According to the Global Music Report 2019 by International Federation of the Phonographic Industry (IFPI), in 2018, the global recorded music market grew by 9.7%. It is the fourth consecutive year of global growth and the highest rate of growth since IFPI began tracking the market in 1997.
Decades ago, people often said that the music industry was a sunset industry. The introduction of cheap compact disk (CD) duplicating machines and digital audio coding format such as MP3 had led to the growth of piracy in music recording. In a 2007 policy report by Institute for Policy Innovation, the estimated loses due to piracy were:
· $12.5 billion in total output annually. Output includes revenue and related measures of economic performance.
· the U.S. economy loses 71,060 jobs. Of this amount, 26,860 jobs would have been added in the sound recording industry or in downstream retail industries, while 44,200 jobs would have been added in other U.S. industries.
· U.S. workers lose $2.7 billion in earnings annually. Of this total, $1.1 billion would have been earned by workers in the sound recording industry or in downstream retail industries while $1.6 billion would have been earned by workers in other U.S. industries.
· U.S. federal, state and local governments lose a minimum of $422 million in tax revenues annually. Of this amount, $291 million represents lost personal income taxes while $131 million is lost corporate income and production taxes.
The music industry continued to lost ground from 2001 to 2014, especially in the form of Physical sales such as CD and Vinyl. This, however, started to reverse in 2015. The revenue of online streaming grew nearly 460% in just 4 years!
Several factors have contributed to the reversal of the declining trend.
1. More users are listening to music online thanks to cheaper online cost. Coupled with the advancement of technology has made the detection of pirated content online easier.
2. User friendly interface by music platform provider such as Spotify, YouTube and Apple Music enabled on-demand streaming. Users can create their favourite playlists easily.
3. Artificial intelligent (AI) suggested contents are fulfilling. Users have broader access to the music genre that suits their taste.
4. Subscription based provides cheaper solution than buying physical forms.
5. Larger user based from various part of the world.
6. Royalty collections is more transparent thanks to online streaming. Data are readily available.
7. Stronger authority enforcement on countering piracy contents.
While many people relate music industry to music distribution platform such as Spotify, Apple Music and YouTube, they are just part of the value chain. A basic music industry framework could be depicted as:
Music must be created, produced, manufactured, reproduced, and distributed in order to reach a consumer, thus constituting the value chain, defined as “a sequence of activities during which value is added to a new product or service as it makes its way from invention to final distribution” (Botkin & Matthews, 1992 cited in Waltman, 2011, p. 26).
The “Creation” block consists of artists, composers, musicians and producers; the “Production” block consists of music labels such as Universal Music Groups, Sony Music and Warner Music Group while the “Dissemination” block consists of YouTube, Apple Music and Spotify etc.
This series of “How to Value Music Industry?” will analyse each block in the value chain, providing valuation opinion of each segment in the music industry. Last but not least, to identify the investment opportunities in the music industry. Stay online!