A tipping point has now been reached. During the first six months of 2014 more music was sold in digital form than as physical recordings. This has happened never before. Digital sales now account 58 per cent of all music sales.

Still last year 60 per cent of music was sold as physical recordings. There’s a change the current figures will turn around by the end of year because Christmas time has been traditionally good for (physical) record sales. Yet the change in music consumption patterns is clearly visible.

The Rise of Streaming Services

The figures reflect the rising popularity of streaming services such as Spotify, and on the other hand the demise of CD and DVD sales. The growth of digital sales has not wholly replaced the diminishing record sales, which is why total music sales decreased 11 per cent from last year.

The development of record sales in Finland is very similar to international currents – music sales are declining, but digital sales are increasing.

Last year, international digital music sales were worth about $5.9 billion dollars. The revenues of streaming services increased over 50 per cent at the same time, and for the first time exceeded the billion dollar mark.

The streaming services are generally easy to use and affordable, which has also decreased the number of illegally downloaded music. With its 10 million paying customers Spotify has practical made downloading illegal music irrelevant. Also, at the same time, the number of paid downloads on iTunes has decreased as well.

Spotify’s problematic business model

The aforementioned situation does not, however, mean that artists – or even streaming companies – would be making loads of easy money. The main beneficiaries of the new situation are, perhaps surprisingly, the record companies. Yes, the same dinosaurs, who opposed digital innovation and online distribution at all costs.

Songwriters currently receive only a small portion of what they used to make and artists need couple of mega-hits before they earn significant financial income from digital streaming. The services themselves are running on a loss, Spotify itself has lost $200 million dollars.

Record companies gain income from royalty payments that streaming companies by for using their catalogues. Services may be required to pay up to 70 per cent in royalties.

Record companies have also ownerships in many streaming companies. Twenty-five per cent of Spotify, for instance, is owned by the three largest record companies.

Spotify’s business model is itself quite problematic. If the company would purchase rights to each song with a stable price, every new user would bring more income to the company. But Spotify does not do business like this. Instead, stable percentage of the income is spend on royalty. In reality this means that doubling the amount of users also doubles the amount of bills Spotify pays.

Will patrons save music?

There’s been talk about music industry’s IT bubble. The discussion have resulted from the observation that the business models of the streaming music services do not seem to be working.

According to one estimate users should be prepared to pay considerably more on the music they are listening through streaming services than they pay for CDs, in order for the business model to work.

So, paid downloads and CD sales are decreasing, but streaming services are not able to substitute the loss in artist’s earnings. The situation is quite alarming from the perspective of musicians.

During the last hundred years musicians have had the ability to record their creative output on a disc and make a living by selling the mass-produced discs. Now this possibility seems to be slipping away from a large percentage of artists.

Money people see that the solution for securing sufficient income for artists involved more – not less – new online technology. Several innovative patron services, such as Patreon, have been created to help artists dealing with the new situation. The services enable citizens to support their favorite artists financially.

Interestingly, this represents a return to the old ways – after all, patronage has been for centuries the way to enable artists to pursue a life of art. The concept that artists should sell their as mass-produced goods to secure a living is quite modern. And in the digital world it may soon be old-fashioned.

Recent Posts