Does the fragmentation of today’s recorded-music industry make the return to global growth largely symbolic?

Celebrating a rise in global recorded-music trade revenues is something most in the music industry under the age of 30 have never done. After a flattening in trade revenues in 1999, every subsequent year through 2011 saw revenues drop. Last year, however, the industry experienced slight growth, bringing an end to a 12-year contraction streak.

The IFPI cautioned against getting too carried away with the result, and digging into the different national-trade-association results suggests it was right to do so. Moreover, although a 9% rise in digital sales was the driving force behind the return to overall growth, the differences in the performance and transformation of the leading markets effectively make any evaluation of the global recorded-music industry almost irrelevant.

The big market influencer
Any assessment of recorded-music sales at a global level is heavily affected by what happens in the US and Japan. In 2011 the two countries accounted for about half of global trade revenues (including performance-rights and synchronization income), and this share will probably be unchanged when the IFPI publishes its full global report in April.

In Japan, for example, the combination of the production value of physical formats and the trade value of digital music suggests that total trade sales in Japan were up about 3% last year. Concerning for the local industry is that all the growth came from a rise in sales of physical formats. Moreover, CD sales last year benefited from the practice by some popular groups of combining album releases with fan services and live ticket sales, inflating those groups’ album sales and, subsequently, the Japanese total.

Few in Japan expect physical-format sales to keep rising, and so the country’s music industry will need digital to make up the forthcoming shortfall. But digital sales in Japan are experiencing massive turmoil. In 2012 alone the trade value from digital-music sales fell 25%, or US$183 million. Even though online sales are rising, Japanese consumers have fallen out of love with mobile music formats, the trade value of which slumped a staggering 40% last year. Should digital sales not recover in time to head off the expected physical drop, then Japan may drag down any future global sales figures, even though the number of countries reporting a return to growth is rising.

Different countries, different growth drivers
Another way of emphasizing the importance of Japan on a global scale is to measure some of the often-championed Scandinavian countries’ performances last year against the digital losses in Japan. For example, the total trade value of recorded-music sales in Sweden in 2012 stood at SEK943.6 million (US$139.5 million), almost US$43 million lower than the difference between Japanese digital sales in 2012 and 2011. Similarly, in Norway, trade revenues last year totaled NOK545.3 million (US$93.8 million), equivalent to just half of last year’s Japanese digital drop.

Clearly what happens in Japan, and the US, has a big impact on the wider global performance. But is the return to global growth, welcome as it is, just symbolic? In 1999, the last time global recorded-music sales increased, there were simply more CDs sold than in 1998. But such is the complexity of today’s recorded-music industry that determining why global sales were up last year requires analysis at a much more granular level.

An examination of the results of those countries that have published retail sales or trade figures for 2012 shows big differences between one country and the next. While one digital-music business model has transformed the fortunes in one country, that same business model had little to do with the return to growth in another.

The big gains Sweden and Norway experienced in the take-up of subscriptions in 2012 more than offset falling sales of other formats. But in Brazil, trade revenues from subscriptions were down last year compared with 2011. Australia also experienced growth in trade revenues in 2012. However, digital sales in the country have followed the same sales pattern evident in the world’s biggest music markets, with downloads contributing most to the overall growth and new business models yet to spark consumer demand.

Why the difference?
Precisely why subscription services have experienced rapid growth over the past couple of years in some countries but not others is difficult to determine, given their short history of success. Per-capita spending on recorded music has little to do with reluctance to change spending habits: Japan has the highest per-capita rate in the world, and consumer spending on music subscriptions is minimal, but the second-highest-ranked country in per-capita terms is Norway.

One possible explanation for the difference is the fact that subscription services are most successful in their home markets. Spotify hails from Sweden, WiMP is operated by Norwegian streaming-media company Aspiro, Deezer is a French company and South Korea is home to local services Melon and Mnet. In each case, interest in the local service by far outweighs that of any other.

In addition to some of the developed countries, subscription services are also making their mark in countries suffering from high levels of unauthorized recorded-music distribution. For example, in Russia, which is suffering more than most from high piracy rates, streaming is becoming more popular. The most successful service is Yandex Muzyka, a division of Russia’s biggest search engine, Yandex. India, too, has seen rising consumer interest in streaming services, including Dhingana, Gaana and Saavn.

Russia and India might not be top-10 music markets, but any turnaround in the two countries’ recorded-music fortunes is arguably more important at the moment than global growth. Moreover, the positive results in some of the world’s smaller markets might not have much of an impact at a global level, but they clearly show that the days of recorded-music gloom really are coming to an end. Depending on what happens in the US and Japan this year, the IFPI might be reporting a return to global contraction 12 months from now, but the real news will be found beneath any superfluous global figure and in the many countries that have had little say at a global level for as long as global sales have been falling.

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