The Official RIAA 2015 Statistics Are Out

The RIAA has released its statistics for 2015 and, as always, there are some surprises. The things to remember about the RIAA is that it works for the record labels (especially the majors), so some stats you have to take with a grain of salt. Here are some of the more noteworthy data points.

• There was a very slight increase in the recorded music part of the business, with revenues of just over $7 billion, for an increase of 0.09%

• Streaming accounted for more revenue than any other income stream for the first time, accounting for 34.4% of income, while download sales made up 34%, physical sales were 28.8%, and synch were 2.9% of total revenue.

• Paid subscription revenue increased 52.3% to $1.22 billion, compared to $800.1 million in 2014, while ad-supported streaming revenue increased 30.6 percent to $385.1 million. All very good news!

• Revenue from CDs, vinyl and DVDs of albums and singles fell another 10.1 percent to $1.9 billion (although that was less than predicted). CDs fell to $1.521 billion from $1.83 billion the year before based on 123 million CDs that were sold last year, which was down from around 143 million in 2014. 

• Vinyl sales continued to soar, generating $423 million from 16.9 million album sales and roughly 500,000 singles, an increase of 31.8 percent.

Here's the catch - the RIAA's numbers reflect retail sales, which means that the above numbers don't reflect how much the labels actually received for their music, although wholesale prices are from 65 to 70%.

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Digital Music Revenue Is Now 70% Of Total US Sales

Physical music product is quickly falling by the wayside as digital music revenue is now 70% of total US music sales, according to the latest mid-year figures from the RIAA and shown in this Statista infographic.

While vinyl is still on the rise (up 41% this year so far), CD sales continue to fall (down 19.1%). What's interesting is that music downloads have remained fairly constant, but streaming adoption is happening at a fast clip, as seen in the following chart.

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A Look Into The Music Industry’s Crystal Ball

“Crystal Ball, Crystal Ball, tell me things as you think they will be.” The great thing about the music business now is that, unlike previous eras, it’s rapidly shifting and morphing at a faster pace than ever. That makes it difficult for some to keep up, more difficult for others to adapt, and pretty near impossible to predict what will happen ten years from now. That said, there are a number indicators that allow us to look into the near future and take an educated guess at what we may see just a few years down the line. Allow me to gaze into my crystal ball.

Streaming will become the primary way that most people consume their music. We’re only at the beginning of the streaming era of music and there’s a lot of room for growth. World-wide there were only 28 million paid subscribers of streaming services last year according to the latest IFPI digital music report, which is a drop in the bucket compared to the number of music consumers on the planet. More and more people are discovering just how useful the access model is as compared to the ownership model. It doesn’t take long to realize that your digital storage filled with a library of songs can’t compete with having access to 10+ million songs anytime and anywhere.

But there will be fewer outlets that deliver it. Right now streaming is a part of the industry that’s completely upside down financially. None of the major platforms, Spotify, Pandora, Beats Music, Slacker, etc., turn a profit yet, instead playing for the big score down the road when the economy of scale flips their way when enough new users sign up. Unfortunately by that time it will be too late. Apple will have entered the game with their own streaming service that will play on all platforms, and will be able to convert its massive existing customer base into monthly paying customers. Amazon will be in the game too, and Google will intensify it’s already potent efforts (perhaps with a separate new YouTube component). Read more on Forbes.

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The Upcoming Subscription War

There's no doubt that we're headed for a battle that will be nearly as epic as any in past music business history. As the world slowly but surely shifts from a download "ownership" model to a rental "access" model, the parameters that we know today regarding the online and offline music business will be redrawn. It may happen incredibly fast, or it could happen so slowly that you hardly notice it, and that's what makes how the whole thing plays out so interesting.

Let's take the big premise first, that subscription will solve the music industry's problems and restore the revenues to what they once where. The dream all along of record label execs and insiders is to have 50 million US subscribers each pay $10 a month, which would give the listeners access to all the music they can listen to. That would generate around $6 billion a year, which is okay when you compare that the total US industry revenue in 2012 was $5.35 billion. What is usually forgotten is that the entire $10 isn't going to the record labels, it's going to be split with the service provider and the publisher. I'm not sure what the split would end up being between them, but if you put it at 50%, you get $3 billion. That could end up just offsetting the decline in download and CD sales, and basically it a wash. I don't see how that restores the industry to its former glory even if it does increase a little.

The labels are smart when it comes to subscription though, and they don't want to get caught in the Apple trap again where there's one big dog distributor that controls the supply chain. That's why they're eager to make deals with any number of potential or real competitors, like Google Play, the new Beats offering, Amazon, whomever. One thing's for sure, there's going to be a lot of alternatives for listeners to choose from in the future.

