Billboard: Download Sales Off to Terrible Start in 2014

[areyoureadytojump]

www.billboard.com/biz/articles/news/retail/5885144/business-matters-download-sales-off-to-terrible-start-in-2014?utm_source=Sailthru&utm_medium=email&utm_term=biz_breakingnews&utm_campaign=Breaking%20News

Business Matters: Download Sales Off to Terrible Start in 2014
By Glenn Peoples, Nashville | January 23, 2014

U.S. digital sales are beginning 2014 just like they ended 2013: in negative territory. Through the third week of the year, track sales are down 11.9% and digital album sales are down 13.3%, according to Nielsen SoundScan.

Both figures stand in stark contrast to the same period last year. Through the first three weeks of 2013, track sales were up 2.2% and digital album sales were up 18.1%.

These numbers strongly suggest American consumers are quickly changing how they experience digital music. There are signs of change outside of sales numbers. Beats Music apparently had a strong debut this week -- its overloaded system has resulted in spotty service -- and reached No. 2 on iTunes' list of free iPhone apps. Netflix's fourth quarter exceeded expectations. The streaming video service now has 31.7 million subscribers in the United States and another 9.7 million elsewhere. Pandora's popularity is an ongoing reminder that streaming is mainstream. The Internet radio service had 76.2 million monthly users at the end of December.

iTunes Radio launched in the second half of 2013. Last week, Rdio debuted unlimited, advertising-supported listening. The much-awaited Beats Music launched this week and apparently has an unexpectedly large number of people signing up for paid or free trial accounts. On Wednesday, Beats Music halted new registrations to fix bugs and has been the second-most-downloaded free iPhone across all categories, according to App Annie.

Digital revenues will be under pressure if download sales end the year down 12.6%, the decline of track-equivalent album (TEA) sales in the first three weeks of the year. A 12.6% decline of revenue would equal a loss in the ballpark of $240 million of trade value and $340 million in consumer spending. In this scenario, a major label group with a 25% market share could expect download revenue to decline about $60 million this year.

But there's reason to believe digital sales will worsen as the year progresses. If downloads follow the trend established last year, download sales will finish the year in even worse shape. Over the last 12 months, track and digital album sales consistently weakened last year. Track sales were down just 1.3% in the first quarter of 2013 but were down 3.3%, 6% and 12.9% in the successive three quarters. Digital albums had an even greater tumble, going from a 10.4% increase in the first quarter of 2013 to a 7.1% deficit in the fourth quarter.

The pace of download sales' decline is probably faster than labels and publishers would like to see. After all, the download was a growth format for a decade and helped offset losses from declining CD sales. But the decline in download revenue can be offset -- and likely overcome -- by gains in streaming revenue. Between on-demand video services like YouTube and Vevo, Internet radio services such as Pandora and a host of on-demand subscription services, hundreds of millions of incremental digital revenue should be realized in the United States this year.

The cycle is clearly evident: the growth of streaming services negatively impacts digital purchases and puts additional pressure on the music business to generate new revenue by growing streaming services. Rinse and repeat.

[Gary]

Each format comes with problems.

With digital, you have to buy each track, store it on a hard drive somewhere and hope the hard drive does not crash. On the plus side, no monthly fees. You pay for only what you want and you own the track you download

With streaming, once you stop paying he fees, all the music goes away. In that sense, I see a limited life for this too. Perhaps even shorter than the decade that digital has had,\

[Deleted]

I was very quick to move to digital, but I'm not ready for the switch to all-streaming. A lot of the music I listen to isn't even available for streaming. I can't even imagine the next format after streaming. What's easier than getting music without having to store it anywhere, including a hard drive?

[Gary]

The State of Streaming Music As Beats Music Launches
News /

By Glenn Peoples, Nashville | January 21, 2014 8:51 PM EST





Beats Music's launch in the United States provides a good opportunity to reflect on the state of streaming music.

On-demand music streaming services have come far in the last five years. The first generation of services, such as Rhapsody and Napster, found limited success during the heyday of the paid download. Under the next wave of services, best represented by Spotify and Beats Music, the business model and user experience have greatly evolved. Advertising-supported services like Pandora and YouTube have become significant revenue sources as well.

At the beginning of 2014, as a major brand has entered the on-demand subscription business, there are five main themes that characterize the streaming business.

