The Rock&Roll gymnast is pleased to pen my 4th annual update of “The Musical Artist P&L in Today’s Digital Streaming World”. In the evolving recorded music marketplace, 2017 global revenue totaled $17.3 billion, up 8.1%1. Just last year, growth of 5.99% was noted for being the fastest rate of growth since The International Federation of the Phonographic Industry (IFPI) began tracking the market in 1997.
In the United States, 2017 U.S. Record Industry sales revenue totaled $8.7 billion2 on 778 million units sold, at a total average unit price of $8.13. Please refer to footnote below which explains key adjustments and calculations3. In comparison to 2016, sales revenue increased a record 17%, annual growth not seen since 1994. The average unit price increased 45% on strong growth in digital streaming subscriptions.
Ironically, the digital music format that sent the global recorded music industry plummeting by more than half between 1999 and 2014, is now leading the revival. 35.3 million U.S. consumers paid for interactive digital streaming subscriptions in 2017, nearly 6 times more than the 6.2 million who paid in 2013. Associated revenues hit $3.5 billion in 2017, up from just $350 million in 2013. For the same period, the digital streaming services have been successful at maintaining an annual average paid subscription rate of about $100.
In 2017 total U.S. streaming revenue reached $5.7 billion, up significantly from $1.5 billion in 2013. Globally, total streaming revenue reached $6.6 billion in 2017, up from $1.4 billion in 2013. Growth is expected to continue through 2030, but at a slower rate, as evidenced by initial slowing in 2017. Analyst Lisa Yang’s team at Goldman Sachs is forecasting global streaming revenue to reach $34 billion by the year 2030, comprised of $28 billion paid subscription, $6 billion ad supported. Goldman projects the music industry will hit $40 billion by 2030.
This brings me to the crux of my update this year, ad supported revenue by Google’s YouTube. Below you will find multiple graphs that tell the story of important trends in the U.S. recorded music industry. This year, please focus your attention immediately below on the U.S. Digital Streaming Revenue Trend graph, in particular the red colored slice “On Demand Ad Supported Streaming (Primarily YouTube).
Total On Demand Ad Supported Streaming revenue, which is primarily YouTube, totaled $659 million in the U.S. in 2017, compared to paid subscription streaming revenue of $3.5 billion. YouTube currently has three times the number of users as Spotify, Pandora, and SoundCloud combined4. It takes 1,449 streams on YouTube to generate a $1.00 to content creators, compared to 230 streams for Spotify paid, and 133 streams for Apple Music4. You should also know that, as to the claim of music discovery, 81% of YouTube users listen to music they already know4. Google’s YouTube, which has formidable political capital in the United States, takes advantage of the Safe Harbor Provision in the 1998 Digital Millennium Copyright Act, a law enacted before user content upload platforms even existed. Google earned pre tax income of $27.2 billion in 2017, despite the fact that a $2.7 billion fine was levied by the European Commission because Google’s display and ranking of shopping search results and ads infringed European competition law. A key determinant in Google’s P&L success is “paid clicks”, which improved 32% net in 2017, as reported in their current annual report, with ‘growth in YouTube engagement ads as a noted driver in improved paid click margins.’ Google has maintained impressive gross profit margins around 60% since at least 2013. Google 2017 Annual Report.
From an economic perspective, since 1999 the recorded music industry has experienced a significant transfer of wealth to the digital technology industry. While the balance is beginning to shift back to recorded music, this shift will never be complete until the issue of YouTube ad supported revenue is properly addressed. Why does this matter? First, music is created and performed by individuals we call songwriters and artists, small businesses who used to make a good living, and today are struggling to survive. The foundation of the U.S. economy is the middle class, whose wealth is continually eroding. Gen X and young baby boomers are on track to be the first generation to retire worse off financially than earlier generations. More on retirement here. This trend in the long run is not sustainable for the U.S. economy. World Economic Forum on income disparity.
It should also be noted that Trump’s tax plan will do nothing for these small business owners. No one will be watching more YouTube videos because they have more disposable income. And if they do, under the current scenario, Google will reap the lion share of those profits, not content creators. Further, Google has consistently enjoyed a 19% effective corporate tax rate since at least 2013, so there will be no new goodies to pass on to the minions.
Second, without songwriters there is no music. It will not happen tomorrow, but in the long run this will also affect the live music industry, a $10 billion industry in the U.S. in 2017. Eventually it will also affect the streaming services, as the well of new inventory will dry up.
To wrap it up on a positive note, landmark legislation recently introduced “The Music Modernization Act”, which will improve the bottom line for everyone from little songwriters to the mighty streaming services, is well on it’s way to becoming the law of the land. It has already passed unanimously in the U.S. House of Representatives, and is currently open in the U.S. Senate after passing unanimously by the Senate Judiciary committee. This is all due to the strategic and creative behind the scenes negotiations by tireless music creator advocates, including some exceptional women, all founding Board members of Songwriters of North America (SONA), the little engine that could! I give you Dina LaPolt Esq., President LaPolt Law and SONA Legal Counsel; Michelle Lewis SONA Executive Director and ASCAP Board Director; Kay Hanley, multi talented recording artist, songwriter, and composer; and Shelley Peiken, platinum selling songwriter and two time Grammy nominee. Bravo ladies and thank you!
Google, you’re next!
To lead us out, in celebration of the profound ability that music has to generate peace in our world, I’l leave you with this epic 80’s rock ballad performed live at the Moscow Music Peace Festival in 1989. Enjoy!
Cinderella – Nobody’s Fool Live from Moscow
Cover photo credits: Slash, taken by Cynthia Drew of her favorite photo from the 2018 Limited Edition Appetite For Destruction Locked and Loaded box set.
1 All Global data is sourced by the IFPI 2018 Global Music Report.
2 All U.S. data is sourced by the Recording Industry Association of America database, with all $ figures expressed in inflation adjusted dollars, and with minor historical adjustments made each year to reflect final sales figures and any accounting adjustments. RIAA Sales Database.
32017 U.S. total units sold of 778 million includes 35.3 million paid subscription streaming. Also note that certain forms of revenue cannot be quantified in units sold and are therefore excluded in the average price calculations. This includes Limited Tier Paid Subscription, On-Demand Streaming (Ad-Supported), Sound Exchange Distributions, Other Ad-Supported Streaming, and Synchronization revenue.
4YouTube stats courtesy Dina LaPolt Esq. President LaPolt Law and Instructor UCLA Extension course “Legal and Practical Aspects of the Music Business”.
