China fifth, Jay Chou ninth, what opportunities does this report hide?

Author | Wan Yi Edit | Fan Zhihui

On March 22, IFPI released its 2023 Global Music Report.

The most surprising thing for Chinese people is the rapid rise of China's music market. Last year, it became the sixth largest music market in the world, and this year it has steadily moved forward to become the fifth largest music market. In the report, we also saw a familiar figure, that is, Jay Chou, who enjoyed a high degree of talk in every appearance last year, has also become the first Chinese artist to be listed in the top 10 of the world's most popular and best-selling artists, which also confirms the booming Chinese music market.

Top 10 most popular and best-selling artists in the world

In addition to introducing the key points of global recorded music revenue growth, this report also summarizes and expresses some trends and major issues in the current music industry, including the changing role of record companies, the impact and response of AI on music, and important new growth trends in the future music market.

China is among the top five in the world for the first time, and Jay Chou is in the top ten in the world

Overall, despite the pandemic, the global recorded music market has grown for the eighth consecutive year.

In 2022, the global recorded music industry's total revenue reached $26.2 billion, up 9% year-over-year. Although this is less than half of the growth rate in 2021 (18.5%), IFPI said that this is still the fourth highest recorded music growth rate this century.

Although MIDiA Research's annual music industry statistics differ slightly from IFPI, the conclusion is still positive: although the growth of the music industry slowed in 2022, the growth content in 2022 is actually higher than in 2021, considering that the growth in 2021 is more based on the rebound achieved by the pandemic in 2020 and the headwind growth achieved in 2022 under many adverse factors.

Overall, the main driver of growth in the recorded music market remains streaming subscription revenue, which grew 10.3% to $12.7 billion in 2022. At the same time, subscribers continued to grow, reaching 589 million by the end of 2022. IFPI reports that due to the continued growth of streaming, global recorded music revenue in absolute dollar terms has now reached its highest level since 1999.

At the time, as piracy and physical sales declined, global recorded music revenue fell year after year, and in 2014, that figure bottomed out to $13.1 billion, less than a third of YouTube's revenue in the same year.

Today, the music industry is facing the threat of AI music, which has IFPI devoting a page to this. Executives at Sony Music and Universal Music said they saw the potential of AI in areas such as marketing and music creation assistance, while also worrying about the risks to music from the proliferation of AIGC, which in the view of Micheal Nash, chief digital officer at Universal Music, even deserves to be "the number one concern for the music industry."

In terms of revenue form, streaming, physical, performance rights and synchronization rights all grew, with only downloads and other non-streaming revenues continuing to decline, accounting for only 3.6% of the global market. Among them, streaming media revenue (including subscription revenue and advertising revenue) accounted for the highest proportion of the market, increasing from 65.5 to 67%, a growth rate of 11.5%.

It is also worth noting that the fastest growing synchronization rights refer to the revenue licensed to movies, games, television, advertising, etc., although the proportion is only 2.4%, but the growth rate has once again exceeded 20%, reaching 22.3%, which is expected.

Geographically, Africa, Latin America and Asia all saw double-digit growth, with sub-Saharan Africa becoming the fastest growing region at 34.7 per cent. Asia is already growing for the third consecutive year, with a growth rate of 15.4% in 2022.

Top 10 recorded music markets worldwide in 2022

In Asia, China is the second largest recorded music market, with a growth rate of 28.4, making it the fifth largest recorded music market in the world.

Is the local music market the next growth point?

The biggest highlight of this report is the importance of local music markets and emerging markets in driving global growth. According to Billboard, this is also an issue that the three executives repeatedly raised at the IFPI report launch event.

Of course, the local market has always existed, but due to the imperfect protection of copyright law, the cost of music production, distribution and even sales is too high, and the reason why it has been increasingly valued in recent years is that the improvement of these problems has made the local market monetize. Max Lousada, CEO of Warner Music's recorded music business, once cited in an interview that in the past six or seven years, Latin American music consumption has increased from one-fifth to nearly four-fifths in the local market, "which is a huge change."

Therefore, whether it is an international record company such as Warner Music or a music streaming company represented by Spotify, international expansion has been one of the priorities.

In the most optimistic MENA region (that is, the MENA region), Warner Music established Far East Warner Music Company, through the acquisition of Qanawat Music, one of the largest independent music distributors in the MENA region last year, investment in one of the largest independent distributors in the local region and African music company Africori, and the acquisition of Rotana, the largest local independent record company, in 2021, Warner Music covers 17 markets and 472 million people in the MENA region.

Spotify, on the other hand, expanded 85 new markets in 2021, bringing the total number of countries and regions covered to 178, perhaps due to internal economic development, Spotify slowed down the pace of expansion, but still expanded 6 overseas markets in 2022.

