers are less likely to rely on pirated music and other multimedia. The IFPI study specifically cited strong growth in Brazil, which leapfrogged the Netherlands and Italy to the number eight market in the world. Brazil reported 8.6% growth to total industry revenue of $262 million. The study found that 17 markets across the world reported positive growth and mentioned South Korea, Mexico, India and Australia for robust trends.
Concert Revenue Increased
Though not officially a part of the recorded music industry pie, bands have learned that hitting the road can be quite lucrative and goes a long way in replacing lost CD sales. Industry trade firm Pollstar estimated that the 100 largest tours in North America reported $2.3 billion in ticket revenues during 2011, up 6.3% from the previous year. The concert space had a tumultuous couple of years following the credit crisis, but has been a relatively steady and growing source of income for leading bands. The statistics detailed 3.7% international growth of the top 50 acts to just over $3 billion.
Greed Isn't Good
The growth of revenue-based online music sources could end up leveling the playing field for the industry, which could help boost total competitiveness. Last year, U2 reported nearly $232 million in revenue from touring across the world. Clearly, no one single band really needs to make that much, and the top bands garner a larger proportion of touring and recorded music sales.
Online music makes it possible for smaller bands to reach a wider audience, and also puts into play more obscure or older music that retail stores and concert promoters used to ignore. The concept also applies to movies, books and other media.
The Bottom Line
Several years ago, the music industry aggressively pursued consumers that downloaded pirated and other illegal music to their computers. It has finally discovered that creating legitimate, more competitive and appealing services, may have incentivized consumers to again start paying for their music. However, it will never be possible to replicate seeing a band live and in person. Finally, growing emerging markets are creating a new class of consumer that should continue to help the recorded industry climb out of its multi-year funk.