IFPI Digital Music Report 2015: Global digital revenues match physical for first time

The increase in the global uptake of streaming and subscription services lead to digital music revenues becoming on par with physical in 2014.

The global recorded music industry in 2014 wasbroadly flat once more withglobal revenues dipping 0.4% to AUD$19.65m – the lowest it's been in history. Digital revenues rose 6.9%to AUD$9.06 billion, representing 46% of all global music sales, according to the International Federation of the Phonographic Industry's (IFPI) annual Digital Music Report,published in London yesterday and issued overnight.

A contributing factorin the rise of digital saleswasconsumers' embracing themusic access models of streaming and subscription, in particular the uptake of streaming subscription models, which rose 39% and represented 23% of the digital market – the industry generated AUD$2.1bnin trade revenues last year and saw streaming represent 3% in overall global revenue. The rise offset download sales, which dipped 8% in 2014. Last year, thenumber of paying users of subscription services rose 46.4%to an estimated 41m.

Meanwhile, physical format sales adhered to the year-on-year decline, dropping 8.1% to AUD$8.95m, However, it still represented 46% of the global market last year (digital revenues were 52% and vinyl sales were 2%) andstill dominated inkey worldwide markets including France (57%), Germany (70%) and Japan (78%).

In the territories where streaming revenues aren't as high,IFPI attributes it to a cumbersome uptake of streaming.IFPI estimates (based on comScore/Nielsen data) that 20% or one fifthof internet users (down from 26% from2013) still regularly access unlicensed services such as P2P file-sharing networks, cyberlockers and aggregators.

Cooking Vinyl founder Martin Goldschmidt said in a statement overnight:“An old finance director once said that revenue is vanity and profit is sanity, so the focus on revenue risks missing the point. The margin on digital (due to decreased costs) is at least 50% better than the margin on physical. So a decrease in global physical revenues of 8.1% together with an increase in global digital revenues of 6.9% would suggest a net increase in profit. Most labels don’t pass the benefit onto artists, but Cooking Vinyl and some other independents do.”

Again in 2014,performance rights revenue experienced strong growth, seeing a spike of8.3%,now accountingfor 6%of total industry revenues or AUD$1.24bn.

Streaming in Australia represented 2% of global streaming growth in 2014. Permanent downloads represented 82% of total revenue in Australia, subscription streamincome represented12% with the remaining6% believed to befrom ad-supported streaming. Compare that to Sweden however, where one of streaming’s biggest services (Spotify) was born, subscription streams represented 92% in 2014 and permanent downloads represented just 5%.

Australia was also mentioned on page 13 of the Digital Music Report as one of 16 countrieswho have integrated Audio streams into the Singles chart. The report also made brief mention of our forthcoming anti-piracy code: "In March 2015 the Australian government introduced draft legislation that would enable rights holders to seek website blocking injunctions."

A profile piece on popular streaming artistDavid Guetta saw Bart Cools, EVP, global A&R and marketing, dance music, Warner, describeAustraliaand Europe as a key market place for Guetta. “When David is active we tend to promote four or five tracks a year in Europe and Australia, whereas in the US we’ll probably go for fewer, maybe two or three, because it can take five to nine months to work a track to become a top 40 radio hit."

"The continuing digital growth enables companies to invest in their artists and develop into emerging markets,"said IFPI chief executive Frances Moore during a conference call from IFPI’s London headquarterslast night. "Music companies are charting a path to sustainable year-on- year growth. That path was never going to be straight, but we are making great strides along it, embracing new models, licensing, investing and improving consumer choice.”

Also in attendance was Stu Bergen, WMG's International Recorded Music president, and Edgar Berger, chairman and CEO International, Sony Music Entertainment.

Moore said the IFPI believes there is a flaw in thelegislative environment surrounding the value that certain digital platforms extract from music, and the value that is returned to rights owners. IFPI are calling the 'mismatch' between revenues collected by services like Spotify and Deezer and services like YouTube and Dailymotion the 'Value Gap'. IFPI said platforms like YouTube and Daily Motion are exploiting safe harbours.

"The problem is that those safe harbours are being abused, and they're being abused by platforms and services that have the role of promoting andmonetising content and yet they claim to be mere passive intermediaries," said Moore.

Moore saidthe Value Gapcampaign is something the IFPI is concentrating on over next few years with a discussion already underway in Europe.

For the second time ever, the Digital Music Reportincluded the world’s top-selling artists. IFPI's 2014Global Recording Artist Chart was topped by Taylor Swift, followed by One Direction and Ed Sheeran. Australia's iconic rockers AC/DC ranked 5th.