Of course, if you look at it specifically, the development process of different local markets is different, so the challenges and coping strategies to be faced are also different.

Shridhar Subramaniam, Head of Corporate Strategy and Market Development, Sony Music Asia and the Middle East, mentioned that China and South Korea have achieved strong growth in paying fans, the payment ecosystem has been established, and the challenge now is how to expand the value of music on streaming and social media. In many countries in Southeast Asia, the paid music ecology is still in its infancy, and there is still a lot of room for the growth of paying users in terms of the total number of people, while countries such as Egypt and India still need to establish payment habits of users.

We also see that local music culture is expanding its international influence, such as Bad Bunny, who is ranked fourth most popular in the world. After the success in the local area, the local stars represented by Bad Bunny achieved breaking the circle and going international and achieving greater economic benefits through cooperation with mainstream singers in Europe and the United States such as Cardi B, Drake and Universal Music Records. He became the world's most watched artist in 2022 and was named by Forbes as one of the top 10 highest-paid musicians in 2022.

Of course, not every local artist can create this level of success, which not only requires record companies to actively develop local teams, be able to formulate correct promotion strategies, keenly tap local potential artists, and take the lead, but also have international influence and marketing channels.

What else do record companies do to artists?

With the rise of independent music market share, record companies increasingly need to answer this question: why should musicians sign to record companies to take a share of their share of the pie when musicians can independently complete music production, distribution and even marketing?

IFPI, as a representative of the recording industry in more than 70 countries, has been trying to give a strong answer, emphasizing that record companies are forming new partnerships with artists. Although more and more independent musicians have proved to us that in this era of social media, it is not too difficult to create music independently and have a group of fans, but if you want to become a larger player, go national or even global, then cooperation with record companies is essential.

As always, record companies can provide better support, more creative perspectives, and better understanding of users and markets with richer data. Not only can they manage basic brokerage business for musicians, record music, run social media, but also tap into various sources of income for musicians.

In the report, Michael Nash, chief digital officer at Universal Music, listed four areas where artists face new opportunities.

The first is social media. Although social media is always changing, in general, no matter how social media develops, the influence it represents is still a huge opportunity and an opportunity for interaction between artists and fans.

Angela Lopes, senior vice president of strategy and investment at Sony Sound Entertainment, believes that the fan community is playing an increasingly important role, "Fan communities play a key role in many new interactive music experiences, and they are also important enablers of new business opportunities for artists. ”

The second is peripheral products. In Michael Nash's view, iron powder also has considerable payment potential. For example, the rejuvenation of vinyl suggests that record companies still have a lot of room for growth in peripheral goods other than vinyl. However, compared to digital consumption such as streaming, the problem with physical peripherals is that the cost is higher, which will reduce the profit margin performance of record companies. Perhaps for listed record companies, it is more worth considering virtual peripherals or products.

The third is in the area of health and wellness. Universal Music here refers not only to the background music used by fitness apps, but also to therapeutic music. In 2021, Universal Music entered into a partnership with digital therapy company MedRhythms, which provides Universal Music for therapeutic purposes. In 2022, Universal Music will also license its music library to Vera, a music health app for people with dementia.

Finally, new areas such as Web3, the metaverse and gaming represent long-term opportunities for the future. Warner Music is particularly active in these new areas, not only partnering with multiple NFT platforms to set up its own NFT label, but also investing in several metaverse-related companies, including Roblox.

That is to say, in the new era, record companies should ensure that they have greater market influence, pay attention to the excavation and cultivation of artists in the local market, and then create value for artists by seizing new opportunities that artists cannot create alone, and be an amplifier of artist influence and an excavator of music value in order to firmly grasp the hearts of artists.

epilogue

China's music market only entered the world's top 10 for the first time in 2017, and jumped to the top 5 five years later, and still maintains double-digit growth, with a remarkable growth performance.

For the global recorded music market, in the face of a poor economic environment and many adverse factors in 2022, the global music market seems to be less affected by the macroeconomy than expected, relying on streaming growth to still achieve headwind growth, and the worrying inflection point of streaming growth seems to be farther than expected, which is also a positive sign.

Not only that, Warner CEO Robert Kyncl also mentioned that the subscription price of music streaming is low compared to other streaming subscription services, which shows that the potential of music streaming has not been fully released, and the value of music is "underestimated."

That's why Goldman Sachs released a new "Music in the Air" report in the middle of last year, raising its growth forecast for the music industry, arguing that streaming will remain the main driver of music market growth through 2030 as music streaming revenue scale, subscription prices and number of platforms grow.

These signals all seem to tell us that the future of the music market deserves optimism.