Denice R. Preston
The music industry is an excellent illustration of how businesses must constantly alter and adapt to change. After unbundling and piracy caused 15 years of declining revenue, The global music industry is growing, primarily because of streaming.
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The audio recording business is growing again. In the words of the International Federation of the Phonographic Industry (IFPI), the recording industry’s music revenue increased in 2015 after almost two decades of declines due to piracy. The industry’s revenues peaked at $14 billion in 2014. However, the figure climbed to $20 billion in 2019, at levels similar to 2004.
Streaming Is Driving Music’s Growth
The ease and convenience of streaming music, in conjunction with the ease of use offered by smartphones and smartphones, have fueled the growth of recorded music. IFPI reports that global streaming revenue increased at 42% CAGR (compound annual growth rate) from 2015 to the record industry’s 9.9% CAGR. The chart below from IFPI illustrates the changes in the revenue structure of the industry and how the growth in streaming has outpaced the declines in physical and download formats over the last decade.
In the meantime, the worldwide music publishing business has proved robust throughout economic growth cycles in the past decade. As per the International Confederation of Societies of Authors and Composers (CISAC), Publishing revenue (performance fees) increased by EUR6.5 billion in 2013 and EUR8.5 billion in 2018. Will Page, the former chief economist at Spotify, estimates that the worldwide publishing industry is worth $11.7 billion. CISAC collections, plus estimates of publisher revenue from non-CISAC publishers through Music & Copyright – will be valued at $11.7 billion by 2020.
Despite its apparent widespread use, streaming is still just beginning to gain general use. The following data show how the market is still able to grow:
According to IFPI according to IFPI, there are 341 million worldwide paid streaming accounts as of the end of 2019.
In the words of the Digital Media Association, the U.S. market was home to 99 million streaming subscriptions Subscribers (or 30percent (30% U.S. (or 30% of the American population) at the end of 2019.
For example, in Sweden (the location of YouTube) worldwide, paid music streaming has a penetration of 52%.
In May 2020, Goldman Sachs estimated the total music industry’s revenues (live and recorded as well as publishing) to rise by $131 billion from the $62 billion recorded in 2017. by 2030, which translates to a growth rate of 6. The 2030 forecast significantly increased over the initial estimate of $104 billion announced in October 2016.
Music royalty payments stem from intellectual property (I.P.) song rights. The most commonly used kinds of I.P. are trademarks, copyrights, patents, and trade secrets. Music – which includes composition, lyrics, and recordings of sound, is protected by copyright laws.
WHAT IS MUSIC COPYRIGHT?
If music is converted to paper (e.g., recording or written on sheet music), Copyright is established. Additional protections are provided by law when the U.S. Copyright Office licenses the work. Copyright grants the owner(s) exclusive rights over a specified period. In general, rights run for 70 years following the author’s death.
Copyright for sound recording can be described as “a fixation of a series of sounds” associated with the recording. The copyright to sound recordings is held by an artist who typically assigns the right to use their record label.
Music composition copyright refers to the music’s written composition (music and words) from the songwriter(s). The copyright for musical compositions is the property of the songwriter, who typically gives ownership and representation to the music publisher.
NEW LICENSING OPPORTUNITIES
There are a variety of licensing options for owners of music I.P., which are only beginning to appear. Short-form video (e.g., TikTok and Triller) and fitness e-fitness (e.g., Peloton, for example), and various platforms (e.g., Facebook) are only beginning to license music I.P. from rights holders, which are creating new opportunities for future commercialization. For instance, in July 2020, the National Music Publishers’ Association (NMPA) signed an agreement to license TikTok. This platform has approximately 100 million U.S. active users per month and 700 million active worldwide monthly users. Before signing the licensing contract, the NMPA stated that around 50 percent of the market for music publishing was not licensed with TikTok. Other major platforms, including Facebook and Peloton, recently signed licensing agreements for the first time with music rights holders. These agreements provide exciting new avenues of revenue for music I.P. owners.
REGULATORY CHANGES
Most music publishing rights are subject to regulation, and the recent announcements regarding regulation have benefited rights holders of music I.P. and their interests. For instance, U.S. musical composition mechanical royalty rates are controlled by the Copyright Royalty Board (CRB), composed of three judges that decide on the rates and terms of music royalty for a certain period. In January 2018, the CRB ruled that subscription-on-demand streaming platforms (e.g., Spotify and Apple Music) must raise the share of the revenue that songwriters and publishers receive by 44 percent to 15.1 percent of their income during the five years from 2018 through 2022. Although several streaming companies are currently suing the ruling, the ruling could significantly impact the composition of mechanical royalty for U.S. rights holders.
EMERGING MARKET GROWTH
Emerging markets, including China and India, are beginning to make a dent in the cost of music I.P. According to the IFPI’s 2018 Global Music Report, China was the seventh-largest music recording market, while India was not even among the top 10 with the world’s two most significant populations. Goldman Sachs’ “Music in the Air” analysis shows that the penetration rates for paid streaming in China and India are currently at 4 3% and 3%, respectively. Additionally, the chart from Goldman illustrates how little money is now being spent per capita to purchase music from emerging countries compared to the developed market.
Despite the gap in expenditure, IFPI reported a substantial 2019 recorded music revenue increase within China and India of 16 percent and 19% respectively, which is attributed to improvements in the field of copyright enforcement and the adoption of streaming. If this trend persists, China and India will continue to grow as revenue sources for the music industry.
Who Are the Key Music Industry Players?
The music publishing and recording industries are populated with many players. Records labels, as well as publishing houses, are the most well-known investors in this space. They represent performing artists and songwriters and assist them in creating and marketing new music. Some examples include Universal Music, Sony Music, Warner Music Group, and BMG. In addition, music royalty funds are focused on acquiring existing rights to music with an established track record of steady cash flows. The formation of music royalty funds has grown significantly over the last few years. Some of the most well-known royalty funds are Hipgnosis Songs Fund, Round Hill Music, Kobalt Capital, Tempo Music Investments, and Shamrock Capital. In a few instances, these funds have contracted songwriters and musicians to release new songs blurring the distinction between the traditional publishers and labels.
