Over the past decade or so, the assessment of the recorded-music industry has shifted from retail sales to trade value. The complexities and the growing number of business models involved in the delivery of digital music, coupled with unknown retail markups, make quantifying the retail value of recorded-music sales speculative at best. But the enduring appeal of ring tones and ring-back tones in some less-developed countries suggests that the size of the global retail pie has not changed; there are just more players taking a slice.
With the exception of a small number of countries in Asia and Latin America, the digital-music business has primarily become online-based, with mobile access considered a premium add-on. Several years ago the situation was quite different, with the two delivery platforms offering distinct services and experiencing differing fortunes: Online sales struggled against a mass of music freely available through P2P services, while mobile sales, in the form of ring tones and ring-back tones, rode the crest of the wave. Now, the distinctions between online and mobile have become blurred, with most digital-music services, be they download or subscription, offering access via all manner of hardware.
Trade value and the retail markup
Quantifying the global trade value of music formats is a process undertaken by the IFPI. Local music trade associations report trade revenues received from member record companies and apply a markup to cover estimated non-member-company sales. Even for countries that are less developed, the level of accuracy is high. However, determining the retail value of recorded-music sales, especially for mobile-music sales, is more speculative and can result in very different results.
Particularly problematic is the fact that deals between retailers and record companies can often be confidential. Moreover, for mobile music services, the share of the retail price paid to a record company can be small. For ring tones, for example, the share can sometimes be as low as 5%.
Although the majority of the value of global recorded-music sales comes from the top 10 markets in the world, a small number of less developed markets are often touted as being “markets of the future.” The BRIC countries (Brazil, Russia, India and China) are typical of this label. Each country has a big population but a low per capita level of spending on music. Each of the four has a high mobile penetration rate, suggesting favorable opportunities for the sale of mobile-music formats. Even though the majority of handsets in these countries are basic, they can still be used to buy ring tones and ring-back tones.
Most published mobile-music forecasts continue to be for retail sales rather than trade value. The IFPI still reports retail sales by country, but the figures presented are for physical and digital and do not break down sales by format. Similarly, PricewaterhouseCoopers (PwC) estimated only total physical and total digital retail sales in its recorded-music forecasts published in June. Separating online and mobile sales by multiplatform services makes detailed figures difficult to produce. However, earlier this year, Informa Telecoms & Media published mobile-music forecasts broken down for ring tones, ring-back tones, full-track downloads and streaming.
It is worth noting at this point that Informa’s figures include revenues from polyphonic and monophonic ring tones as well as illegal sales of full tracks and real-music ring tones (otherwise known as “true tones”). Informa factors in revenue from full tracks from online digital-music services that are bought and downloaded/streamed via mobile phones. Such sales are often left out of the mobile portion of the trade-value revenues reported by some music-industry associations. Informa has also only factored in mobile traffic that is borne over cellular networks, not Wi-Fi, which significantly diminishes the amount of revenue that can be allocated to mobile from tracks delivered to mobile phones.
According to Informa, mobile-music revenues for the four BRIC countries totaled US$3.2 billion in 2011. This year will see a rise of 9.6% in revenues, to US$3.5 million. Forecast annual increases will push the value of mobile-music sales to US$4.6 billion in 2016. Of the four countries, China will account for the greatest share of the total retail sales in each of the forecast years. China will also see the highest sales of all mobile formats, with the exception of full-track downloads, which will be led by India.
Comparing Informa’s mobile-music figures with the IFPI’s retail-sales estimates and the forecasts made by PwC suggests that Informa’s numbers are wildly optimistic. For example, the IFPI said recorded-music retail sales (physical and digital) in China totaled US$97.3 million last year. PwC put the figure at US$192 million. For the same year, Informa said just mobile-music retail sales in the country stood at US$2 billion. There were similar disparities between the IFPI and PwC and Informa for Brazil, India and Russia.
So which figures are correct? The simple answer is no one knows for sure. Few mobile operators in the four BRIC countries break down mobile-music sales, and there is little published information detailing the revenue split from the sale of the different mobile-music formats. Moreover, some operators are thought to underreport sales figures, making even the trade-value basis for calculating retail sales uncertain. But where figures are available, there is reason to consider the IFPI’s and PwC’s figures too cautious. For example, China’s biggest mobile operator, China Mobile, said earlier this year that mobile music revenues increased 7.8% in 2011, to CNY22.07 billion (US$3.4 billion), from CNY20.47 billion in 2010. Included in the total are a variety of music-related products, such as concert tickets, but the majority of revenues is thought to have come from ring tones and ring-back tones. If just 5% of China Mobile’s music revenues were paid to content providers, that would put trade revenues from the company at US$170 million. Even allowing for the fact that China Mobile’s mobile music figure includes non-recorded-music revenues, the trade value total is much higher than the IFPI’s figure.
Still a US$40 billion business
Just before the turn of the century, global retail sales of recorded music were heading toward the US$40 billion mark. Some research services that did not anticipate the impact of file sharing suggested that digital would push the figure way beyond US$40 billion. According to IFPI estimates, global retail sales stood at US$23.4 billion last year, down from US$24.2 billion in 2010. PwC put the 2011 retail sales figure at US$23.7 billion, while Enders Analysis pessimistically said global retail sales totaled just US$18.5 billion last year. But if Informa’s assessment of mobile-music sales is correct, the recorded-music industry is still worth close to US$40 billion. The only difference between now and the late 1990s is that content providers are receiving a much smaller share of the retail-sales pie, for mobile at least. What is also interesting is the change in perception over the past 10 or so years of what the recorded-music industry includes.
In the physical-format world, the players involved in the production and sale of recorded-music were fairly limited in number and easy to identify. However, as technology and the means of distribution became more complex, companies not previously involved in the “straightforward” recorded-music world have now become central, in some countries at least, to the sale of certain music formats. Although record-company revenues may have been hit by this shift, it is reasonable to assume that globally, consumers are still spending just about the same amount on recorded music as they did 10 years ago. The only difference now is that the recorded-music retail pie is feeding many more mouths that ever before.
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