Are Streaming And Vinyl Going To Save The Music Business?

Welcome to Spotify: subscription streaming is now a $600m business

Music industry trade body the RIAA published its annual report on sales and shipments of music earlier this week.  It’s a great snapshot of how much America’s music consumption has changed in recent years, and it puts numbers behind the trends that music lovers are already living with.

(You can find the full data, with comparisons to past years, in this spreadsheet that I’ve built on Google Docs.  You’re welcome.)

Unsurprisingly, the survey documents the seismic shift from physical to digit formats. Revenue from digital formats – downloads and streaming – adds up to $4.4bn, or 64% of the recorded music business, up from 40% in 2009. Digital formats superseded physical formats back in 2011.

So let’s look for the more interesting stories within the data:

Surprise! the music market is stable
The music industry spent most of the 2000s tumbling down a CD-shaped cliff.  Fellow blogger Music Business Research reports that CD albums were a $13bn business in 2000, and a $3bn business today.  More recently, the music business has plateau’d at around the $7bn revenue mark.  The recorded music industry has bounced along at $7bn revenue a year since 2010.

Downloads are declining
We’re at Peak Download.  Download volume dipped from $2.9bn to $2.8bn in 2013, led by a 4.5% drop in the number of singles downloaded down to 1.3bn.  Album downloads are only slightly ahead of last year at 118m units.  We’re already moving from the first wave of digitization, where users graduated from physical ownership to digital ownership, into a second wave, where users graduate from ownership to streaming.

Momentum is moving from downloads to streaming
2013 was a banner year for music streaming services.  Streaming grew 39% to a $1.4bn business, led by a 57% revenue uptick to $628m for paid subscription services such as Rhapsody and Spotify.  Paid subscription services leapfrogged Sound exchange distribution services (up 28% to $590m) as the biggest segment in streaming.  There are now 6.1m subscribing to paid services, up 79% from 3.4m in 2012.

Record Store Day: vinyl’s resurgence is still a fraction of the CD’s decline

Vinyl is making a comeback, but it’s not going to save the physical music industry

Vinyl sales increased by 33% in 2013, following a similar 36% hike in 2012.  This is a genuine growth story (vinyl sales have more than doubled since 2010) and vinyl gets a lot of love as a resurrected format and a tie back to record stores that have supported the music scene for decades.  But this growth still amounts to just $211m in annual sales.  CD sales, which continue to tank, are still worth ten times more than vinyl sales.  The vinyl market grew by $50m in 2013, which barely replaces the $450m fall in CD sales.

Even the industry struggles to keep up with itself
What we measure reflects what we think is important.  This is the first year that the RIAA broke out figures on free on-demand streaming services, and highlighted YouTube and Vevo as music channels.  RIAA used to report extensively on ringtones, a $1bn market in 2008, but now relegates them to a thin 0.5% share sliver on a pie chart.

The music industry enters a new paradigm every year
For an industry that has already been through so much disruption, recorded music continues to pass landmarks and milestones. 2013 alone saw peak vinyl, streaming coming of age, and download revenue surpassing physical format revenue. If you don’t like the current paradigm, another one will be along soon.

For context, America’s broader love of music is as strong as ever. The Grammys continue to attract 28-29 million viewers. 7 of the 10 most followed people on Twitter are singers. And Americans’ spending on live music continues to trend upwards. Live music will soon be a $10bn business. The love keeps growing. But the format keeps shifting.



Why Is High Fashion So Expensive?

Louis Vuitton’s Murakami Handbag: A Collaboration Worth 350 Million Dollars

Last year, The Business Of Fashion noticed a tipping point in the price of designer footwear. More than 100 pairs of shoes on fashion retailer Net-a-Porter cost over $1,000. At the same time, The Daily Telegraph noted that over 130 handbags on Net-a-Porter’s UK site retailed for over £1,200 ($2,000.) The trajectory of the prices was as dramatic as the prices themselves: the tag on Hermes’ iconic Kelly bag and the Manolo Blahnik shoes made famous by Carrie Bradshaw in Sex And The City had increased by some 60% in ten years. The consumer price index rose just 27% over the same period. With New York Fashion Week launching today, it’s a good time to ask why is high fashion so expensive?

We can rule out the tired sexist argument that fashion preys on weak women. As watch blog Crown & Caliber explains, the inflation-adjusted price of a mens’ Rolex Daytona has risen from $2,085 in 1973 to over $12,000 today, while a guy on Net-a-Porter’s men’s site Mr Porter has no fewer than 19 opportunities to drop more than $5,000 on a winter coat.

Loro Piana’s suede-trimmed, beaver-lined cashmere coat: yours for $12,695

Prices are high and rising due to a mix of rising costs, expensive expansion and a dramatic change in demand. Let’s break it down.

Prices are high because costs are high. The Business Of Fashion states that Chinese labor costs are growing by an annual rate of 14%, cotton prices by 13% and cattle prices (which affect leather) by 7%.

Prices are high because margins are high. Again, The Business of Fashion states that luxury businesses target a 65% margin: a bag that retails for $3,500 should cost about $1,225 to produce.

