State of the Digital Music Industry 2014 -- An Insider's View -- Levi Shapiro

Music is everyoneamp8217s favorite example of digital disruption done wrong After peaking at 38 billion revenue more than a decade ago the industry stabilized last year at 165 billion Now the focus is on digital music GROWTH In the first half of 2013 43 percent of all album sales were digital up from 38 percent the year before Nielsen Stream volume soared 25 this year with more than 100 billion audio and video streams In fact digital will drive growth this year in 10 of the 20 largest global music markets Perhaps most promising is the role of Internet radio with the majority of Americans already listening to some Internet radio Edison Research 2014 will be the year in which Internet radio leads the music industryamp8217s growthVickie Nauman North America President of 7Digital and a keynote speaker at the upcoming MATI conference wwwadtechsummitcom believes music licensing and royalties need to adapt to the digital era amp8220Music licensing remains a sticky overly complicated tar pit business models that provide sustainable value to all stakeholders along the chain have not yet been achieved the fire hose approach of inundating the average listener with tens of millions of songs is a failed user experienceWe operate in a high complexity low margin business Our supply chain is problematic And the marketplace shifts at a rapidfire pace Scale can theoretically be the best antidote for high complexity low margin operations however without economies of scale in underlying music royalties it ensures flaws in even the largest music servicesamp8221One anomaly worth noting is Japan where a bundling strategy helped increase CD sales last year by 3 to 43 billion making it the worldamp8217s largest music market Idol groups such as AKB48 and Nogizaka46 bundle physical CDs with unique items like tickets to paid events key chains posters tote bags etc Last year 80 percent of Japanese music sales came from physical media vs 34 percent in the US IFPIThe idol troupes three rotating teams of 20 girls each adapted to the digital era by involving fans in all phases of the starmaking process The model has now been exported to Shanghai SNH48 and Jakarta JKT48Headway has certainly been made but as a global industry the industry is still at a nascent stage of building a sustainable and thriving marketplace for digital music Digital is now the majority of revenues in markets such as the US India Norway and SwedenInternet radio is providing royalties to thousands of independent artists Tim Westergren SCO and founder of Pandora Radio the most widely used Internet radio service says quotInternet radio has gained its footing as connected devices are ushering in a whole new era of personalized listening The impact on consumers and independent artists experiencing large scale exposure for the first time ever is fantastically excitingquot Of course this came at a cost to Pandora which pays more than 50 of its revenue for royalties and has yet to earn a profit Internet radio was the driving force that allowed SoundExchange the nonprofit responsible for collecting royalties on behalf of copyright holders and record labels to distribute 462 million in digital performance royalties in 2012 58 more than 2011The last word goes to Vickie Nauman amp8220In 2014 we can expect fresh entrants in digital music streaming services appealing to the casual music fanquot she says quotWe will also see new devices and services offering music with higher audio quality than our standard compressed MP3samp8221 The one thing we wonamp8217t see is complacency You can hear more from Vickie on February 11th in Tel Aviv at MATI wwwadtechsummitcomLevi Shapiro is a Partner at TMT Strategic Advisors a research and strategy firm focusing on the technology media and telecom sectors He can be reached at levitmtstratcom or via twitter levshapiroRead all Levi39s MediaBizBloggers commentaries at Unleavened MediaCheck us out on Facebook at MediaBizBloggerscomFollow our Twitter updates at MediaBizBloggerThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaBizBloggerscom management or associated bloggers MediaBizBloggers is an open thought leadership platform and readers may share their comments and opinions in response to all commentaries

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