RIAA’s 2017 End Of Year Report: A Cynical Take [Op-Ed]

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NEW YORK (Hypebot) — While the end of year numbers from the RIAA’s Revenue Stats may seem positive on their face, with talk of double-digit growth. There is some suspicion on just how rosy these numbers actually are once you dig beneath the surface.

By Faza, this first appeared on The Cynical Musician

Last week saw the release of News and Notes on 2017 RIAA Revenue Statistics. Naturally, I was keen to have a look and thought it would be apt to offer some thoughts on the matter.

The headline news, as you no doubt have heard, is Double-Digit Growth! Any growth would have been nice back when TCM was in peak form, so now I can lay off the negativity, right?

Well, not quite.

These days, my economist instincts tend to take a back seat to my accountant instincts whenever someone starts throwing sums of money around (years on the job will do that to you) and the first thing that caught my eye was that the 16.5% figure everyone’s quoting is for the retail amounts…

Now, retail to accounting is what net is to residuals – a fiction. What interests us isn’t what the customers are paying at the counter, but rather how much of that money winds up in our pocket. The retail figure has all sorts of third-party add-ons – not least, the margins applied by retailers (including our favourite company: Spotify). However, the report helpfully supplies the wholesale revenue, as well.

It is this part of the equation I propose to focus on, since it is much closer to the actual money labels get to play with (including such niceties as paying royalties and promoting our music).

On the wholesale side, the picture is somewhat less rosy. Total revenue for 2017 is reported at $5.9 billion, about 13.5% up from 2016′s $5.2 billion. Not terrible, but not as good as we’re led to believe.

The other soundbite you’ll likely have heard is that the industry is back to 2008 levels. I’m not sure if that’s something to be particularly thrilled about – that happens to be the year that I started writing this blog because I thought the industry was in the dumps with no end in sight. Ten years of doldrums sure changes ones perspective, don’t it?

Leaving that aside, I’ve a sneaky suspicion this bit of news isn’t actually true.

Here’s where the economist instincts kick in again. Whenever we want to compare money amounts between two different points in time, it is imperative we do it in real dollars – in other words: we have to account for inflation, because one dollar was worth more (in terms of purchasing power) in 2008 than it was last year.

Having tracked down the RIAA 2008 Year-End Shipment Statistics, I see that the reported Total Value was $8,420.2 million – slightly below the nominal value reported for last year.

But what’s that in real terms?

To the Inflation Calculator! Running the numbers, I find that 8.4 billion 2008 dollars is worth 9.94 billion 2017 dollars.

So, no. We’re not back at 2008 revenues – last year’s revenue was worth only 87% of the total for 2008.

With the aggregates out of the way, we can zoom in on some details. Eyeing the breakdown by format, we see that streaming is now the uncontested ruler at 65%. We can also readily see that this growth came about at least partly through cannibalizing unit sales – especially in the permanent download sphere. All very much as predicted years ago. Downloads and physical sales now account for roughly the same portion of total revenue – 15% and 17% respectively – but since downloads are declining much faster than physical sales – almost 25% v. not quite 4% – its likely that physical will be with us long after downloads are a memory.

This shouldn’t come as a surprise to anyone. Streaming offers pretty much the exact same experience as listening to music files, so anyone who told you that streaming wouldn’t eat downloads was either clueless or telling porkies.

Physical, on the other hand, is… interesting. I have made it abundantly clear over the years that I am a fan and now I can demonstrate why.

Across the digital domain – from subscription streaming to downloads – we see unit sales changes track the revenue changes almost percentage point by percentage point. This is decidedly not the case with physical.

CD unit shipments may have declined by 10.3%, but revenue only fell 6.5%. Vinyl shipments grew 5.3%, but vinyl revenue grew 9.3%. Most notably, other physical (including such exotic formats as cassettes, vinyl singles, SACDs and DVD Audio) saw shipments decline around 5%, but revenue actually grew almost 20%.

How do we explain such striking results? Elementary, My Dear Reader.

Ever since the iTunes Music Store launched, the industry had its digital pricing dictated to it by outside parties. Needless to say that neither Steve Jobs, back in the day, nor Daniel Ek these days, has our best interests at heart. With physical, the industry has a lot more to say in terms of pricing their products and this allows for revenue maximizing strategies that simply won’t be available in the streaming future everyone seems so set on.

This sets a cap on possible industry revenue, of course. As streaming accounts for an ever greater part of industry revenues, the more we are forced to accept the terms dictated to us. Also, we should always keep in mind that streaming will reach a saturation point. Once everyone has a subscription, there’s no more growth to be had, period. I sincerely doubt we’ll make back the post-Napster losses till then.

This future is not inevitable, no matter what anyone would have you think. Lest we forget, it is we – the music industry in general – that hold the keys to the kingdom. Folks like Spotify think they’ve built a valuable product, but the truth is that without our music it is worthless. We can set the terms – if we so choose.

That is unless the streamers manage to convince legislators to enshrine their POS business model in an equally POS bit of legislation, such as the Music Modernization Act…

But that’s a story for another day.

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