Won’t get fooled again
I’m excited about the return of live music to New York City. I’ve attended several classical concerts in the last few weeks, and in a week or so, I’ll take in a show at the City Winery: Suzanne Vega. I haven’t yet made it back to New York’s amazing jazz clubs—the Vanguard, the Blue Note, Smalls—but I look forward to doing so soon, especially to dropping in on my jazz local, Smoke, when it reopens in a few weeks in new, larger digs.
What I’m most excited about, though, is the resurgence of recorded music.
It has been almost a quarter-century since the Internet almost took down the recorded-music industry. For a thorough account, read Stephen Witt’s book How Music Got Free: A Story of Obsession and Invention, but here’s the story in outline: In the late 1990s, two technologies—the internet and MP3—made it feasible to steal and trade music files. Illegal “file sharing” became a popular pastime. CD pressing plants were infiltrated. Teams competed to see who could put the hottest new music online first (in crappy-sounding, low-rez MP3 files), often before the official CD hit record stores.
Eager to end this existential threat, big music companies panicked. They started suing customers, including old ladies, small children, and pets.
Recorded-music revenues reached a high of more than $14 billion in 1999, as the tidal wave was gaining momentum. A decade later, revenues were half what they had been at their peak.
The music industry started to recover in 2016, at a fast and consistent rate. Revenues grew $1 billion–$1.4 billion each year, according to the Recording Industry Association of America (RIAA), reaching $12.2 billion in 2020, just $2.4 billion below the 1999 peak. RIAA’s 2021 midyear report shows a six-month revenue increase of $1.5 billion over the same period a year earlier—a 27% increase, the largest yet. If those trends continue, US recorded-music revenues may already have reached a new historic peak by the time you read this.
The numbers for vinyl record sales are even more remarkable. Sales of LPs and EPs hit a historic low of $14.2 million in 2005; 15 years later, vinyl revenues totaled $619.6 million. According to the RIAA’s 2021 midyear report, six-month revenues were up 97% over a year earlier—to $467 million for half a year’s sales. Vinyl-record sales could hit $1 billion in 2021. The last time vinyl-record sales exceeded $1 billion was 1985.
(An aside: The last time inflation-adjusted CD revenues were as low as they were last year was 1984, the year after the format’s US commercial introduction.)
However robust its sales growth, vinyl is little more than a footnote. The real story is streaming, supported by paid subscriptions. For several years, subscription-streaming revenues increased by more than $1 billion annually—until last year, when the pandemic limited that increase to a mere $800 million. But if revenues in the second half of 2021 match revenues from the first half, 2021 revenues will increase by $2.2 billion—31% over the previous year. In the quarter ending September 30, both Warner and Universal reported streaming-revenue growth of about 27%. Sony’s increase was 45%.
Those revenue numbers are impressive, but revenues don’t always equal profits. In this case, they do: Warner Music (to choose one example) recently issued financial reports for the quarter and fiscal year that ended September 30. For the quarter, Warner reported $100 million in operating income on revenues of $1.37 billion—a healthy 7.3% return. For the fiscal year, their net income was $307 million. Recorded music is profitable again.
On September 21, 2021, Universal Music held a successful IPO in Amsterdam, ending the day 36% above the original asking price, valuing the company at $55 billion. (As I write this, the company’s market cap is $49.5 billion.)
Does all this mean that the recovery of the recorded-music industry is complete? Not quite, but almost. Except in one instance, the numbers presented above are not inflation-adjusted. Still, if revenues continue to grow at their current rate, the industry should reach an inflation-adjusted all-time high sometime in 2024. And there’s no end in sight.
So much for record companies; what about streaming companies? The only streaming company I’m aware of that reports their streaming revenues in a dependable and consistent way is Spotify. Spotify reported $75 million in operating income in its third fiscal quarter, which ended on September 30. That’s not bad for a company that’s said that it isn’t yet focused on profits. (For the moment at least, Spotify streams MP3. Those MP3 files, though, are much higher quality than the early, low-rez files people traded.)
Why is a profitable industry so important? Here are some reasons: Because it means people are listening to music and spending money on music in economically powerful numbers; that can only be good for hi-fi. Second, because a healthy music industry is the foundation of our hobby. Third, because it means there’s a business model, based on streaming, that’s capable of supporting the industry (hence our music habit) for the foreseeable future.
And yet, there’s one crucial party that’s not yet thriving in the new music landscape. So far in this new, streaming-dominated music system, musicians—the ultimate source of all this goodness—are once again getting short-changed by record companies. “Why all this talk of robbing and stealing [music] now,” asked Courtney Love (footnote 1), when “recording artists have essentially been giving their music away for free [to the record companies] under the old system?” She asked that in 2000, just as those music companies were about to get their comeuppance. Meet the new boss, same as the old boss.
The industry is profitable again—that’s good. Now it’s time for musicians to get what they’ve got coming.
Footnote 1: Scroll down the page at stereophile.com/thinkpieces/379/index.html until you see “Courtney Love.”
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