As Downloads Dip, Music Executives Cast a Wary Eye on Streaming Services

October 20, 2013

As Downloads Dip, Music Executives Cast a Wary Eye on Streaming Services

By BEN SISARIO

As sales of CDs plunged over the last decade, the music industry clung to one comfort: downloads continued to sell briskly as people filled their computers and iPods with songs by the billions. Now even that certainty seems to have disappeared, as downloads head toward their first yearly decline. So far this year, 1.01 billion track downloads have been sold in the United States, down 4 percent from the same time last year, according to the tracking service Nielsen SoundScan. Album downloads are up 2 percent, to 91.9 million; combining these results using the industry’s standard yardstick of 10 tracks to an album, total digital sales are down almost 1 percent.After enjoying double-digit growth in the years after Apple opened its iTunes store in 2003, song downloads began to cool several years ago. But the rate of decline this year — weekly sales began to lag in February, and the drop has accelerated rapidly in recent months — has caught the business by surprise.

Music executives and analysts disagree about exactly what is causing this slowdown, but many cite streaming music services like Pandora, Spotify and YouTube as one possible cause. After a decade, consumers may be losing interest in buying downloads and instead turning to the streaming services, which make millions of songs available at the tap of a smartphone app, free or for a few dollars a month.

Even as downloads decline, however, some experts say that rapidly growing income from streaming may finally help turn the overall industry toward positive results. Last year, streaming and subscription services generated $1.03 billion in revenue, up 59 percent from the year before, according to the Recording Industry Association of America, and many of these providers are reporting robust growth this year.

Whether streaming has had any demonstrable effect on sales remains intensely debated, though. Do Spotify and YouTube, which let users choose the songs they play, cannibalize sales, or lead listeners to songs they may buy later? And do Pandora and other radiolike providers — Apple introduced a similar feature, iTunes Radio, last month — compete with sales at all, or just with radio?

“We just don’t know that consumers are abandoning one to go to the other,” said David Bakula, a senior analyst at Nielsen.

Some experts also point to the rise of Android devices as a possible factor in the drop in downloads. While phones using Google’s operating system now represent a majority of sales, Google’s Play store remains eclipsed by iTunes, by far the dominant music retailer.

Some research also suggests that Android users may spend less money on music than Apple customers. The NPD Group, a market research firm, reported this year that 54 percent of iPhone users — whose operating system is iOS — said in a survey that they were likely to buy music, compared with 30 percent for Android customers.

“As Android expands its market, and if Android users are less likely than iOS users to pay for music, we should expect to see evidence of changes in digital sales,” said Glenn Peoples, the senior editorial analyst at Billboard.

No publicly available sales data directly supports this premise, however, and others dispute it. Mr. Bakula, the Nielsen analyst, said that “whether or not Android users download less than iOS users, there’s no reason to think that that is having any impact on year-over-year sales.”

A Google spokeswoman declined to comment.

Whatever the reason for the decline in downloads, many analysts and executives say they are bullish on the industry’s prospects, largely because of the rise of streaming.

“A variety of access models are collectively generating a healthy amount of revenue for labels and artists,” said Jonathan Lamy, a spokesman for the recording industry association. “We’ve still got a ways to go, but when you add up revenues from all of these models, in the aggregate, they represent real revenues now and prospects for a bright future.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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