Revenue from paid downloads is falling faster than anyone anticipated.
According to PwC projected figures shared with Digital Music News, revenue from physical formats is falling at a (compound annual) rate of —12.3%. That’s a drop from $1.8 billion in 2015 to just under $1 billion in 2020. But that’s nothing compared to paid download: according to the forecasted figures, paid music downloads will fall at a (compound annual) rate of —14.3%, from $2.3 billion in 2015 to just over $1 billion in 2020.
These projections suggest that by 2020, the revenue that paid downloads and physical music generate for the music business will be nearly neck-and-neck.
DMN has plotted the revenue from 2012 to 2015, as well as the projected revenue from 2016 to 2020 as per PwC’s forecast. And what’s clear is that the ‘revenue gap’ between paid downloads and physical is reducing dramatically year-on-year.
Downloads replaced CDs, but is streaming replacing everything?
Of course, as digital downloads increased, physical sales decreased. But now, paid digital downloads are declining precipitously after a relatively short-lived ascent. Revenue from paid downloads in the US is predicted to fall from $2.3 billion in 2015 to just over $1 billion by 2020.
That means that revenue from paid downloads will be sliced in half in just 5 years.
Music Market in US (US $ in billions)
What’s interesting here is that Spotify launched in the US in July of 2011, giving music consumers the option to listen to millions of songs legally through the free ad-supported tier. With that, we saw a mass movement away from illegal sites, but we also saw a massive decline in paid downloads in the following year (and every year after). After all, why would music consumers pay for a download when they can listen for free?
In recent years, the drop has been less severe: according to the figures, paid download revenue fell from $2.87 billion in 2012 to $2.32 billion in 2015. PwC also predicts that paid downloads will fall as low as $1.07 billion in 2020, a quick return to the all-important billion-dollar threshold.
But the PwC figures also show a simple correlation: as streaming revenues increase, revenue from paid downloads, mobile music and physical formats decline. This is not to say that the rise of streaming is the only factor affecting these revenue streams for the US music industry. But there are definitely reports that provide strong data showing that free streaming services have negatively impacted paid downloads. These PwC figures also support this notion.
Add the rumors of Apple eliminating music downloads from iTunes in as little as 2-3 years, and that drop could be more severe. Meanwhile — here in 2016 — streaming is already the biggest single revenue generator for the US recording industry, and one of the only increasing forms music consumption alongside live music and vinyl.
(Image by Henry Burrows, Creative Commons, Attribution-ShareAlike 2.0 Generic, CC by-sa 2.0)