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Digital Tipping Point: Record Companies To Benefit

Digital Tipping Point: Record Companies To BenefitOvum has found that digital sales will go on to make up almost three quarters of all sales within the next six years, however there will be little variation in spending in the years to 2020.

Ovum expects that the retail value of all recorded music sales will contract this year and next before edging up 0.1 per cent in 2017, after which spending will fall in each of the three years to 2020.

“2015 is a big year for the music industry, with global retail sales of recorded music crossing the digital tipping point,” Ovum music practice leader Simon Dyson commented.

“For the first time, digital spending will top physical sales, amounting to US$11.7 billion this year (compared with US$10.3 billion for physical) and reach US$15.7 billion in 2020.”

With music subscriptions leading way, poised to dominate retail spending for the foreseeable future, record companies are set to benefit given the lower costs involved, with Ovum stating they are expected to register increased earnings annually.

While estimated recorded music spending is forecast to be US$3 billion less in 2020 than in 2010, Dyson noted “the shift from ownership to access has meant manufacturing and distribution costs have been reduced and, with consumers steadily spending more on access services and less on downloads, costs are going to continue to shrink”.

Record companies are expected to make gross income from physical format sales this year of around US$5.2 billion, falling to just under US$3 billion in 2020, with EBITDA also forecast to decrease from US$520 million to US$300 million.

Comparatively, for downloads, gross record company income is estimated at US$2.6 billion in 2015 and US$1.4 billion in 2020, with EBITDA of US$790 million and US$420 million, respectively.

Gross record company receipts from subscriptions/streaming are estimated at US$2.4 billion this year, rising to US$5.4 billion in 2020, with EBITDA from subscriptions/streaming forecast to grow from US$820 million to US$1.9 billion.

In total, gross receipts for record companies from the combined sales of physical, downloads and income from access services are forecast to decline from US$10.2 billion this year to US$9.8 billion in 2020, with EBITDA to grow, as consumer spending on subscriptions rises, from US$2.1 billion to US$2.6 billion.

Ovum states “the streaming sector will be hard pushed to make up for the forecast declines in the buy-to-own formats”.

“Assuming consumers don’t make a sudden rush to access services, no decline in total sales in the coming years may well be the best result the recorded music industry can hope for,” Dyson commented.