Understanding: The Impact of Streaming versus the Music Industry

Evolution

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.

30 thoughts on “Understanding: The Impact of Streaming versus the Music Industry”

  1. China market have music store like QQ Music, someone famous singer can sold millions copies of digital record in their release day due to stan fans.
    Besides, I want to know who’s the next artist, and Barbra popularity analysis please, too! There’s so many discussion about you SCPS artist list in many music sitesor forms, and question where Barbra will rank, her real us and worldwide sales is one of the m ost mysterious in divas

    1. Hi Karalady!

      Claimed sales figures coming from platforms like QQ Music are absolutely false. If you check IFPI annual Top 50 lists, you will notice that no Chinese artist has made it in recent years with 600,000 units being enough to feature on it nowadays. All similar claims about Katy Perry or Taylor Swift are just as wrong too.

      The next CSPC artist is a male act from the past. Barbra isn’t planned over the next few ones to come soon.

      1. I see, I know ur busy in many artist SCPS, I just want to know the total physical records Barbra sold. I read your album sales figure in french form and Fan of music site, but there’s no single sales and the data was out of time, could you give us an approximately estimate of Barbra’s singles and album us&worldwide ? I know you had done some researchs and analysis for barbra before.

          1. MJD, I know ur busy in many artist SCPS, I just want to know the total physical records Barbra sold. I read your album sales figure in french form and Fan of music site, but there’s no single sales and the data was out of time, could you give us an approximately estimate of Barbra’s singles and album us&worldwide ? I know you had done some researchs and analysis for barbra before.

          2. Hi Karalady,

            I won’t commit on a figure before studying her case carefully, especially since I never studied in full her singles sales so far. After the few ones already scheduled, she will be added to the pipe for sure as she is the biggest female artist missing at the moment.

      2. That’s because they are single sales though not album sales. You download a track from the album and store it on QQ.

        They seem quite similiar to korean digital sales in that way (pre 2013 reform)

        1. Sorry I don’t know how to edit a comment 🙁
          It costs 15 yuan to store about 10 tracks (for ANTI) so it’s about 30 cents per track. Not all western albums have been released to the site though. Maybe it’s because of me being nationalistic but I don’t see what’s the difference between this and korean music platforms.
          Really hope you might reconsider and possibly take them into account in future?

          1. Hi Jack!

            I have no issue at all with counting Chinese figures. For now, I’m still pending additional information. They lack transparency, we just don’t know which song is selling what. They assign the numbers to the album, but we don’t know to which song it relates, nor we know how is it calculated, if it includes streaming units or not. At the moment, it’s sadly impossible to exploit those numbers.

  2. In your introduction, you mention how it will change the music we listen to with our mothers listening to our music and you earlier mentionned the surprising success of “Despacito” as an example of Latin acts taking over with the booming of streaming. How does that happen ? What does it have to do with streaming ?

  3. Thanks, I’ve been looking forward to this. I know that artist CSPC articles are what *most* people come here for, but I wish we could also have more articles like this – your skills as a music business analytic are pretty much unparalleled IMO (speaking as a finance analytic myself, haha). Great job!

  4. I dont think streaming should count really,you have fanatics that will stream their favourite artists non stop that can get software like auto clicker that fakes youtube views.Plus i think everytime a song gets played on radio it should count also if these streaming sites count.What about when warner music took of loads of videos when they had a disagreement with youtube(https://www.cnet.com/news/talks-break-down-warner-music-pulls-videos-from-youtube/).what happens to the loss of streams for those artists.30 seconds to count as one stream is ridiculous it should be the full length of the song.Anyway thank you for your research and sharing your figures.

    1. Hi Me,

      Not counting streaming would be an outrageous nonsense, that’s the #1 revenue segment of the industry already. Figures of streams are gigantic, so big that the impact of a bunch of fanatics is absolutely irrelevant. In the past, you had fanatics collecting all versions of one album, here it is no different. Artists with no videos on YouTube perform better at Spotify, it is a mere transition of format so there is no loss for them, they may pretty well be winning in reality as audio streams are more profitable than video streams at the moment.

      BTW, the whole “physical sales are more valid” is utterly fake too, there was way, way more “fake” sales during years of physicals as the upcoming articles will highlight.

    1. Hi Harry,

      That’s a wrong perception. Drake’s first 3 albums sold a combined 1,737,000 units in their debut week in the US alone. All of them released in 2010 or later so those are definitely truly impressive figures. He was massive from day 1. They all sold more than Views in the US. Streaming barely made it more visible.

  5. Hi MJD,

    This article was so interesting! To be honest I thought that streaming was killing music industry because of the low pure sales that it generates.
    But your article starts to change my mind, I think your CSPC will become the basic way to count the popularity of an artist.

    I have a question, I know you’re not a medium, but do you think, in the future, we will speak about « equivalent sales » (like in the UK) or we will speak about « equivalent stream » (like in France)? Because of the streams increases, speaking of an 10 billions streams album seems to be more strangeful than a 10 million saller album.

    (I hope you can understand my « English ») 😂

    1. Hi Gonzalex!

      There is also a few more countries adopting the equivalent stream view like Denmark. It does make sense since sales will soon become irrelevant. Habits are often stronger than relevance, so we may keep talking about equivalent sales for long. Jornalists are too used to that to completely change their view right now. In many years, when most people would have live only with streaming, it may change.

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