London’s New Bond Street, where retailers pay up to £1,050 ($1,700) per square foot to rent store space

Selling is becoming more expensive. Luxury brands like to sell from directly-operated stores, where they can best project the brand and defend its margins. Luxury brands are expanding their store base: according to holding company Kering’s annual report Gucci operates 474 stores worldwide (up 10% from 429 in 2012), while sister brand Bottega Veneta increased its number of stores by 13% from 196 to 221 in the same period. According to property firm Cushman & Wakefield, high fashion areas Causeway Bay in Hong Kong, Fifth Avenue in New York and Bond Street in London are amongst the top 10 most expensive rental areas in the world. In Mayfair, which has the highest concentration of haute couture stores in the world, fashion houses are expanding the upper stories of their buildings to build lounges for high-value customers. For fashion brands, selling means more than retail: Vogue publisher Conde Nast has increased it number of advertising pages by 5% in 2013, suggesting that the cost of advertising is up too.

More rich people = higher prices. Perhaps the biggest impact on fashion inflation is not supply costs, but rising demand. We have seen a dramatic rise in the number of high net worth individuals. CapGemini’s World Wealth Report states that there are now 12 million HNWIs around the world, up from 10m in 2007. In other words, there are two million new millionaires, and $5.5 trillion of new wealth for high fashion brands to attract. In China, which is responsible for much of the growth of fashion and luxury spending, consumers have developed high-end tastes incredibly fast. A survey by KPMG shows that the typical Chinese middle-class consumer now recognizes 59 different luxury brands, compared to just 34 in 2006. And the affluent Chinese are much more likely to buy luxury goods than their counterparts in the US. French bank Exane BNP Paribas reports that Chinese household earning 75-150,000 Euros ($100-200,000) will spend 2,902 Euros on luxury goods, while a US household in the same income bracket will typically spend just 569 Euros. Beyond the rise of the millionaires, there’s a new class of Asian high fashion buyer.

It’s over a hundred years since Thorstein Veblen articulated the idea of conspicuous consumption, where wealthy people would happily invest in displays of wealth. Now that eight times as many students are enrolled in the Savannah College of Art and Design’s prestigious accessories design program as in 2008, society is gearing up for more, and more expensive, high fashion.


How Is Pop Music Changing?

Jay-Z and Beyoncé: the talent behind six of the fifty greatest songs of the 2000s

Jay Z and Beyoncé: the talent behind six of the fifty greatest songs of the 2000s

There are few better snapshots of popular culture than the charts, and few better measures of how music is changing than viewing the charts over time.  Here we look at how the best of popular music is changing.  Our source is the top 50 tracks in VH1’s Greatest Songs Of The 2000s, which we compare to the top 50 in  VH1’s Greatest Songs Of The 1990s.  

Three trends stand out.  First, the shift from groups to individual artists.  35 of the best songs of the 2000s are performed by artists, compared to just 17 of the best songs of the 1990s.  This could be due to the straightened economics of music industry – there are fewer royalty checks to write and fewer egos to manage with an artist than a group.  More likely, it reflects the second trend: the shift from rock to pop.  The 50 greatest songs of the 2000s include 20 pop tracks and 11 rock tracks – the numbers are exactly reversed in the 1990s.  The 2000s belongs to Poker Face and Sexy Back; the 1990s to Smells Like Teen Spirit and Losing My Religion.  The final shift is from male to female led acts.  The 50 greatest songs of the 2000s are performed by 25 male-led acts, 23 female-led acts and two mixed acts (The Black Eyed Peas and The White Stripes.)  The male to female ratio for the 1990s is a far less even 34:15.

Hip-hop and R&B songs are a more consistent presence in the greatest songs of both decades: 18 in the 2000s and 15 in the 1990s.  It’s a mark of hip-hop’s importance that Outkast’s Hey Ya (#2 in the greatest songs of the 2000s) and Gnarls Barkley’s Crazy (#16) are both forays into pop music by great hip-hop acts. The most powerful figures in the 2000s chart are Jay Z and Beyoncé: together then contribute six tracks to that decade’s top 50 (Crazy In Love at #1, Empire State Of Mind at #8; Umbrella at #11, Single Ladies at #16; Bootylicious at #19 and 99 Problems at #21.)  For context, acts from every country in the world outside the US contribute only six songs to the top 50.  

Talking of consistency, nine acts appear in the top 50 of the 1990s and 2000s: Britney Spears, Christina Aguilera, Dave Grohl (as Nirvana and The Foo Fighters), Destiny’s Child, Eminem, Madonna, Mariah Carey, The Red Hot Chili Peppers and U2.

One trend from the 1990s that doesn’t make it into the 2000s is the one-hit wonder.  VH1 gives six places on the 1990s chart to one-offs such as Sir Mix-A-Lot’s Baby Got Back (#6), MC Hammer’s Can’t Touch This (#16) and Hanson’s Mmm-Bop (#20.)  Pop music will always be a moment in time, but hip-hop is in better hands today than it was with Vanilla Ice.

