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MUSIC

Stream on: Why the music industry's not celebrating its big digital windfall just yet

Daniel Ek, CEO of Spotify, speaks to reporters at a news conference on May 20, 2015, in New York.

Daniel Ek, CEO of Spotify, speaks to reporters at a news conference on May 20, 2015, in New York.

DON EMMERT/AFP/GETTY IMAGES

Two decades ago, Canadian indie darlings Sloan released One Chord to Another to huge fanfare, racking up the best sales of the band's career. Today, the Halifax-turned-Toronto group is touring in support of that album's 20th anniversary – and can no longer depend on sales alone.

"We've really realized touring is our bread and butter," songwriter-guitarist Jay Ferguson said from his tour bus. The band has put out a few "boutique" releases in the past few years – most recently, a special vinyl box set of One Chord – "which we can take on tour, and make money that way." It's a helpful strategy, because now that fans are streaming music instead of buying it, he said "we've noticed less money" than ever before from record sales.

Streaming started as trickle, and now it's leading a sea change: Last year, services such as Spotify and Apple Music helped push the global recorded music industry into significant year-over-year revenue growth for the first time since the Napster-led industry crash. But this growth has been at the expense of both physical and digital music sales.

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So the International Federation of the Phonographic Industry (IFPI), a lobby group, is making a plea to legislators worldwide to take action against music services that don't adequately compensate rights holders – artists and the companies that bankroll them – with hopes that the record industry can return to the kind of sustainable revenue it had in the sales-heavy nineties.

Licensed subscription streaming services, such as Spotify and Apple Music, have been difficult for the industry to adjust to, with artists generally earning fractions of pennies per stream. IFPI is arguing for a greater share of income from free on-demand services that rely on ads to make money – including YouTube, which often sees unlicensed content uploaded from users – as they generally pay musicians and rights holders even less than subscription services.

In its Global Music Report, released Tuesday, IFPI contends that nearly 900 million people find music on such ad-supported services; yet, they contribute to only 4 per cent of global music revenue. This, in turn, draws users away from properly licensed services, whose subscription tiers brought in an estimated $2-billion (U.S.) in revenue last year.

"While the development is positive, we should be growing much faster, as the streaming business is exploding," Edgar Berger, Sony Music Entertainment's international chief executive officer, said during a Tuesday conference call with reporters. "If we continue to recover at the same speed as last year, it would take us more than 10 years to reach the market level of predigital disruption."

Both IFPI and Music Canada released their 2015 revenue numbers on Tuesday. Worldwide, recorded music income rose 3.2 per cent to $15-billion after flat growth in 2014, while Canada saw even better growth, at 8.3 per cent year-over-year – the first positive growth here since 2011.

It's too early to celebrate this sudden success, said Amy Terrill, executive vice-president of Music Canada – especially given a "rough" 2014, which saw year-over-year revenue fall by 11 per cent.

"We had been a very underserved market in terms of premium subscriptions, so 2015 was the first year with much stronger offerings," she said in an interview, referring to the entry of both Spotify and Apple Music.

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TOP 10 RECORDING ARTISTS OF 2015

  • 1. Adele
  • 2. Ed Sheeran
  • 3. Taylor Swift
  • 4. Justin Bieber
  • 5. One Direction
  • 6. Coldplay
  • 7. Maroon 5
  • 8. Sam Smith
  • 9. Drake
  • 10. The Weeknd

Canada continued to punch above its weight in global visibility. Justin Bieber, Drake and the Weeknd were among the top 10 global recording artists.

IFPI representatives said they arrived at the 3.2-per-cent growth figure by recasting 2014 revenue in last year's weaker currency. What had been $14.97-billion in sales was revised down to $14.5-billion, making this year's sales look rosier by comparison.

Digital music analyst Mark Mulligan, a frequent skeptic of reported industry figures, said he's wary of the report's accuracy because of this and "a whole bunch of anomalies," including discrepancies in revenues for different types of streaming services.

Catherine Moore, a New York University music-business professor, noticed similar discrepancies, chalking them up to the constant change in measuring tools for music consumption. "I think that's partly why they're reluctant to say, 'Oh look, it went up, it'll continue to go up,'" she said.

The last time the global music industry had significant, measurable growth was 1998, IFPI representatives said, at 4.8 per cent.

Worldwide, 68 million people now pay for streaming music services, usually at $10 a month. Digital-music revenue rose 10 per cent worldwide last year, for the first time outpacing revenue for physical discs and vinyl, in large part thanks to a 45-per-cent rise in revenue from streaming services. (Including the high-flying vinyl sector, physical sales accounted for 39 per cent of revenue, versus digital's 45 per cent.)

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Streaming, though, has come at a cost. Despite the record-breaking sales success by Adele, physical-sales revenue fell 4.5 per cent and downloads plummeted 10.5 per cent in 2015 – the same year that Apple, the world's largest music retailer, launched a streaming service of its own.

Its arrival in Canada, with the addition of Spotify in 2014, pushed streaming revenue here up nearly 150 per cent, according to Music Canada.

Income from paid streaming services far outweighs the revenue from the ad-supported free versions that some companies offer. In the case of Spotify, this number can be glaring when compared with its user numbers: more than 75 million people use the service, but only 30 million pay for it. And, according to IFPI, these "freemium" tiers and services such as YouTube are estimated to contribute no more than 10 per cent of 2015's $2.89-billion in global streaming revenue.

Music Canada plans to address these discrepancies when the Copyright Modernization Act comes up for review in 2017. In the United States, hundreds of artists, including Arcade Fire and Neko Case, recently put their voices together to ask for changes to the Digital Millennium Copyright Act for fairer compensation.

The organization has long been an advocate for fairer music copyright legislation. "I don't think we have, as a community, really united on the issue until now," Ms. Terrill said. "There's definitely a growing consensus to get this fixed."

Last year also brought forward a curious trend that may encourage piracy or slow the adoption of streaming: withholding albums from some or all services. Adele almost entirely avoided streaming for 25, the world's bestselling album last year, with 17.4 million units sold. Taylor Swift, on the other hand, gave preference to Apple Music for 1989. And, for more than a month earlier this year, Kanye West's The Life of Pablo was available exclusively on the high-definition audio streaming service Tidal.

Asked by The Globe and Mail about exclusive releases, record executives on the IFPI conference call acknowledged that they were a concern, but inevitable. "Short-term [exclusivity] windows associated with marketing campaigns can be part of the positive market development story we're seeing with [streaming] services, but in general I think we all really want to see that music subscribers are getting access to most of the music they care about," said Michael Nash, Universal Music Group's executive vice-president of digital strategy.

"We are advocating music be as widespread as possible," Sony's Mr. Berger said.


IN DEPTH: JOSH O'KANE ON THE MUSIC INDUSTRY

The music industry’s new song and dance As revenue from digital downloads declines, the music industry is pinning its hopes on the all-access, flat-fee model of streaming. The trouble is, no one really knows where it’s going to go.
Sure, Apple Music has Taylor Swift, but it’s not perfect In trying to be everything to everyone with its new streaming service, Apple has mucked up the details.

MORE FROM THE GLOBE AND MAIL

Canadian musicians had an ‘incredible year’: Junos president

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