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Graph of the week

Graph of the week

11-01-2019 | Insight

Music industry revenues over time

  • Jack  Neele
    Jack
    Neele
    Portfolio Manager

The music industry had its heyday in the 1990s. After the arrival of the CD, halfway through the 1980s, the industry saw steady growth because consumers were willing to spend more and more money on music. Making your own recordings on cassettes was a thing of the past, as CDs not only offered good quality but were also much more user friendly. The growth stagnated, however, with the birth of the internet and illegal download sites such as Napster – partly because at an average price of around EUR 15, CDs were still quite pricey.

The introduction of Apple’s iTunes further accelerated that decline, as instead of buying a whole album, consumers could now buy cheaper, individual tracks. In the space of around ten years, music industry revenues halved and stabilized at below USD 10 billion.

But now consumers are slowly starting to spend more money on music again. If you look carefully at the above graph, you will see that the industry experienced a small revival in 2016. This growth is entirely due to the emergence of streaming services such as Spotify and Apple Music.

Subscriptions

Various factors have contributed to the success of these services. Firstly, today’s consumers are more willing to take out a subscription. Just look at how popular video-streaming services such as Netflix, meal delivery providers such as HelloFresh and even flower delivery companies like Bloomon have become.

The convenience of these services is another factor. They are very easy to use on all kinds of devices (iPads, smartphones and, in the case of music services, even in the car) and usually cost around EUR 10 per month. While subscribing to such a service was also easy in the past, canceling your subscription was a real hassle. It often meant having to call the company (and be put on hold for ages) or even send written confirmation. The new subscription services are a breath of fresh air by comparison, as they can be canceled with one click of a button.

Analysts now expect that streaming services will bring about a long period of growth for the music industry (see below). The spectacular growth seen in recent years is likely to slow somewhat, but further annual growth of around 20% has nevertheless been factored in for the coming five years.

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The estimated revenue (and growth) of streaming services worldwide

At this rate, the peak seen in the 1990s may be within reach again halfway through the next decade. Whether the new golden age of the music industry translates into exceptional returns for music providers remains to be seen, however. But for the first time in several decades, at least the future looks bright again.

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