Advertisement

Gideon Spanier: Streaming war ahead as the Brit Awards celebrate industry revival

Singer Ed Sheeran is due to perform at the Brit Awards 2018: Getty Images
Singer Ed Sheeran is due to perform at the Brit Awards 2018: Getty Images

Pass the champagne! Order more fruit and flowers. The good times have returned to the music business as it gathers for The Brit Awards, the UK industry’s biggest night of the year, at The O2 tonight with Ed Sheeran and Dua Lipa due to perform.

The three major, global record companies, Universal Music, Sony Music and Warner Music, have all been reporting their financial results over the past few weeks and they have posted some of their best figures in at least a decade.

It’s all thanks to the boom in streaming and subscription revenues, which rose by upwards of 30% last year at each of the three majors and helped to drive overall revenue growth by more than 10%.

Streaming has saved the recorded music industry, after nearly two decades of pain as piracy, Apple’s iTunes and then social media turned the business upside down.

The turning-point came in about 2014. Until then, record company chiefs had been pinning their hopes on digital downloads to offset the decline in physical sales but recorded music revenues kept sliding.

Things changed when Spotify and other streaming services began to gain traction. Downloads collapsed as consumers discovered the joy of renting music for an unlimited time, instead of buying a collection of songs and albums to own.

The shift has been dramatic. Universal’s annual revenues from streaming have trebled in three years and generated 43% of turnover last year compared with just 17% in 2014. By contrast, revenues from downloads have dropped by a third in the same period to make up just 15% of sales last year against 28% three years earlier.

The other major labels have reported similar trends. Physical sales still contribute about a quarter of turnover — thanks in part to the vinyl revival — and licensing and merchandising make up the remainder.

Streaming has become popular because it’s user-friendly and ad-free subscriptions are good value at around £10 a month. The Netflix generation have shown they are willing to pay for content (or get their parents to foot the family’s bill).

The major record companies each have a significant market share and a big catalogue of songs that the subscription streaming platforms want — even if the royalty payments aren’t as high as the labels or artists might like.

Universal, which agreed new deals with Spotify, Apple Music, Ten Cent and Facebook last year, talks about the financial benefits of “an increasingly competitive and dynamic market for music among the biggest tech platforms and music services in the world”.

The record labels continue to grumble about YouTube’s so-called “Value Gap” as they claim the ad-supported video site “does not return fair value” to the music industry. But, as is the case in other parts of the digital media industry, the music companies have concluded the real money lies in subscription, not advertising.

The pressing question is which of the subscription platforms will emerge as the winners. Spotify has passed the 70 million mark for paying subscribers, well ahead of Apple Music and Amazon Music, but it lacks its rivals’ financial firepower and is considering a float.

The balance of power between the record companies and streaming platforms is finely balanced for now, but it is certain to shift in the latter’s favour.

The streaming services have a huge amount of data on listening habits and music managers talk about how streaming services have become more important than radio stations when it comes to launching a record.

Technology also means enterprising artists can build a following themselves through streaming without a record label and then cash in through live performances.

But ultimately it still takes skill and resources to find and nurture talent and help it to go global.

That is why analysts at Liberum Capital published a recent note that was bullish about the enduring role of the record label in the music eco-system.

The party is back on.

Gideon Spanier is global head of media at Campaign