Tuesday 31 March 2020 5:44 am

Music to the ears: How the music industry has been revived by the digital age

Stephen Duval is co-founder of 23 Capital, a specialist capital and solutions provider to the sport, music and entertainment sectors.

A lot has changed in the music industry from the position it found itself in 20 years ago. In 1999, with Westlife, Fatboy Slim and Britney Spears at the top of the charts, global music revenues peaked at more than $39bn. 

A decade later, the emergence of digital technology and file sharing had brought about a dramatic decline in the once hugely profitable industry. By 2009, revenues in the US had fallen to just $6.3bn a year, down from $14.9bn 10 years before. Lady Gaga, who scored three number ones that year, was not as lucky financially as her pop predecessors.

However, shortly before this, a new company emerged that would eventually reverse the fortunes of the ailing industry. Towards the end of 2008, a little-known Swedish entrepreneur named Daniel Ek launched Spotify.

Despite being a freemium service — free to use but with a paid-for premium offering — Spotify has now passed 100m paying users. By 2012, digital sales topped physical sales for the first time. 

Now the long-term outlook for the music market looks strong. Streaming is growing at a double-digit pace, and research by the International Federation of the Phonographic Industry predicts that revenues could almost double to over $100bn by 2030.

 Streaming is attractive to investors because it provides a passive, consistent and recurring revenue that requires very little oversight. About 80-90 per cent of all modern music rights do not need any active management, while strong copyright laws and a highly predictable cash flow give investors a protected and non-correlated asset class, in a market that is enjoying more creativity and newly created content than ever before. 

The amazing success of Spotify and the other streaming giants such as Tidal and Apple can largely be attributed to the fact that the user experienced is a vast improvement — for many people’s tastes — on going out and buying music, or indeed downloading it. A subscription provides consumers with access to a huge on-demand content library of more than 30m songs, at a low inclusive point of entry. 

Global smartphone penetration is another growth factor. It can often be forgotten that Apple’s iphone began life as the ipod, which kickstarted the digital era for music consumers. 

Encouraged by this, tech giants Amazon, Google and Apple are now jostling for home court advantage. Devices like the Echo are proving to be another effective pathway to streaming income. Some 28 per cent of in-home connected device owners say the device drove them to a streaming subscription purchase according to Wall Street Research, and 55 per cent of all households in developed markets are expected to have a smart speaker by 2022. 

As well as this, 562m streaming enabled cars are expected to hit the roads by 2022, with in-car listeners representing a brand new $8bn incremental revenue opportunity. 

Moreover, success in the mature streaming music markets of the USA and the UK has seen Spotify and its rivals now chasing emerging opportunities in China, Brazil, Mexico and India, as well as late adopter nations like Germany and Japan. Developed markets generated $3bn in streaming revenue in 2016, while only $514m was realised by emerging markets. 

But with the subscriber base in these emerging markets estimated to grow by a massive 850 per cent in the next decade, industry streaming revenue could grow from $3.5bn to around $28bn in 2030.

For the number one artists of today, such as Stormzy, Ed Sheeran, and Billie Eilish, the picture is clear. Digital technology was once the single greatest threat to the music industry. Now, it is the very thing driving its success.

Main image credit: Getty