The music industry has evolved profusely over the last 20 years. The chart above originally published by the Visual Capitalist is the best visual I’ve seen showcasing these changes.
Back in 1999 when the music industry peaked, there were 279 million people in the United States and just over 6B people in the world.
The $21.5B music industry revenue peak (already adjusted for inflation) is equivalent to just over $7 and $3.50 being spent a year by the average person in the US and the world respectively.
I’m not sure whether the chart includes the mark-up at retail (i.e. if Sam Goody sold a CD for $15, would the “music revenues” be $15 or the lower amount paid to the industry after the retail outlet’s profit?).
Projecting the consumer spent less not more, it’s safe to say the average person in the US was buying 1 CD at most even during the peak of the industry.
The world population has grown by over 25%, now over 7.5B, and the US population is now over 325MM. Vinyl, cassettes, and CD’s faced extreme manufacturing, shipping and handling challenges when it came to mass distribution. However, high speed internet and mobile devices are more of a necessity beyond music and therefore their adoption continues to rapidly expand across the globe.
While the music industry still has a long way to go to get back to its peak and soar past it, the roadmap is there – One month’s subscription in the US is equivalent to the entire amount the average person was spending back in the industry’s heyday!
The two greatest opportunities for the music industry are –
1/ the obvious continued global expansion of subscription services
2/ the prospect of a potential bundling from a tech conglomerate choosing to underwrite the cost of music streaming directly into phone, cable, or other services the company already sells – In order for this to occur in the near future, Spotify would likely have to be acquired by one of these companies.
The latter scenario could hypothetically be great for short term revenue through increasing music subscriptions substantially by automatically including them in pre-existing subscription packages.
Assuming the parent company acquiring Spotify planned to utilize streaming as a competitive advantage to sell its other products or services, the company would likely not have as much incentive to grow the base of music subscriptions as Spotify does today with these subscriptions serving as the company’s chief revenue stream.
Furthermore, the conglomerate could pose a risk to the industry in attempting to extremely discount subscriptions in exchange for their immense purchasing power from covering the costs of the subscriptions.
As Vivendi decides the next financial steps for Universal Music Group’s future, the company can turn to Goldman Sachs report released last year, which predicted the music industry will eclipse 40B by 2030, with over 28B predicted to come from paid subscriptions to streaming services on the back of an estimated 847MM paying subscribers – Those calculations would have the average subscriber spending just over $3 per year.
However, in their bold predictions, Goldman Sachs discloses they own a large share of Vivendi (UMG’s parent company) stock and provide investment banking services to the company. The company also had a stake in Spotify and supported the IPO process. In other words, it’s a good business decision for Goldman Sachs to publish a promising prospect for future growth of the industry considering its investment in some of the largest music companies in the world.
Whether we reach the height Goldman’s report predicts by 2030 or not, the recorded music industry is on its way back to full health and has a very prosperous future ahead.