Uh-Oh: A New Report Says Downloads Are Flattening ‘In All Key Markets…’

There goes your digital breadwinner.

Actually, there’s an argument that platforms like Spotify actually boost downloads instead of killing them.  But a new report from Strategy Analytics suggests that exactly the opposite is happening.  In fact, the research group sees downloads maturing and flattening in most key global markets, just as streaming starts to surge.

Get the picture?

We’ve found the data on streaming cannibalization inconclusive, especially since downloads represent such a large percentage of digital sales.  But Strategy sees this shifting pretty quickly.

“Although downloads still account for nearly 80 percent of online music revenues, this market is maturing and spending is flattening in all key territories.”

Ed Barton, Digital Media at Strategy Analytics, which published the findings this morning.  

Taking things a step further, Strategy Analytics envisions streaming becoming the growth breadwinner of the digital space, while everything else goes level or southward.  Meaning, for every dollar gained by downloads, the are multiples more happening on the streaming side.  “Streaming revenues will increase 40 percent in 2012 – to $1.1 billion – while download revenues will increase by 8.5 percent to $3.9 billion,” the group continues.  “Therefore, streaming services will take over as the leading revenue growth engine for the music industry in 2012, generating an extra $311 million – $8 million more than downloads at $303 million.”

  • Save

Meanwhile, the bulky CD keeps waning, but this is one stubborn format.  Earlier, we projected that the format would effectively kick the bucket by 2020, though worldwide, Strategy sees physical formats maintaining a majority hold over revenues until 2015.  The 50/50 tilt towards digital has already happened in the US and a number of other European markets, though format shifts can be surprisingly uneven across different parts of the globe.

11 Responses

  1. jw

    If I never discovered a new band, I would still pay for a Spotify subscription in order to listen to music I already know & even own. I recently based all of my home theater purchases based on the receiver’s Spotify support, & I could see myself potentially being swayed in a car purchase based on Spotify integration, just so I don’t have to plug my phone in.

    Digital downloads are, comparatively, a pretty bogus proposition: paying $1.39 each time a consumer discovers a new song. The premium streaming model potentially reaches a much, much wider audience, & nets far more per user.

    Of course streaming will cannibalize mp3 downloads, because it’s a 1000% better system. All you have to do is download Spotify & you’re never going to go to iTunes ever again. Cannibalization means adaptation, & the quicker we hit critical mass, the quicker payouts will normalize (maybe that’s conjecture, but payouts certainly won’t normalize without adaptation).

    It’s pretty funny how the industry was terrified of downloads for so long, & hung onto physical cds. Now the industry is terrified of streaming & clinging to downloads. Did no one learn anything in the last decade?

    On top of the broad appeal & potential revenue generated by streaming, it makes grooveshark, megaupload, google, youtube ripping, etc completely obsolete. Streaming is the light at the end of more than a decade of disruption. I really don’t understand why every artist isn’t biting the bullet & throwing all of their support behind streaming.

    • Yves Villeneuve

      Most consumers don’t spend $10 a month on music. Most people think with their wallets and purses. This is true even in the age of zero to limited piracy. If Streaming was the only option consumers would consider it a luxury and resentment will ensue. This is one reason I don’t supply to Spotify.

      Another reason it is a bad business model is it caps revenues from major music consumers.

      Not to forget, most people will move on to the next artist or song once they have filled their tolerance of older music, so the idea an artist will have an endless high revenue stream, download or streaming, is simply not realistic.

      Consider yourself mostly an anomaly.

  2. Travis Bernard

    I don’t support Spotify because of the revenues (or lack of revenues) it pays to indie labels. I also think their selection is very limited (there are a ton of indie labels not using the service).

    My question is: why don’t they just charge more for Spotify a month? If they charged more, they could pay out more to the artists.

    Problem solved?

    • Visitor

      Yes, they could easily charge $250/mo. That would provide at least 25x more to artists, and the only way they can hope to make a livable wage from the service.

