Music Market Focus:
U.S
MUSIC MARKETS, MARCH 18, 2019
Music Market Focus: U.S | 2
THE U.S. MARKET IS NOT ONLY THE LARGEST MARKET IN THE WORLD. THE INFLUENCE OF THE U.S. SPREADS FAR BEYOND THE COUNTRY'S BORDERS, SECURING ITS PLACE AS A TRENDSETTER OF THE GLOBAL MUSIC INDUSTRY. AS OF MARCH 2019, OVER 70% OF SONGS ON SPOTIFY’S GLOBAL TOP-50 PLAYLIST WERE RECORDED BY US-BASED ARTISTS. AMERICAN ACTS ARE LEADING THE INDUSTRY, BUT, AT THE SAME TIME, THE U.S. MARKET ITSELF IS OFTEN LEFT SOMEWHAT UNDER-EXPLORED BY THE INTERNATIONAL MUSIC COMMUNITY. IT IS EASY TO WRITE IT OFF AS ENTIRELY GLOBALIZED – WHILE THE INDUSTRY IS ACTUALLY FULL OF SURPRISES AND LOCAL QUIRKS WHEN YOU GET TO THE BOTTOM OF IT.
Music Market Focus: U.S | 3
Sizing the U.S. industry
It’s not always clear where to draw the line when sizing the music industry. The broad definition will include not only the actual customer’s expenses (on concert tickets, streaming subscriptions and so on) and B2B licensing cash flows, but also ad-revenues of radio and other music-related media. That definition will put total revenue of the U.S. market at whopping 43$ billion. Under a more conservative approach, however, only a fraction of radio revenue will be included in the music industry in the form of royalty payments. In the U.S., however, even that won’t be the case, as American radio stations don’t pay out performance royalties to recording artists, stating that they provide “free publicity and promotion to the artist”. So, adopting a more precise definition, the industry’s revenue can be estimated by summarizing the cash flows of the following core businesses:
Music Market Focus: U.S | 4
U.S. Music Industry Revenues by Source, 2017 Source: RIAA, Citigroup, PwC, MIDiA Research
Music Market Focus: U.S | 5
Recording industry:
12,3 11,76
10,37
8,77 7,80 7,00
2005
2006
Music Market Focus: U.S | 6
2007
2008
2009
2010
7,1
20
• The recording industry is growing, and revenue is up 16,5% in 2017, adding up to $8,8 billion in retail value. • That growth is primarily powered by the rise of streaming services. Over the same period, streaming revenue went up by 43%. • In 2018, streaming accounted for 75% of the total recording revenues.
US Recording industry revenues, 2005-2017, US$ billion Source: RIAA
8,80
13
7,02
7,01
011
2012
2013
7,49 6,95
6,87
2014
2015
2016
2017
Music Market Focus: U.S | 7
Streaming is King The U.S. market seems to be utterly reliant on streaming as the music consumption medium. The latest BuzzAngle report states that it accounts for as much as 85% of all recording revenues, while the global average is at around 38%. The U.S. has completed its transition to the new music distribution paradigm: Drake’s Scorpion takes the top spot on the BuzzAngle's end-year chart with 500 thousand CD sales vs. 6 billion ondemand streams, and A Boogie Wit Da Hoodie’s SZN reaches the #1 on Billboard with just 823 album sales. However, don’t rush to the conclusion. The structure of music consumption is not that simple.
Music Market Focus: U.S | 8
Radio in the digital age
AM/FM Radio
188,627,040,000
13,429,098,583
There is a big chunk of consumption that is not reflected in the industry revenues. As previously mentioned, terrestrial radio doesn’t contribute directly to the industry’s revenues, as the U.S. law rules that the promotional effect of airplay is enough to compensate right holders. At the same time, radio remains the most powerful medium in the U.S, reaching 92% of Americans every week. This reach is not only high but also stable – those ~90% figures are persistent over the last decade. To put it in perspective, according to Nielsen’s research, throughout 2017 the average weekly consumption via radio was about 14 times bigger than the aggregated consumption through audio streaming services (including all sites and internet applications designed to provide audio content, e.g., Pandora, Spotify, iHeartRadio).
All Streaming
Audio Listening in the U.S in Q2 2017 by Medium, Avg. Weekly Minutes of Total Use Source: Nielsen
Radio broadcasts, of course, are not exclusively limited to the music programming: news, talk shows and other non-music content were always the vital components of airplay. Still, though, the role of radio as a consumption channel can’t be underestimated. Essentially, it remains the primary music medium in the U.S. up to this day. But what are the reasons for such strength of radio, the media that seems to be outdated in the country with the highest streaming penetration rate? Music Market Focus: U.S | 9
The Future of Radio Although radio is the first medium for audio consumption, the combined revenue of the U.S. stations remains stagnant over the last years, as the growth of digital advertising and the slow decline of airplay cash flows balance each other out. This stability is expected of the mature market such as radio industry, but at the same time, as the iHeart bankruptcy showcases, even some of the largest players on the market struggle to find a stable financial model. 2006
18,1 17,9
2008 2009
16,5 13,3 14,1
2011
14,1
2012
14,3
2013
14,3
2014
14,3
2015
14
2016
14,1
2017
13,9
Radio station revenues in the U.S. 2006-2017, $US billion, by source
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Online
2010
Source: BIA/Kelsey
Over-the-air
2007
The challenge of the radio industry is not that the revenue or even consumption is down, but that the streaming has been growing in double digits for years in a row now. On top of that, the age profile of the radio audience is almost diametrically opposite to the demographics of streaming users: while 16-25 y.o is the top streaming census, radio thrives within the demographics from 35 y.o. and up. This rapid aging of the audience is often referred to as the main threats of the industry, as the question of whether or not radio stations will be able to engage younger listeners remains open. In that regard, If the radio fails to take on the streaming generation, we might see a rapid decline in the sector’s revenues in the coming years.
43%
FM/AM & Satellite Radio
16% 19%
Total 16-19
37%
44%
55%
20-24 63% 64%
25-34 35-44
12%
Other Internet Radio
11%
45-54
17% 16% 14% 10% 8% 9%
55-64 65+ 27%
On-demand Streaming
15% 11% 8%
24%
33%
49%
60%
Time spent listening to music via selected sources in the U.S. 2018, by age group Source: Audiencenet, Music Business Association. Music Market Focus: U.S | 11
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