Music industry revenues predicted to rise for first time since ’98
2016 is predicted to be the year when global music industry revenues rise for the first time since its dip in 1998.
Zurich-headquartered global financial services company Credit Suisse published a note by analystKulbinder Garchayesterday (April 4), which suggests revenue from paid streaming services will be the saviour.
Garcha predicts that by 2020 revenues from streaming will grow nearly six times from US$2.2 billion in 2015 to US$12.7 billion.
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The note said the rise will be driven by Apple, which is expected to generate profits of US$33.7 billion by 2020 with its services (iCloud, Apple Music, and Apple Pay) and will represent around 45% of the distribution in paid music streaming.
Currently, the Cupertino companyrepresents about 15% of the market and in its latest quarterly report, services accounted for just 8% of its total revenues at around US$6.1 billion.
Credit Suisse wrote: “We performed a deep dive on Apple’s Services offerings and conclude that the market may be underestimating the (gross profit) contribution from services, but more important, underappreciates its growth potential and the annuity-type business it drives in terms of retention and replacement across the business.”
Not only is Apple Music a key factor in the growth of services, but the dollar spend per user and service opportunities in the TV and film realm both factor in. Credit Suisse predicts services spend per user will increase to US$113 in five years, up from US$61 today, and annuity-based payments – like subscriptions and instalment plans – will drive 55% of its total gross profit in five years time.
While many artists are vocal about their distaste for streaming services, especially in the local and US markets, Credit Suisse notes the early embracement of streaming in Norway and Sweden offers a hopeful vision of the future.
“Sweden and Norway offer a vision of the future of the music industry — these markets have high levels of broadband penetration; fast mobile data networks; and high smartphone penetration,” Credit Suisse writes. “All are conditions which exist in many other developed markets and we regard it as probably conservative to assume that penetration of paid streaming services in these countries will reach 25% by 2020.”