VH1 Greatest Songs Of The 2000s And 1990s


Do Millennials Have A Better Foreign Policy Than ‘Whatever’?

From Ukraine to Gaza, international crises are currently dominating the news.  So the latest round of The Economist’s ongoing survey of American public opinion on foreign affairs is particularly relevant.  What really stands out in this survey is how detached young people are from what’s going on in the world.  The convention is that millennials are idealistic, hyper-connected global citizens.  The reality is that many of them just don’t have an opinion.  People aged 18-29 are 53% more likely than people over 30 to answer ‘don’t know’ or to have no opinion on a range of questions about the big foreign policy issues.  The survey covers 25 questions on topics ranging from Israel to Egypt to Ukraine.  On average, 33% of millennials had no answers, compared to 21.6% of over 30s.

Economist / YouGov survey on foreign affairs, 19-21 July 2014

The millennial ‘don’t know’ bloc is spread across issues.  Young people are less likely to have an opinion on head-scratching dilemmas such as whether they approve of President Obama’s handling of the crisis in Ukraine.  But they’re also less likely to have an answer to basic emotive questions: 51% claim to have no positive or negative opinion of Hamas, almost half are neither hot nor cold on Benjamin Netanyahu.  They’re also less likely to know the answer to widely reported, undisputed facts: 41% didn’t know who had experienced most of the civilian casualties in the fighting in Gaza.

Sure, there’s a basic civics case that young people should follow international affairs more closely.  But there’s a self-interested case too.  The consequences of foreign policy play out over generations.  The instability in Iraq has its roots in borders drawn carelessly in the 1920s, while Afghanistan’s instability comes from the involvement of superpowers 30 years ago.  Millennials will live with the consequences of today’s decisions for longer than retirees.  And, if things really go wrong, the country sends its 18-29s into battle.  



What’s The Secret Of Tolerance?

In the light of current world events, we’re going to bend the definition of the data of cool for this particular post.

It turns out that the secret to tolerance is familiarity.  Pew Research recently ran a typically excellent survey about religious tolerance in America, asking people the revealing question how warm they felt towards other religions on a scale of 1-100.  

Hiding in the data is the significant difference of opinion between people who know someone of another religion and people who don’t.  If you know someone from another religion, you’ll feel an average 60/100 on the warmth scale towards that religion. If you don’t know someone from that religion, you’ll feel an average of 44/100.  So Americans feel 36% warmer to other faiths when they know someone of that faith.  There’s a similar familiarity gap for big groups, such as Evangelicals, for smaller groups, such as Buddhists and Jews, and even for atheists.  

In other words, love thy neighbor.  We have the data to prove it.

How knowing other people makes you warmer to their faith


Does Barry Diller Own The Keys To Our Hearts?

Two remarkable data points show the influence of online dating, and how online dating is concentrating in the hands of a few powerful businesses.

Last year, a University of Chicago study found that 35% of couples who married between 2005 and 2012 had met online.

And today, Barry Diller’s media conglomerate IAC announced that it was buying dating site HowAboutWe, adding to its portfolio of Tinder, Match and OKCupid. AdAge estimates that the deal gives IAC a 28% share of the online dating market.

45% x 28% = 9.8%: Barry Diller now creates one in ten American marriages.


How Is A Football Shirt Worth $1.28 Billion?

Wayne Rooney: Sponsored By Chevy, Goes For A Bevy

Adidas today announced a ten-year, £750 million ($1.28 billion) kit sponsorship deal with Manchester United.

The deal dwarfs the previous biggest kit sponsorship agreement, Adidas’s £31 million a year deal with Real Madrid and Nike’s £40 million a year deal with France’s national football side.

Let’s see how the club’s sponsorship deals add up.  All data is annual.

£75m kit from Adidas

£53m shirt naming from Chevrolet

£15m training ground naming from AON

= £143 million ($244m)

It more than doubles the club’s current £23.5m a year kit deal with Nike and £25m a year shirt naming deal with AON.

For context, that £143 million amply covers the annual wage bill of star players Wayne Rooney (£16m), Robin Van Persie (£10m) and Juan Mata (£7m) and, more importantly, the £71 million annual financing costs left from the Glazer family’s controversial debt-laden takeover of the club in 2005.

What’s in it for the sponsors?  AON claims its brand awareness grew from 39% to 50% during the first year of its shirt sponsorship.

Kit manufacturers get brand exposure, and also revenue from lucrative replica kit sales.  Fans buy an average of 1.4 million Manchester United shirts a year, putting it in an elite bracket of clubs that sell over a million shirts a year.  Real Madrid also sells 1.4m, Barcelona 1.15m.  Superstar players can spike that figure.  Real Madrid claimed to have recouped the £80 million ($137 million) cost of buying Cristiano Ronaldo in 2009 by selling 1.2 million Ronaldo 9 branded shirts in the player’s first season with the club.

Perhaps the figure that will matter most in the red half of Manchester is that Liverpool FC’s kit deal is worth £25 million a year, while the Merseyside club sells around 800,000 shirts a year.