According to the Global Music Report
2019 by International Federation of the Phonographic Industry (IFPI), in 2018,
the global recorded music market grew by 9.7%. It is the fourth consecutive
year of global growth and the highest rate of growth since IFPI began tracking
the market in 1997.
Decades ago, people often said that the music
industry was a sunset industry. The
introduction of cheap compact disk (CD) duplicating machines and digital audio
coding format such as MP3 had led to the growth of piracy in music recording. In a 2007 policy report by Institute for
Policy Innovation, the estimated loses due to piracy were:
·
$12.5
billion in total output annually. Output includes revenue and related measures
of economic performance.
·
the
U.S. economy loses 71,060 jobs. Of this amount, 26,860 jobs would have been
added in the sound recording industry or in downstream retail industries, while
44,200 jobs would have been added in other U.S. industries.
·
U.S.
workers lose $2.7 billion in earnings annually. Of this total, $1.1 billion
would have been earned by workers in the sound recording industry or in
downstream retail industries while $1.6 billion would have been earned by
workers in other U.S. industries.
·
U.S.
federal, state and local governments lose a minimum of $422 million in tax
revenues annually. Of this amount, $291 million represents lost personal income
taxes while $131 million is lost corporate income and production taxes.
The music industry continued to lost
ground from 2001 to 2014, especially in the form of Physical sales such as CD
and Vinyl. This, however, started to
reverse in 2015. The revenue of online
streaming grew nearly 460% in just 4 years!
Several factors have contributed to the
reversal of the declining trend.
1.
More
users are listening to music online thanks to cheaper online cost. Coupled with the advancement of technology
has made the detection of pirated content online easier.
2.
User
friendly interface by music platform provider such as Spotify, YouTube and Apple
Music enabled on-demand streaming. Users
can create their favourite playlists easily.
3.
Artificial
intelligent (AI) suggested contents are fulfilling. Users have broader access to the music genre
that suits their taste.
4.
Subscription
based provides cheaper solution than buying physical forms.
5.
Larger
user based from various part of the world.
6.
Royalty
collections is more transparent thanks to online streaming. Data are readily available.
7.
Stronger
authority enforcement on countering piracy contents.
While many people relate music industry
to music distribution platform such as Spotify, Apple Music and YouTube, they
are just part of the value chain. A
basic music industry framework could be depicted as:
Music must be created, produced,
manufactured, reproduced, and distributed in order to reach a consumer, thus
constituting the value chain, defined as “a sequence of activities during which
value is added to a new product or service as it makes its way from invention
to final distribution” (Botkin & Matthews, 1992 cited in Waltman, 2011, p.
26).
The “Creation” block consists of
artists, composers, musicians and producers; the “Production” block consists of
music labels such as Universal Music Groups, Sony Music and Warner Music Group
while the “Dissemination” block consists of YouTube, Apple Music and Spotify
etc.
This series of “How to Value Music
Industry?” will analyse each block in the value chain, providing valuation
opinion of each segment in the music industry.
Last but not least, to identify the investment opportunities in the
music industry. Stay online!
Reference:
3. https://kunnskapsverket.org/sites/default/files/reports/the_music_industry_ricardo_alvarez_2017.pdf