  3. kordtaylor

    Hi,

    I think part of all this is obviously generational and if the user cares about/is educated about artist impact.

    As many of us know:

    – the older crowd in particular thinks of owning music based on their legacy approach

    – streaming for some is not an option, and streaming EVERYWHERE is not possible just yet. So buying downloads is the only way they can guarantee they can hear their music

    – streaming can be frustrating, glitchy and expensive in the mobile world

    – it is still hard to fit large libraries onto devices with limited memory (mobile), and there is still some fussiness with tech around replacing your locally stored music files with your “cloud” collections

    – many younger listeners and the larger populace are more focused on the “latest” hit vs. a large library alum tracks

    – most prefer “free”

    – lately folks I know are posting a lot of YouTube links for hearing songs

    So from this I conclude:

    – downloads wont go away too soon

    – streaming will grow

    – unless YouTube starts charging, streaming revenues will not be great

    Thank You,

    – kord

  4. Billy

    “Meanwhile, the bulky CD keeps waning, but this is one stubborn format.” The traditional CD will never die, the quality of digital music is close to crap, nothing compares in quality to analogue like a CD or Vynil. Take photography as an example, why hasn’t film photography died already?
    “format shifts can be surprisingly uneven across different parts of the globe.” Well, if you read the news, you will know that online stores like iTunes and AmazonMP3 are unavailable in all countries, in around 60 countries I believe.

    • jw

      Cds are digital, not analog. A flac file, or a cda file, whether it’s on a cd or on a hard drive or an ipod sounds exactly the same. The reason that “analog” (vinyl, tape) sounds good is because it’s not sampled; it’s continuous sound, & a full spectrum of sound, whereas digital is audio sampling, meaning it’s X amount of dots of sound per second, & the highs tend to distort. Even though we can’t hear the separations or necessarily detect the distortion, it’s taxing on the ears & not as easy to listen to for long periods as an analog recording. But people are used to it now because of the cd.

      Premium Spotify streams are q9 ogg files, which is 320kbps, &, to my ears, it’s pretty hard if not impossible to tell the difference between a cd & 320kbps compressed audio through average speakers at average volume. If you can, to a degree that overshadows the mind blowing convenience of streaming services, then I’m impressed. But your complaints aren’t relevant to the other 99.9% of consumers.

      The CD isn’t a different format than digital audio, it’s simply a piece of plastic that carries it. When Best Buy stops selling CDs & car manufacturers stop installing cd players in automobiles, the cd will, assuredly, die.

  5. TUNE HUNTER

    Streaming = more convenient, more potrable Napster = music for FREE.

    If Spotify will succeed and will convert 20% of the Western population to premium users @ $9.99 they will pull $1.5billion/ month or $18 billion /year. There is no chance for streamers to get 150 million premium users. If they do iTunes an all others will be out of business and music industry will cruse at 18 to 25 billions for ever. (50% of 1998)

    The only hope is in:

    1/Reduction of download price.

    2/Conversion of Shazam, Sound Hound, Gracenote and lirc search engines to discount stores from free ID providers. Labels should spend a fortune to promote those new stores.

    3/Conventional radio as the biggest discovery source should limit RDS display to artist name or just nothing in exchange for royalty free operation. This would stop phone camera/ u-tube/mp3 converter aquisition route and transfer all the trafic to point #2 above.

    Labels! time to wake up or you will be Spotified!

  6. Johnny Pierre

    Streaming music is like chemicals in food…it’s easier, simpler and presented as the only way to go…but it prevents the low end creators of the music of any significant revenue. The way the world is wired today reflects this total lack of the understanding of culture and art. Artists need the support in meaningful ways for what they create. After all, who else is going to explain our dreams to us?

  7. Susan M

    I think that revenue for digital downloads will continue to spiral down with streaming services. That does not mean that they will not be making the same amount of money through other sources. The advertising money will do a good job of offsetting any lost revenue do to digital download decrease.