Music streaming revenues surge and investors like the beat

  • By Tom Ball and Eric Auchard,
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Online streaming services like Spotify (SPOT) and Apple Music (AAPL) have become the recording industry’s single biggest revenue source, overtaking physical sales of CDs and digital downloads for the first time, a trade group said on Tuesday.

The rapid growth in streaming music services in recent years has led to a recovery in the fortunes of the global recorded music industry, which enjoyed its third year of positive revenue growth, according to a report by industry body IFPI.

Figures released in IFPI’s Global Music Report 2018 show total recording music revenues for 2017 rose to $17.3 billion, up 8.1 percent from the previous year.

Improving finances have led to a tentative re-evaluation of the music industry by stock market investors, who had shied away from the struggling media category for much of the past decade due to a wave of piracy by users and major technology shifts.

Just in the past month, streaming music subscription leader Spotify of Sweden held a record-setting public stock offering. France’s Vivendi (VIV), the owner of Universal Music Group, the world’s biggest music label, said last week it was mulling a stock market listing of its wholly owned music unit.

Tencent Music Entertainment (TME), which attracts three-quarters of China’s booming music streaming market, has been reported by The Wall Street Journal to be eyeing a listing later in 2018. TME is controlled by internet giant Tencent (TCEHY).

Industry leaders say the growing adoption of paid music streaming services is enabling the market to reach new regions of the world while helping weaning a generation of music fans away from free or pirated music.

“We estimate that only half the world’s population lives in a thriving music environment and we want to bring the streaming revolution to all of it,” Stu Bergen, from Warner Music Group, told reporters in London.

During the 15 years ending in 2014, music sales plunged by 40 percent to $14.3 billion after music file-sharing services such as Napster ravaged sales of CDs while the rise of download services like Apple iTunes failed to offset those declines.

IFPI - The International Federation of the Phonographic Industry - charts the recent recovery to the rise of streaming music. It said there were 176 million users of paid streaming subscription services in 2017.

Streaming subscriptions in 2017 accounted for 38 percent of recorded music revenue, up from 29 percent in 2016. The streaming business expanded 41 percent, offsetting a 5 percent decline in physical sales and a 20 percent drop in download revenue.

Despite these improving finances, revenues for 2017 are still only 68.4 percent of the market’s peak in 1999, IFPI said.

Latin America and China saw the biggest market growth, with a rise in overall music revenue of 17.7 percent and 35.3 percent respectively. The United States, Japan, Germany, Britain and France are the world’s top five music markets by revenue. Brazil ranked No.9 and China was No.10 in 2017, IFPI said.

IFPI renewed calls for governments to tackle the “value gap” between the value created by some digital platforms such as Google’s YouTube (GOOGL) for their use of music and what they pay those creating and investing in it. Rival Facebook (FB) has been gearing to launch its own music video sharing service.

“Things are looking good but there’s a structural fault in the system. Until we fix it, it will always be a struggle,” said IFPI Chief Executive Frances Moore.

Ed Sheeran ranked as the top global recording artist overtaking Drake, who slipped to No. 2 and Taylor Swift who ranked third, according to the IFPI.

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