The RIAA released its annual recorded music revenue figures for 2014 this past week. The numbers tell the story of changes in the digital music market that have been familiar for the past few years: on-demand music services up, digital radio up, CD sales even further down, ringtone revenue evaporating. The total revenues are flat, but as we'll see, that doesn't mean the music industry is now stable; not at all.
First, there's one surprise in the 2014 figures, at least to those who haven't been paying close attention: the resurgence of vinyl after its near death ten years ago. Vinyl (mostly LP) revenues are the fastest-growing segment of the industry . Revenue from LPs exceeded $300 million and increased 50% over 2013, which is more than ad-supported on-demand music services such as YouTube and Spotify's free service. And the year-over-year growth of vinyl is increasing too. Vinyl could easily become a half-billion-dollar industry this year (though that's still tiny compared to vinyl's peak of nearly $10 billion in 1978).
On the other hand, sales of downloads (albums and singles) have shifted into sharp decline, as the figure below shows. Downloads, mainly from
Selected recorded music revenue streams, 2003-2014, $million. Source: RIAA.
Another growth story in digital music is the on-demand category, which is actually an amalgam of two sources of revenue that the RIAA tracks: paid (Spotify Premium, Rhapsody, Apple's Beats Music,
On-demand music services such as Rhapsody have existed since the early 2000s but attracted only a small niche audience for several years. Then the category took off in 2011 with the advents of Spotify, with its "freemium" service, and YouTube as a de facto licensed on-demand music service. Growth in on-demand revenue has been decelerating since then. As the figure shows, the resurgence in the vinyl category isn't anywhere near enough to make up for slowing on-demand growth and the decline in digital downloads.
What the figure above doesn't show (other than the continued precipitous decline in CD sales) is the growth of revenue from Internet radio services like
SoundExchange is a not-for-profit company that collects and disburses royalties from digital radio services of three types: Internet radio, satellite radio (SiriusXM), and services like Music Choice that supply radio channels to cable and other forms of digital pay TV. These services pay music royalties at different rates, and Internet radio represents less than half of the total, but otherwise SoundExchange doesn't break its revenue figures down into the three categories. What we do know is that overall SoundExchange revenues were up 31% over 2013, and both satellite and digital-TV radio revenues are growing at much slower rates; therefore music royalties from Internet radio should be growing faster than 31%.
In fact, if we take Pandora's revenues from its free, ad-supported service as a proxy for Internet radio music revenues as a whole -- and Pandora is definitely the market leader -- then we find that revenue growth in that category is very strong: those revenues grew 50% from 2013 to 2014.
All those ups and downs put together help explain why overall music industry revenue has been quite flat -- actually declining slightly -- at around $7 billion since 2010. When adjusted for inflation, that's the lowest it's been since the RIAA started tracking it in 1973, and it's the least volatile period of that length since the 1970s. But the four years of nearly constant revenues are an illusion: individual major revenue sources are way too much in flux to be able to say that the music industry has reached a new kind of stability in the digital era.
As a postscript, I should note that the RIAA numbers only tell part of the story, albeit the biggest part. They cover music recordings (paid to labels and recording artists) but not revenue from music compositions (paid to publishers and songwriters), which are collected by organizations like ASCAP and BMI. U.S. music publishing revenue for 2013 was estimated at $2.2 billion.
