Music Industry Insiders Optimistic for Future

An international music industry trade group announced Wednesday that digital music sales equaled physical sales in 2014, for the first time in history. The group also reported that total revenue was down for the global recording industry, but expressed optimism for the industry moving forward. According to the annual report from the International Federation of the Phonographic Industry, digital and physical music sales each accounted for 46 percent of total music revenues in 2014, with the remaining 8 percent coming from performance rights, royalties and so-called synch-fees.

Since 1998, global revenue for the recording industry has been in a steady decline as the industry has worked on monetizing digital distribution. It’s been an uphill battle, however, as for every legitimate service offering digital downloads or music streaming there has been other sources that facilitate piracy of copyrighted music. In recent weeks, several high-profile cases have been settled over how labels pay artists for musicians. Revenue from streaming services, however, is still an area where artists believe they should be paid more. Country / pop crossover superstar Taylor Swift was in the news earlier this month when she pulled all of her music from Spotify, the current global leader in music streaming. The subject was in the news again last week when rap mogul Jay Z launched his Tidal streaming service.

Despite the recent trend in music revenue, which has essentially seen global music revenue decline by half in seventeen years, many industry insiders and outside observers are optimistic about the record business moving forward. European investment bank Credit Suisse has suggested that the industry could return to growth as early as next year if the kinks are worked out of the streaming model. Spotify is continuing to expand, and has plenty of capital to fund, and YouTube and Apple are each working on their own music streaming services. One group of investors recently projected that by the year 2020, 5 percent of the world’s smartphone users will subscribe to a music streaming service. Subscription streaming services average about $120 per year, which is more than music fans were spending even in the industry’s heyday. With projections of about 5 billion smartphone users by 2020, 5 percent would work out to 250 million. At $120 each, that would be about $30 billion in annual revenue from streaming in five years. That is more than double the amount of revenue brought in this year by the entire industry.

One of the biggest hurdles facing the music industry involves Google’s YouTube, a video-streaming service that is considered the world’s number one source for fans to find new music. Unlike streaming services like Spotify and Pandora, YouTube is not bound by copyright laws, and the industry has been actively lobbying the government to change that. YouTube claims that it pays out hundreds of millions each year to artists and labels, but insiders say it falls well short of fair compensation considering the sheer volume of music available on the site. The issue is out of the industry’s hands, however, and can only be resolved by government action. Recent optimism across the industry proves, however, that the industry may finally be on the verge of overall growth as streaming revenue makes up for the decline in physical sales and digital downloads.