Fundamentals of growth
The Anti-Piracy weapon
As much as we glorified our good old LPs and CDs or even MP3s, the media has always been the nemesis of the music industry. It was absolutely essential – no media, no party. Indeed, for more than a century, the industry faced ups and downs depending on the availability of record players and the switches from one to another. At the same time, the sole existence of this media opened the door to piracy. Recording a song from the radio onto a cassette, burning a CD or copying a digital file was easy.
The consequence is that the music industry always relied on the honesty of its consumers as well as on the presence of needed infrastructures from the copyright protection laws to the retailers, in all countries. If one piece was missing, there was no official medias sold. That’s why more than half of the world’s countries have always been absent from the IFPI’s listings.
This limitation has been capping the market for decades. The easier it was to copy media, the lower the industry has been. Burning a CD was arguably less casual than recording a cassette, so the market exploded during the 90s. Copying a file is as easy as it gets so the digital years were harsh.
Legal downloads by themselves were the best ally of piracy. One person buys and infinite number of people can copy. On its side, streaming is the best anti-piracy weapon. You can register for free, legally, and gain access to millions of songs. As there is no media but instead software, there is indeed no possible piracy, plus the piracy itself is fairly useless given the software provides a far superior service to copying material, and all with no limitations whatsoever. If the market is less capped than before, then there is no reason to limit our expectations for the upcoming years.
Room for improvement
Speaking about the software, one question remains, what about the required equipment? How will people from poor areas log onto internet to access their music? While there is still a way to go before getting legal streaming services everywhere, the late propagation of smartphones in various areas is precisely what’s securing room for increase to streaming. When iTunes’ popularity was increasing massively from 2004 to 2009, the internet was being propagated into everyone’s house in developed countries. Once most inhabitants had a connection iTunes hit a ceiling. Paying for individual songs in countries not use to buying music was out of reach too. Thus they were left with no room for improvement.
As streaming can bring in money even from free users the opportunities are much bigger. Even before getting there, the increase of internet data limits from mobile subscriptions and the development of the 4G networks will continue to push streaming strongly for several more years in the richest countries. There are still billions of people expected to be new smartphone users within the next 5 years. Also, current IFPI numbers include millions of users of streaming services that have been using a free trial, including at Apple Music and TIDAL. We know that as per user behaviors a large chunk of them will turn into paid users.
2017 mid-year figures for the US market prove the increases are far from reaching their limit. The market is up an insane 17% fueled by a growth of 48,1% by the streaming segment. The situation is similar in the UK with an increase of 11,8% thanks to the streaming’s rise of 53,2%.
If markets that were arguably the healthiest in the world are increasing so well one may wonder how markets heavily damaged by piracy in the past are evolving…
Breaking new boundaries
As soon as the question “can someone beat Michael Jackson‘s Thriller?” comes out somewhere, you will get at least one person saying that if it happens that will be thanks to sales in China. In reality, China, just like India, has sold low amounts for decades due to a heavy amount of piracy. International blockbusters sold under half a million units there and even the very top selling local albums remained under the 5 million threshold. (BTW, do not believe the fanciful claims of albums having sold 20 million units in Mexico, in China, 8 million in Nigeria or 55 million in India, as shown currently on Wikipedia).
This chaotic situation from heavily populated countries has always been pretty frustrating for the industry. Guess what? Streaming is once again the answer. The immense number of smartphone users, including 700 million from China alone, is incredibly promising for the future of streaming as the country is currently adopting the format. This figure was expected to be reached by 2020 only a mere 3 years ago. By then, I had already claimed China would likely jump into the Top 5 music markets by 2020. It has climbed from 21 to 19 to 14 to 12 already, with a massive 20,3% increase in 2016. Expect the country to continue to skyrocket in upcoming years with 96% of its revenues coming from digital avenues only.
Is China the only case of this kind? No. India too is booming. The market increased 26,2% last year after 3 years of drops in excess of 10%. Mexico is also coming strong with a 23,6% jump. Brazil will soon follow. Both countries lead all the relevant markets in terms of smartphone usage for music purposes at 91% and 85% respectively. While for now their potential is still limited by their extensive usage of YouTube, it is only a matter of time before this situation is sorted as audio streaming is rapidly increasing in those nations as well.
With all these elements put together, it seems clear that streaming still has plenty of room to improve in both already developed markets and newly embracing countries. Obviously, the sector can’t post +60% increase every year, but let’s be frank, even if we suggest it will slow down year after year, increasing +50%, +40%, +30%, etc. and then stabilize at +10%, it is only a matter of time before it becomes more than twice as big as today as shown in the figures below. All the numbers are in billions of dollars.