Simon Dyson
Simon Dyson

Music Consumption Projections At Best Flat Through 2020

Retail sales of recorded music will see little variation in total spending levels in the years to 2020 despite the rising interest in streaming, according to global analyst firm Ovum's latest forecasts. Spending on digital formats and services will overtake physical formats this year and go on to account for almost three-quarters of all sales in just six years.

According to Ovum's latest research, the retail value of all recorded music sales is expected to contract this year and next before edging up 0.1% in 2017. However, the slight return to growth is forecast to be short-lived and spending will fall in each of the three years to 2020.

Simon Dyson — the research report's author and the editor of Music & Copyright, a newsletter covering global copyright and legal issues of the report — said "2015 is a big year for the music industry with global retail sales of recorded music crossing the digital tipping point." Dyson added that "For the first time, digital spending will top physical sales, amounting to US$11.7B this year (compared with US$10.3B for physical) and reach US$15.7B in 2020."

Music subscriptions will lead the digital charge and will dominate retail spending for the foreseeable future. Record companies are set to benefit most from the streaming gains given the lower costs involved and are expected to register increased earnings annually.

For each of the six years forecast, Ovum has estimated that the overall annual difference in the global retail sales figure will not change by more the one percentage point either way. The biggest annual movement is expected in 2020, with a year-on-year dip of 1-percent.

That there is no anticipated growth in overall consumer spending on recorded music will make difficult reading for the record companies. Moreover, the estimated value of recorded music spending in 2020 is expected to be US$3B lower than it was in 2010. But there is some comfort in the figures. According to Dyson, "the shift from ownership to access has meant manufacturing and distribution costs have been reduced and, with consumers steadily spending more on access services and less on downloads, costs are going to continue to shrink."

Dyson says that "the gross income record companies expect to make from physical format sales this year is around US$5B and this will fall to just under US$3B in 2020. EBITDA is also forecast to decrease, from US$520M to US$300M."

In contrast, for downloads there are no manufacturing costs and only minimal distribution expenses. The gross record company income from downloads is estimated at US$2.6B in 2015 and US$1.4B in 2020, while EBITDA in those years will be US$790M and US$420M, respectively.

The EBITDA share for subscriptions and advertising downloads will be slightly higher than downloads because of lower sales and marketing expenses. Gross record company receipts from subscriptions/streaming are estimated at US$2.4B in 2015, rising to US$5.4B in 2020, while EBITDA from subscriptions/streaming is forecast to grow, from US$820M to US$1.9B.

Taken altogether, gross receipts for record companies from the combined sales of physical formats, downloads, and income from access services are forecast to slip, from US$10.2B this year, to US$9.8B in 2020. However, as consumer spending on subscriptions rises, EBITDA will grow, from US$2.1B to US$2.6B.

Streaming is riding close to the crest of the recorded music wave at the moment with a good number of trade associations reporting high growth figures and rising subscriber numbers. In some countries, access services are more than offsetting declines in sales of physical formats and music downloads. But, given that physical formats – and to a lesser extent single tracks and digital albums – still account for a sizable share of music retail sales, the streaming sector will be hard pushed to make up for the forecast declines in the buy-to-own formats. "Assuming consumers don't make a sudden rush to access services, no decline in total sales in the coming years may well be the best result the recorded music industry can hope for," concluded Dyson.



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