The Recording Industry Association of America (RIAA) released music sales figures for the first half of 2014 and they are worried: music sales, as reported by the record companies, are down by 5% when compared to the first half of 2013. Music sales include digital downloads and physical formats, where surprisingly, vinyl is making a comeback. But I digress.
The interesting part of the report is that while sales have decreased, digital music, downloads and streaming, are almost identical to the same period last year, $2.2 billion. However, within that segment, proportions have shifted: streaming is up from 31% of revenue in this segment in the first half of 2013 to 40% in the first half of 2014. In the first six months of 2014, downloads and streaming together amounted to $2.2 billion — virtually unchanged from the same period last year and make up 68% of total sales revenue. But within that total, the proportions changed: last year, downloads were about 69 percent of this category, by revenue, with the rest made up by streaming; this year, downloads were only 60 percent.
This takes me back to an interesting analysis from six months ago that no matter what media or format, “consumers are willing to spend somewhere around $45–$65 per year on music” in the US. The new numbers released by the RIAA support that theory: as listening models shift to streaming and on-demand subscriptions, less is being spent on digital downloads.
What surprises me is RIAA’s response. Instead of supporting the new streaming services, they are fighting them to try and increase royalties. Take a ruling from last week about royalties for recordings released before Feb. 15, 1972: turns out that they are different and need to be higher. I don’t understand enough about copyright law and the music industry to understand why they are different, but reading the analysis about the ruling shows that Pandora, for example, estimates that 5% of the songs it played are from before 1972. Just on that figure, Pandora’s additional royalty expense last year would have been $17.1 million. This isn’t just going forward, Pandora will have to pay for at least the last four years! What would I do as Pandora’s head of music? Stop playing songs from before 1972, thus killing royalty revenue for the same artists that fought to increase it. Is that the desired action? By RIAA or the artists? I doubt it. Is the goal to shut down Pandora and other streaming services? If so, what is the alternative? Will RIAA create its own streaming service or are they just hoping consumers will return to digital downloads? If they’re hoping for the latter, I doubt they can turn back the wheel.
This reminds me of a story I read a many years ago about a record executive (which I wish I could source and pinpoint the year) who invited teens to attend a focus group that asked them to listen to new artists. As they were leaving, the executive pointed to some CDs of recent releases and told them to take whatever they wanted. For free. Not one CD was taken. All the teens had switched to digital downloads. It was then the executive said that he realized that physical sales were dead. At some point, record companies will have to realize that consumers no longer want to own music and that streaming is the preferred access. Perhaps at that point they’ll stop fighting the Pandoras of the world and start working with them.