1. Streaming is Having a Noticeable Impact on Download Purchases. Until the second half of 2013, people weren't sure if streaming services were having an impact on purchases of music downloads. There's now more certainty after the bottom fell out of the U.S. download market in the latter half of the year. Here's how track sales in each quarter of 2013 compared to the prior-year period, according to Nielsen SoundScan: Q1 -1.3%, Q2 -3.3%, Q3 -6.0% and Q4 -12.9%. And here are the year-to-year comparisons for album sales: Q1 +10.4%, Q2 +1.9%, Q3 -4.9% and Q4 -7.1%. In all, U.S. consumers bought 76.6 million fewer tracks and 99,000 fewer digital albums last year. Those purchases had a retail value of about $90 million to $95 million. The silver lining: losses in digital sales were undoubtedly smaller than the gains in advertising-supported and subscription streaming revenues.

2. Streaming Needs to Provide More Value. There are a couple obvious ways to make subscription services more attractive to consumers. The first is price. Services could lower price to better match what the vast majority of likely customers are willing to pay. But for the most part, subscription prices have been and will be static (outside of family pricing plans and subsidized prices from telecom bundles and low-cost bundles with prepaid mobile plans). The standard price is $10 per month in the United States. Family plans are available for $15 per month. Unless labels allow for greater pricing flexibility, the other way to add value is by improving usability and access. Beats Music -- which doesn't have a free, advertising-supported tier -- has taken this route. The service adds value through a well-designed user interface and human curation. (Even small things add value, such as the availability of a seven-day trial without a credit card.) Beats Music has also created value by partnering with AT&T to facilitate consumer acquisition. These types of added value increase the perceived value of a service. It's important for perceived value to be flexible when prices are inflexible.

3. The Subscription Business Model is Proving Itself -- In Some Countries. The subscription model won't succeed in a vacuum. Instead, a variety of factors work in concert to drive adoption. Services need to partner with telecom companies to speed up consumer acquisition. Success is also aided by external factors such as smartphone ownership and access to high-speed mobile and broadband Internet. Services also need time. The countries with the most success with subscription services were among the earliest to get the second wave of services. This mix of factors helped the Norwegian recorded music industry grow 10.6% last year to $98 million thanks to 60% growth in streaming revenue. (It may seem like a small number, but $98 million works out to an impressive $19.30 for each of the country's 5.1 million citizens.) Expect to see streaming-led growth in Sweden and Holland when those countries' 2013 numbers are released.

4. Is Streaming Really the Future? People still wonder if streaming services can do the financial heavy lifting. There's uncertainly about the ability of next-generation streaming models to drive overall revenue growth. People worry that streaming royalties won't replace the revenue from purchases -- both downloads and CDs -- that will inevitably be lost in the coming years. There's also doubt about the very business models of streaming companies. Why all these question marks? The shift from CDs to downloads was easier than the shift from downloads to streaming will be. Streaming, which generates revenue from advertising and subscription fees, represents a new consumer behavior. It's undoubtedly the future of music. The question is when the business will catch up to the business model.

5. Connected Devices Will Help Streaming Grow. Streaming services are most closely linked to desktops and portable devices such as smartphones and tablets. You can listen to music while you work and while you're on the go. The next steps are better integration with consumer electronics products for listening at home and in the automobile. Wireless speakers and speaker systems are growing in popularity. Thanks to improved smartphone-automobile integration, more people are listening to streaming services in their cars. These are favorable trends that will help increase adoption of streaming services and the amount of revenue paid to rights holders, songwriters and performing artists. Streaming services' per-stream royalties may seem small given current listening activity, but payouts will vastly improve when far more consumers are streaming for more often.

[surreallife]

From what I can glean from Billboard's articles on this topic, the biggest slide has been in catalog tracks not current tracks, so digital sales will likely still have a big impact on the HOT100 for years to come. As for streaming, I cancelled my Rdio subscription this month. I wasn't using it enough to justify the $10 per month. I can meet most of my music listening needs through the satellite radio on my TV. Of course it doesn't help that in Canada data plans for smartphones and tablets are pretty expensive and limited.

[Adonis the DemiGod!]

Jan 25, 2014 11:48:11 GMT -5 surreallife said:

From what I can glean from Billboard's articles on this topic, the biggest slide has been in catalog tracks not current tracks, so digital sales will likely still have a big impact on the HOT100 for years to come. As for streaming, I cancelled my Rdio subscription this month. I wasn't using it enough to justify the $10 per month. I can meet most of my music listening needs through the satellite radio on my TV. Of course it doesn't help that in Canada data plans for smartphones and tablets are pretty expensive and limited.

Yep downloads aren't going anywhere. People have just gotten their fill of the older legacy tracks so sales of older legacy tracks has tapered off. Next year we will probably get the real story on downloads and streaming... Data plans will remain expensive and streaming only works if you can do it cheaply while traveling. However, you pay $10/mo and for an expensive data plan. Its probably the next area companies should work on. However, this could change with AT&T allowing companies to pick up the tab for users streaming the content.

