Digital Music: The Key to the Future Success of the Music Industry

Unless some major and unforeseen occurs in the near future, I think it’s very clear that digital music is the future of the music industry. It’s why we have so many pieces about it here on the Sage Audio mastering blog. How that digital future will manifest itself remains to be seen, as it may not be through any of the channels out there right now, as obviously this is a new aspect of the music industry still finding its footing and changing so quickly it can be hard to keep up.

But while all of the above are just some abstract and vague predictions, we recently came across some solid statistics on where digital is going, and why it will be the future of music. But first, it is necessary (if slightly painful) to review the current state of the music industry.

Holding Steady At Best

All of the following numbers come from an article on Billboard.biz by Tom Silverman, founder of Tommy Boy Entertainment. The article is written under the premise that the music industry can become a $100 billion industry, which may be possible but isn’t as interesting to me as the statistics he presents.

First, the bad news: 2012 was the 12th year of flat or declining music sales. During those 12 years, artist rosters, signings and investments have been cut by about 50 percent, and music job losses are about 60 percent over that time.

While album sales have been in decline for some time, singles sales have been skyrocketing thanks to digital music stores like iTunes and Amazon. But though 1.4 billion singles were purchased in 2012, that number is only expected to go up to 1.5 billion this year and will begin to decline after that.

The current retail value of the worldwide music industry is $23 billion, and with sales slowing, the best the industry can hope for, when factoring in inflation, is that it can hold steady at these numbers.

Digital is the Bright Spot

But after going through all of those numbers illustrating the current (and future) dire straits of the music industry, Silverman shows us the light that’s beginning to flicker right now that may end up lighting our way out of the tunnel.

You guessed it, it’s digital.

As Silverman puts it, the “sales revenue” portion of the music industry is currently failing, but the “non sales revenue” which includes most aspects of the digital music industry is growing quickly, and currently makes up 25 percent of all music revenue. Here’s some statistics from the article to get excited about (and are the reason we’re featuring this article):

• Music synchronization license revenue continues to rise.
• Advertising-revenue sharing is in the top 10 earners with YouTube, Vevo generating substantial and rapidly growing revenue with others joining the party.
• Music cloud lockers like iTunes Match, Amazon Cloud Drive, Google Music, Xbox Music and Samsung Music Hub are yet another new revenue center for the music business.
• Music performance revenue nearly hit half a billion dollars in 2012 at SoundExchange with projections of a billion dollars of revenue in four years.
• Subscription revenues are the biggest growth area. Spotify recently announced US paid subscription over 1 million. Cricket/Muve announced over 1.1 million subscribers. Rhapsody with PCS/Metro has well over a million subscribers and Xbox music is also in that ballpark. Rdio, Samsung Music Hub, Slacker, and Beats Electronics' Project Daisy launching now will also garner millions of subscribers.

Silverman also points to the ability of satellite radio to charge higher subscription rates than any of the above online services, and did so without any of the perks of being online (social interaction, cloud service, etc.).

The Future of the Music Industry

His point is that a $100 billion music industry is possible, but only if all the players in the industry join forces to embrace digital (and all “non-sales” revenue) as the future, similar to the effort in the late 1980s to make CDs the new format of choice -- which worked.

Whether his prediction is true or not will be told as the future plays out. But unless we see major changes in sales trends, he is correct that the industry needs to embrace the digital revolution that, according to these numbers, is already happening.