[opendtv] Tech companies are taking over music-industry revenues - MarketWatch
- From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Sat, 21 Mar 2015 11:47:03 -0400
So Bert
Selling and streaming music over the Internet has been a viable alternative to
buying CDs for more than a decade. Apple opened the iTunes Store in 2004 -
prior versions of iTunes, introduced in 2001, allowed you to digitize your CD
collection.
The incumbent technology that the Internet challenged was the venerable audio
CD, which was in essence a bundle of music from an artist, including one or two
hit songs and additional tracks to fill up the disc. CD singles existed, but
we're never a significant factor in music sales.
The following article reports that Internet sales of music (digital downloads
and streaming services) finally surpassed CD sales in 2014, even as the market
for digital downloads has begun to decline.
Just another data point that indicates that moving content to the Internet
takes time...
Regards
Craig
http://www.marketwatch.com/story/tech-companies-are-taking-over-music-industry-revenues-2015-03-20
Tech companies are taking over music-industry revenues
NEW YORK (MarketWatch) -- The music streaming and downloading market has
surpassed physical CD sales for the first time ever, and that is music to the
ears of technology companies Rhapsody, Apple, Spotify and Pandora Media.
Artists are still unhappy with the way their pay has changed with the advent of
digital streaming (in just one example, Taylor Swift boldly pulled all of her
music from Spotify late last year). But new data suggest streaming and
downloads now account for a vast majority of the market -- and show no signs of
slowing.
The number of paid subscriptions to on-demand music services in the U.S. has
more than tripled since 2011, according to new data from the Recording Industry
Association of America.
In 2014, overall paid subscriptions for on-demand streaming services grew 26%
year-over-year to 7.7 million, according to RIAA. Together, digital downloads
and streaming now account for 64% of total music-industry revenues, while
physical music sales have slumped to just 32%.
The surge has been fueled by the growing prevalence of Internet-enabled mobile
devices, like Apple’s iPhone. Data from IDC on Friday estimated there would be
2.5 billion smart connected devices on the market by 2019, up from 1.8 billion
in 2014.
The rise of connected cars -- which has given drivers direct access to Sirius
XM, Pandora, iTunes and Spotify on the road -- is also expected to contribute
to the rise in streaming and downloads in coming years. Shares of Sirius are up
17% over the last year.
Tech companies’ ability to dramatically change consumer behavior has mixed
favorably with the what-I-want-when-I-want mentality of tech-savvy millennials.
Most young adults now seek out on-demand music services, where they can access
a virtually infinite song library for free, or by paying a small subscription
fee or putting up with sporadic ads.
In fact, this chart shows millennials are significantly more willing to pay for
digital music and other types of online entertainment than they are for news
apps and printed newspapers.
While Pandora’s shares are down 54% over the last 12 months, partially due to
weaker-than-expected fiscal 2014 sales of $906.6 million, its listening hours
grew 20% to 20.03 billion hours last year. Pandora pays roughly $0.00012 per
song stream to rights holders, according to estimates from University of
Virginia professor David Touve. The company expects to break the $1 billion
revenue mark in fiscal 2015. MKM Partners last week reiterated a buy rating and
$23 price target on Pandora, saying the pathways to audience growth and the
value of the platform to music-makers are “under-appreciated opportunities.”
Spotify doesn’t break down financials in the same way, but it boasts more than
15 million paying subscribers and 60 million total active users on its website.
Meanwhile, Rhapsody, which only has 2.5 million subscribers, announced a
partnership with Twitter Inc. last week at South by Southwest that analysts
say could increase its active user base by 100 times. The deal allows paid
subscribers to post links to songs on their Twitter feeds, giving their
followers access to songs in their entirety on Rhapsody. It prompted B. Riley
to reiterate a buy rating on RealNetworks Inc. which owns a minority stake in
Rhapsody.
“I love tech, but it’s soulless. The devices are just tools.”
Bob Lefsetz, music industry blogger
Apple does not break out iTunes revenue, but Fortune last year estimated Apple
iTunes revenue in the $4 billion to $5 billion range, making it one of the
world’s most successful digital music companies by revenue. The Cupertino
company reported a slowdown in digital music sales last year, but that could
change with the integration of Beats Music, which Apple acquired for $3 billion
in 2014.
Of course, not everyone is cheering the tech success.
“The CD is dead,” wrote music industry blogger Bob Lefsetz in a cynical post
criticizing how millenials and technology have changed the music industry. “The
techies are all about playlists and algorithms, thinking scale is everything...
I love tech, but it’s soulless. The devices are just tools.”
He also railed into the South by Southwest [SXSW] festival, which began in 1987
as a music and film festival and has morphed into as much a technology
conference as anything else, saying this year’s “big story is [broadcasting
startup] Meerkat, not a band,” with brands – not bands – taking over.
“A band hasn’t broken out of SXSW in eons. It’s all promotion,” he said. “And
there’s so much noise, you can’t hear the music.”
Tech companies, of course, want the music industry to know they’re committed to
fair compensation, even if they are raking in a bigger piece of the revenue
pie. Spotify last year said it has paid more than $2 billion in total royalties
to date, while Pandora said it has paid more than $1.2 billion in royalties.
“Pandora is committed to creating positive, sustainable growth for the music
industry,” Pandora’s director of public affairs, Dave Grimaldi, said in an
email to MarketWatch.
But tell that to Taylor Swift, who called streaming sites like Spotify an
“experiment” to which she’s unwilling to contribute her life’s work. After
pulling her music from Spotify in the name of unfair compensation, she went on
to sell more than one million copies of her record “1989” in the first week.
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