And what does that mean for Apple? There's a big change a-comin', because don't forget that Apple's fortunes aren't so much tied to the software that is iTunes as much as it's a vehicle for people to buy their hardware. Thanks to the reality of music streaming, there won't be a need for any new and improved dedicated hardware like the iPod soon, thank you very much. That means they need a new plan going forward if they want to control the music world as they have.

Amazon is a little different. Their model has never been tied to hardware, although the Kindle was used to kick start the ebook market for them. That said, they don't really care what hardware you use, as long as you buy from them. That means they're a lot less vulnerable to any forthcoming change. They also have the infrastructure in place to implement a subscription service in a flash.

Google may be caught in the middle here. They want to do some big subscription things with a combination of YouTube and Google Play and can easily roll that out. The problem is that they're not good at charging end users for their services. YouTube is a huge music discovery engine, but primarily because it's free. Try charging people and watch what happens.

That leaves Spotify, Deezer, Rhapsody, Rdio, et al. Some of these will fall by the wayside, some will stick around, but most likely none will grab a larger market share than the biggies mentioned above.

So what's the answer? If I had to guess I'd say the winner will be the best bundler. When you buy a device you get the service thrown in (or least for a period of time). That would put Apple on top, but don't discout Google (who owns Motorola) or Samsung, Google or even Beats. The phone is the center of everyone's lives right now and he who owns mobile owns the music business.

All we know for sure is that two years from now the industry could look completely different. And I can't wait for that day.

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Warner Music Loss Down Thanks To Digital Sales

Warner Music Group's 3rd quarter report is out, and if you look at it closely, it really is a indicator to the trends of the music business today. Here's what we discovered:

• Warner's loses were $32 million, which were down from $46 million last year at this time. This is considered a positive somehow, which is the crazy world of publicly traded companies for you. It always amazes me when a company gets hammered for having only a 14% increase rather than the predicted 15%, and this is much the same. WMG is still losing money, and even though it lost "only" $32 mil, that's not that great when you factor in that there was actually a $11 million tax benefit figured in.

• Total revenue decreased about 5% to $654 million, and much of that they attribute to an unfavorable exchange rate. 

• Recorded music sales slipped 8.4%, and publishing revue also slipped from from $97 to 84 million.

Now for the good news:

• Digital music revenue climbed 13% to $230 million and represented about 35% of WMG's income.

• 25% of the digital revenue came from streaming, which amounted to $54 million, or about 8% of total revenue.

• Domestic revenue was up slightly to $282 million from $276, mostly on the basis of hit records by Jason Mraz, Lincoln Park and B.O.B.

If you want to see exactly how their revenues break down, Digital Music News did a nice graphics below.

What does this tell us? Major record labels are sinking, but very slowly as they hold their own, at least for now. Digital music income may be rising, but it's not going to replace the sales of physical product, and streaming music makes the situation even worse, as that doesn't replace the income from digital downloads. Oh, and the most important piece of the puzzle - you still need hits to make money.

If you're from the musical old school, you're probably lamenting the fact that the business model is changing from the way it previously worked. If you're not tied to that paradigm, you're embracing the change, as a new business model will have to replace the old one at some point. None of us know what that that is at the moment, but we're all on the lookout for it. When you find it, let me know, please.

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Help support this blog. Any purchases made through our Amazon links help support this website with no cost to you.

You should follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.

Record Labels Claim They Lost $75 Trillion To Piracy

Yes, you read the headline correctly. When asked to estimate the damages they incurred in their suit against file-sharing service Limewire, the major record labels claimed they lost $400 billion (with a "B") on the low end, to $75 trillion (with a "T") on the high end. This is what they estimate they've lost to piracy in the 10 years of its existence.

OK, let's look at how incredibly grossly inflated those figures are. First of all, $75 trillion is more than the GDP of the entire world, which was only $59.62 trillion when last calculated in 2008 (you can bet it hasn't gone up since then).

Now let's look at the low end of $400 billion. In 2010 the world-wide revenue from recorded music was $35.1 billion, and the US portion of that was $12.6 billion, according to eMarketer:Global Music. And how does that add up to $400 billion? Even over 10 years at a generous 20% loss, it still only adds up to $25 billion. And recent figures by the NPD group found that only 16% of Limewire users downloaded music at it's peak, and the figure in later years was closer to 9%. Regardless which figure you go with, the numbers thrown out by the labels are completely absurd.

Luckily, the judge saw through the farce and called it like it is - ridiculous.

This is the problem with the music business today. It's all about the money. If record labels and the conglomerates that own them would concentrate more on the music than the accumulation of green, we'd have a much healthier business with more quality music and lots more fans that want to buy it. Fat chance of that happening.

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Help support this blog. Any purchases made through our Amazon links help support this website with no cost to you.

You should follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.