Music sales saw a slight increase in 2012, marking the first rise for 13 years, according to figures from the International Federation of the Phonographic Industry (IFPI) and as reported by numerous media outlets.
Digital music is the big growth area as you would expect where sales rose about 9% over 2011 to $5.6bn and a 34% market share
Subscription services such as Spotify and Deezer “came of age” last year, according to the IFPI, and this year will cross the 10% mark as a share of total digital music revenues.
Spotify has more than 5m paying subscribers (nearly twice as many as previous year) and is the second largest source of digital music revenue in Europe.
Even though it is only a small increase after all this time I still thought it was a significant milestone. The arrival of Napster in 1999 fuelled an explosion in on-line piracy. Music labels were up in arms and people were predicting that the industry was doomed.
I think what really happened was an industry got disrupted and this usually takes a few years to play out.
For an industry to be disrupted there is a significant development (in this case the Internet and file sharing) that leads to innovation and opens customer’s (especially early adopters) eyes to a new and better way to do things (in this case download and share music in a digital format). This was further fuelled by the introduction of the IPod music player and the iTunes music store in 2001.
What usually happens is that the incumbent suppliers (the record labels and retail stores) dig their heals in having made such a huge investment and so much money from the way the market currently works. They do what they can to slow down progress, position the innovators as untrustworthy (and often much worse) and do what they can to protect their market dominance through legal action, lobbying and media relations. Very rarely do they think to innovate themselves.
But the customer will always win out in the end – it’s just a question of how long it takes for supply to catch up with demand.
From the late 90’s onwards users have increasingly wanted to consume their music in a digital format. When that proved to be virtually impossible in any legal way, many decided they had no choice but to break the law. The benefits of digital music outweighed the risks of getting caught. This is often how progress gets made – laws are usually designed to protect the status quo.
But I don’t believe that most people want to break the law, it’s just that they had no choice. Most of us want the artists and the brands that we love to do well and don’t resent paying for it.
Over time the supply side has started to catch up with the demand side and this is why the market is starting to grow again. iTunes, GooglePlay and others now offer the vast majority of available music for download. There are also smaller download providers such as emusic who do a better job of representing the smaller or more specialized bands. In the last few years we have also seen the emergence of various different types of subscription based streaming services like Spotify, Pandora, Deezer and Songza. What’s more, all these services don’t just make is easier to buy or listen to the music you want. They also have great discovery and recommendation tools to help you find more music.
From my own perspective, I now spend more money on music than I ever did in the old world. I have also discovered loads of great music that I don’t think I would have found before. In short, I enjoy music much more than I used to and think I get good value for money.
So why did it take so long? The record labels were not full of stupid people blind to what was happening in their market. But I think even when you know that the market is changing, if your company makes all its money from the current way of doing things and has built its entire business around that, it is virtually impossible to change.
Indeed, it’s usually easier for a start-up to move into the market, despite its limited resources, than it is for a large company to change. We see this all the time and that’s why start-ups always stand a chance of success. It’s a bit like the difference between a gut renovation of a house within an old structure as opposed to building a completely new house – it’s actually easier to start from scratch.
The dynamics of the music industry have changed with the labels having a less dominant position, the power of iTunes and the emergence of the streaming players. But music has never been easier to discover, to buy, to share and to listen to and I believe this will lead to healthy growth moving forwards.