[brucelover]

Spotify is killing the industry, it is NOT a profitable model.

[Adonis the DemiGod!]

Jan 25, 2014 17:36:35 GMT -5 brucelover said:

Spotify is killing the industry, it is NOT a profitable model.

It is profitable for the phone companies. Plus catalog sales were artificially high because not everyone wanted to spend $10 for their fav song. Can we get a comparison of sales for the top 50 titles for this year vs last year? I dont think spotify is killing anything.

[Deleted]

Don't agree with everything in this article, but it does make some good points. I love that independent labels are doing so well now.

How Streaming Will Result in More Revenue All Around

Four years ago I wrote an opinion piece in Billboard warning of the cash-flow crisis that would hit when consumers realized the massive value proposition that streaming subscription services offer. It may have taken longer than I expected, but it is firmly upon us. Despite all the negative press about the low per-stream rate, Spotify is now the No. 2 digital retailer for most labels in terms of income. Apple, Google, Microsoft, Beats Music and many others have launched streaming subscription options for their customers. All told, streaming revenue makes up approximately one-quarter of all income for most content owners, having quadrupled in the last two years. So what is the short-term impact, and how long will it last? Longer term, what does this mean for the average label and artist?

As one of the world’s largest distributors of independent music, INgrooves is uniquely positioned to monitor and evaluate the early impact of the consumer shift from downloads to the access anything, anywhere, anytime format inherent in streaming subscription services. But will such services equal increased revenue? It will, especially for the indies and for the prolific, active artists out there. Here’s why:

The average consumer spends about $40 per year on recorded music. If the average consumer signs up for a streaming service, he or she will spend as much as $120 per year ($10 per month times 12 months), making the “pot” to share three times larger.

The early adopters of streaming services are, generally, high-volume purchasers of music who are indie-leaning and tech-savvy. They know there’s no reason to spend $9.99 on an album when they can pay that amount per month and get access to 2 million albums. As a result, there is a disproportionate impact of the shift to streaming on the indie side compared with major labels that focus on genres that target an older, more mainstream demographic.

It’s not all bad news for the indies: INgrooves’ market share on Spotify is nearly double what it is on Nielsen SoundScan. This is likely due to the type of consumer (e.g., indie, hipster) signing up for streaming services, and the fact that there’s great experimentation and passive listening available through these services.
Remember, $40 is the average, which means half the country is spending a lot less than $40 per month on music because they’re infrequent consumers. If we can reach the tipping point where the low-volume music consumer is spending $120 per year on streaming, then we’ll also start to see the pot of revenue enlarge and the average per-stream royalty rise.

For the next 12-18 months, we’re likely to see physical and download sales decay faster than usual after the holiday season and the shift to streaming continue to accelerate, but not enough to make up the difference.

Based on our analysis of the decay rates and new subscriber growth for streaming services, we’re predicting that we’ll return to last summer’s peak sales levels by late 2014, not counting growth by international expansion and sales from new clients. This means that, for much of the year, artists and labels will have to more proactively manage cash flow, marketing spends and ensure they’re aggressively pursuing all sources of revenue.

Some will be less affected by this newest paradigm shift. For example, international markets, where downloading never truly took off and piracy was rampant, will benefit from streaming’s availability in their countries. Certain genres like country and classical will also likely see a slower shift from their hardcore fans. However, this shift is going to be more dramatic and meaningful than the format shift from physical to digital downloads.

The value proposition for the consumer is just simply too appealing to have any other outcome, and in digital media, the consumer always wins.

www.billboard.com/biz/articles/news/digital-and-mobile/5885454/how-streaming-will-result-in-more-revenue-all-around

[mluv]

Interesting article but it's really talking about the consumer who're willing to pay the subscription rates. I think that's going to be a limited amount of music consumers. I think most are going to opt for the free service so these service better have a back up plan. Spotify really depends on advertisers for their revenues but Beats will not be offering any kind of free service (except for the the first month trial free) so all eyes will be on them to see if they can succeed in getting people to part with their cash. One of these sites will have to step up and be the Netflix of music.

[Adonis the DemiGod!]

Jan 28, 2014 11:21:28 GMT -5 @jazzysoul47 said:

Don't agree with everything in this article, but it does make some good points. I love that independent labels are doing so well now.

