The industry’s digital revenues grew by 6.9 per cent in 2014 to US$6.9 billion and are now on a par with the physical sector.
There was steep growth in both revenues and user numbers for subscription services, continued revenue growth from ad-supported services and still sizable income from download sales in many markets. Globally, digital now accounts for 46 per cent of total industry global revenues and in four of the world's top 10 markets, digital channels account for the majority of revenues.
Subscription services, part of an increasingly diverse mix of industry revenue streams, are going from strength to strength. Revenues from music subscription services — including free-to-consumer and paid-for tiers — grew by 39.0 per cent in 2014and growing consistently across all major markets.
Global brands, such as Deezer and Spotify, continued to reap the benefits of geographical expansion and there were some notable new entrants into the streaming market: YouTube launched its subscription service Music Key in late 2014 and Apple made its US$3billion acquisition of Beats in preparation for its own streaming service roll out. The subscription model is leading to more payment for music by consumers, many of whom appear to be shifting from pirate services to a licensed music environment that pays artists and rights holders. The number of paying subscribers to subscription services rose to 41 million in 2014, up from just eight million in 2010.
Revenues from advertising-supported streaming services, such as YouTube and Vevo, are also growing — up 38.6 per cent in 2014.
Record companies have adapted their business to a model increasingly based on access to music, and not only ownership of music. This is reflected in the growing share of subscription and streaming revenues as a percentage of digital revenues globally. The industry now derives 32 per cent of its digital revenues from subscription and ad-supported streaming services, up from 27 per cent in 2013.
Despite the growth of streaming, digital downloads remain a key revenue stream. Downloads still account for more than half of digital revenues (52 per cent) and are helping to propel digital growth in some developing markets such as South Africa, Venezuela, Philippines and Slovakia. Revenues from downloads globally fell by 8.0 per cent in value, the decline being offset by increases in streaming and subscription revenue to generate overall digital revenue growth in the majority of markets.
Physical format sales
The industry is becoming less reliant on income from physical format sales, with the sector’s share of industry revenues declining from 60 per cent in 2011 to 46 per cent in 2014.Despite the continued transition to digital, physical music sales are still an important revenue source through gifting and deluxe box sets and in some key territories, such as Germany and France, account for more than half of the market.
Although global physical sales value declined by 8.1 per cent in 2014, Germany only experienced a 1.5 per cent fall in physical sales and there was growth in a number of South American countries including Paraguay and Venezuela.