With 2014 snuggled firmly inside the history books, the numbers prove that physical and digital downloads are being replaced by on demand streaming. According to Nielsen, such streaming surged 54.4% this year while all genre total album sales (physical and digital) stalled -11.2%.
Percentages however, can be misleading. Imagine an extra large and individual size pizza each cut into six slices. If you were hungry and could only have two slices, which pizza would you want them served from? Of course! One sixth of an extra large pizza is much more to eat than the one-sixth slice from the itty bitty personal pie.
In the above example, streaming’s 54.4% gain sounds encouraging until one realizes its revenue share is just pizza economics — a larger share of a much smaller pie — especially for publishers and writers.
Strategy Analytics analyst Leika Kawasaki writes in a 12/23/14 report, “Streaming is, in many ways, a discovery engine. Consumers can access millions of songs by listening to ads or paying a low fee costing less than an album and discover music. The beauty of streaming music, however, ends there. The rest is a complex and non-transparent business, which is failing to offset retail (physical and digital) losses.”
Nielsen’s year end report concludes that album consumption contracted 2% in 2014. That’s including physical, digital track/album downloads and streaming. (TEA=track equivalent album; 10 tracks= 1 album. SEA=stream equivalent album; 1500 streams= 1 album. Assumes $.005 per stream royalty. 1500 X $.005=$7.50.)
TEA and SEA Can Mislead Publishers
TEA and SEA attempt to make everything equal, but, their economic significance is not the same for all players. When a physical or digital album is purchased the label/artist and publisher/writer receive revenue for all ten songs. That means that a publisher with two songs on the album can rely upon getting paid for those two songs with each physical or digital album unit purchase. TEA and or SEA attempts to approximate an album sale by summing ten track sales or 1500 streams into one album unit, but the economic impact for publishers is quite different. All ten songs on the album are not automatically credited. In fact, it is likely that most of the TEA/SEA “album” sales are for the hit single, leaving the owners of the other songs with much less revenue. TEA and SEA conversions serve record labels and artists pretty well, but can be quite misleading for publishers and songwriters.
Miscellaneous Factoids (Nielsen)
1. Smartphone penetration reached 76% of US Mobile subscribers by Oct 2014.
2. After growing its 18-34 audience Jan.-June and scoring its all-time best audience share in June 2014, country radio ended the year on a downtrend.
3. Country artists are completely absent from the 2014 Top Ten lists for Vinyl Albums, Digital Songs, Top Radio Songs, Total On-Demand Streams (audio + video) and Top Digital Albums. Eric Church, however, earned a #10 spot on the Top Albums list. Where country shined was on the Top CD Albums list which featured appearances from Garth Brooks, Luke Bryan, Jason Aldean and Brantley Gilbert proving that country fans are still fond of plastic discs.
4. Country consumers still prefer Albums (11.8%) and Track Downloads (12.0%) over Streams (6.4%)
5. Radio continued to be the number-one all genre source of music discovery.
6. On average consumers annually spend $109 on music activity. Live Music tickets were 35%, CD purchases 12%, and paid online streaming just 3%.
7. Total Country Albums vs LY -8.8% 33.258 million; (LastYear 36.459 M)
8. Country Tracks vs LY -17% 135.6 million; (LY 163.3 million)
Will 2015 be the year when the discussion moves away from the streaming royalty split to focus on the fact that the pizza we are eating from is continually shrinking? US paid streaming subscriptions barely total 8 million. How long (if ever) will it take to reach the 70-100 million subs at $9.99/mo. that will be needed to fund the industry? Also troubling is the average monthly rate is falling due to an increasing number of discounted deals.
Isn’t it time to shift the discussion away from simply rearranging the deck chairs on the Titanic and concentrate on finding a better business model? This writer’s The Digital Solution presents an alternative business model for the collection and distribution of streaming royalties. It was recently written about by Digital Music News Publisher Paul Resnikoff who called it, “A rational solution to the streaming royalty crisis.” What’s your solution? Let’s get the discussion underway….