How Streaming Will Result in More Revenue All Around

Four years ago I wrote an opinion piece in Billboard warning of the cash-flow crisis that would hit when consumers realized the massive value proposition that streaming subscription services offer. It may have taken longer than I expected, but it is firmly upon us. Despite all the negative press about the low per-stream rate, Spotify is now the No. 2 digital retailer for most labels in terms of income. Apple, Google, Microsoft, Beats Music and many others have launched streaming subscription options for their customers. All told, streaming revenue makes up approximately one-quarter of all income for most content owners, having quadrupled in the last two years. So what is the short-term impact, and how long will it last? Longer term, what does this mean for the average label and artist?

As one of the world’s largest distributors of independent music, INgrooves is uniquely positioned to monitor and evaluate the early impact of the consumer shift from downloads to the access anything, anywhere, anytime format inherent in streaming subscription services. But will such services equal increased revenue? It will, especially for the indies and for the prolific, active artists out there. Here’s why:

The average consumer spends about $40 per year on recorded music. If the average consumer signs up for a streaming service, he or she will spend as much as $120 per year ($10 per month times 12 months), making the “pot” to share three times larger.

The early adopters of streaming services are, generally, high-volume purchasers of music who are indie-leaning and tech-savvy. They know there’s no reason to spend $9.99 on an album when they can pay that amount per month and get access to 2 million albums. As a result, there is a disproportionate impact of the shift to streaming on the indie side compared with major labels that focus on genres that target an older, more mainstream demographic.

It’s not all bad news for the indies: INgrooves’ market share on Spotify is nearly double what it is on Nielsen SoundScan. This is likely due to the type of consumer (e.g., indie, hipster) signing up for streaming services, and the fact that there’s great experimentation and passive listening available through these services.
Remember, $40 is the average, which means half the country is spending a lot less than $40 per month on music because they’re infrequent consumers. If we can reach the tipping point where the low-volume music consumer is spending $120 per year on streaming, then we’ll also start to see the pot of revenue enlarge and the average per-stream royalty rise.

For the next 12-18 months, we’re likely to see physical and download sales decay faster than usual after the holiday season and the shift to streaming continue to accelerate, but not enough to make up the difference.

Based on our analysis of the decay rates and new subscriber growth for streaming services, we’re predicting that we’ll return to last summer’s peak sales levels by late 2014, not counting growth by international expansion and sales from new clients. This means that, for much of the year, artists and labels will have to more proactively manage cash flow, marketing spends and ensure they’re aggressively pursuing all sources of revenue.

Some will be less affected by this newest paradigm shift. For example, international markets, where downloading never truly took off and piracy was rampant, will benefit from streaming’s availability in their countries. Certain genres like country and classical will also likely see a slower shift from their hardcore fans. However, this shift is going to be more dramatic and meaningful than the format shift from physical to digital downloads.

The value proposition for the consumer is just simply too appealing to have any other outcome, and in digital media, the consumer always wins.

www.billboard.com/biz/articles/news/digital-and-mobile/5885454/how-streaming-will-result-in-more-revenue-all-around

I don't agree that it only costs $120 per year. It costs $120 per year plus the cost of data/wifi service.

[Deleted]

Jan 28, 2014 12:46:26 GMT -5 Adonis the DemiGod! said:

Jan 28, 2014 11:21:28 GMT -5 @jazzysoul47 said:

Don't agree with everything in this article, but it does make some good points. I love that independent labels are doing so well now.

How Streaming Will Result in More Revenue All Around

...

I don't agree that it only costs $120 per year. It costs $120 per year plus the cost of data/wifi service.

But you can't download from iTunes without data/Wi-Fi service either, so the cost of that is the same.

[surreallife]

Jan 28, 2014 12:47:39 GMT -5 @jazzysoul47 said:

Jan 28, 2014 12:46:26 GMT -5 Adonis the DemiGod! said:

I don't agree that it only costs $120 per year. It costs $120 per year plus the cost of data/wifi service.

But you can't download from iTunes without data/Wi-Fi service either, so the cost of that is the same.

If you stream a subscription service such as Rdio or Spotify on your smartphone or tablet several hours a day the amount of bandwidth that is used adds up pretty quickly.  The first (and only month) I did it, my Ipad mobility bill ended up $20 higher than normal.  So from then on I streamed from my computer which has 50 GB of usage per month.  I think Americans have more generous mobility data plans then Canadians so my experience may be atypical compared to other PMB members.

[Adonis the DemiGod!]

Jan 28, 2014 12:47:39 GMT -5 @jazzysoul47 said:

Jan 28, 2014 12:46:26 GMT -5 Adonis the DemiGod! said:

I don't agree that it only costs $120 per year. It costs $120 per year plus the cost of data/wifi service.

But you can't download from iTunes without data/Wi-Fi service either, so the cost of that is the same.

It's a one time cost when you use iTunes vs a reoccurring cost when you use spotify.