Time to party again?

A few weeks ago I had a speech at the University of Music and Performing Arts in Munich to give students a deeper dive into the actual status of the music industry.

Here are my thoughts in a nutshell:

• Revenue is growing for the 3rd consecutive year and has reached level of 2008
• Significant growth in digital driven by streaming
• Decline in physical is slowing down
• Live business is driving growth for performing rights
• Sync rights deliver solid revenue

So, overall it is a good time for the music industry but is it time to party again, lean back and wait for a bright future?

In my view it would be very shortsighted to do so because there are already some bigger clouds on the horizon:

A)   The Value Gap

There are many sources for music on the internet. Obviously they differ in regards of user experience, convenience and pricing. But high-level users can still get the music they want without paying directly for it. That means that the license fees per user show a huge variety amongst the different platforms for almost the same type of content. According to the Digital Music Report the average revenue per user on streaming service is around $20 the revenue per user on youtube is $1.

Without fixing this gap streaming services will start to push on significant price reduction and artist will continue to complain on streaming revenues

B)   The Lost Generation

While the majority of people reading this article have learnt at one point in their live that music has a certain value and needs to be paid for the next generation has a complete different experience. I-f you look at kids aged 12-17 today they probably consume even more music than every generation before them but could do this without paying a Cent. Why? Because music is available for free to them – either via ad-funded services like Spotify Free or via youtube. In combination with stream-ripper software every video could be converted into an MP3, saved as and listened to as well as distributed/shared with friends as often as they want. What makes us or the music industry believe that these kids are willing to pay $10 per month in 2-3 years from now?

C)   Market Consolidation

It has already started and will continue. Smaller streaming service will or have to give up to compete and the diversity of streaming service will probably shrink to 3-4 players. After decades where the music industry had been dependent on very few distribution partners for their content in the physical world or with downloads this could become even a bigger threat as these companies will be global players and no small local alternatives will be available. Given experiences form the past this could lead to price pressure and carries the risk of lesser diversity of music featured in the services.

As said before this is my personal view…happy for comments and discussion.