Streaming May Topple Music Industry Iceberg
The IFPI reports that digital sale grew a meager 5.1% last year and that in the U.S., growth was almost flat at 1.2%. These numbers and chart that accompanies them aren't that shocking, but they do illustrate why the major labels are both excited for Google and Spotify to come to the market, yet terrified about what may happen if they really succeed. If and when Spotify does launch in the U.S. and becomes very popular, Peter Kafka writes, "then CD sales – which still make up the majority of the industry's sales – could plummet even faster."
And what happens if CDs plummet and digital downloads go stagnant?
Music royalties will continue to decline too. Yesterday, Hypebot revealed that for the first time, PRS for Music reported a 1% annual fall in total music royalties.
Now, PRS suspects that digital piracy and a fall in high street sales are to blame for this decline, but in the humble opinion of industry thinker George Howard, they are making a glaring omission with respect to why the royalties might be down: "lack of royalties due to streaming." The way Howard sees it, we're seeing a rapid acceleration of streaming. While consumers don't care whether they get a download or stream, it makes a big difference for an artist, as the payouts are greatly reduced. "Thus," he concludes, "streaming – not 'piracy' or 'street sales' – is what's causing the decline in royalties." The 1% decline is only the beginning of what could be a much larger trend: the toppling of the music industry iceberg.
As icebergs, no matter how large, drift towards warmer latitudes, they inexorably dissolve. "The progression is barely visible but, at some point, as the exposed part liquefies under the sun, the iceberg's center of gravity moves upward and it suddenly capsizes without warning," Frédéric Filloux writes. In other words, if streaming does boom in popularity, and artists and labels aren't prepared for "the days when their margins from downloads are obliterated," Howard says, the iceberg, i.e. industry profits, could become unstable and topple over suddenly.
In fear of this future, the major labels are backing plans from Apple and Google to create music lockers that add value to digital downloads. However, this business model is still based on the notion of fans buying music, "a track at a time," Kafka explains further. "I'm not sure how that pushes the digital sales curve up again."
Howard concludes with this question: Are artists and content holders bracing themselves for the days when they are only getting revenue from streams? "I hope so," he says, trying to maintain his usual optimism about the future of music. "But," he forewarns, "I wouldn't be building on the iceberg right now."
It's a catastrophe waiting to happen. Sometimes, when an iceberg melts, the resulting change in shape causes it to list slowly, like the record industry right now. However, icebergs can also become unstable and topple over suddenly.
Like what could happen to the record industry if streaming booms too early.