I wrote about the music industry's impressive recovery in the February 2022 AWSI. Robust LP sales were a headline item of that report, but they're a sideshow: Paid-subscription streaming is what is bringing the industry back.
When I wrote that, 2021 wasn't quite over, so year-end financials weren't available. They're available now.
According to the Recording Industry Association of America, in 2021 recorded-music revenue reached $15 billion, an astonishing $2.9 billion—19.3%—increase over 2020. That increase is probably exaggerated by COVID-suppressed 2020 revenue—physical media sales were certainly down—but 2020 revenue was still $1 billion higher than 2019's.
Numerically, 2021 recorded-music revenue set a new record: $400 million higher than the previous record high, in 1999—the year before the start of the great decline, when illegal file sharing nearly broke the industry. Those numbers, though, are not corrected for inflation. The inflation-corrected revenue figure for 1999 is $23.7 billion—so, in real terms, the industry's recovery is very much unfinished. In real dollars, revenue in 2021 was less than two-thirds what it was at the industry's peak.
Still, the growth rate is impressive. Last year's revenue increase was the largest on, um, record, and since the recovery began, in 2016, the average revenue rise was $1.4 billion/year. The rate of increase is still increasing, and even at the current rate, the recovery will be complete by 2024.
Yet, for our industry and hobby, serious questions remain. The most obvious is, how long can this go on? While there's no sign yet that the revenue curve is flattening, we know that at some point the market will saturate. Everyone who wants a paid music-streaming subscription will have one. Once all the potential customers have bought in, the only way to increase total revenues is to raise prices.
I'm willing to pay more. Current prices seem low relative to the value of the service provided. That, surely, is partly because I value the service more than some others do. It's also, probably, because the music-streaming industry is in growth mode, not profit mode: They're spending a lot to locate new subscribers. Streaming-company profitability, though, is essential for this new music-distribution ecosystem to survive and thrive. So, how's that effort going?
Spotify, currently, is of little interest to audiophiles. Their highest-tier service is lossy and sounds noticeably worse than its lossless competitors. More than a year ago, Spotify announced that it would be introducing a lossless tier, but it hasn't happened yet. Spotify doesn't seem to know that audiophiles exist, or if it does, it doesn't care.
There's only one reason to focus on Spotify: It's a streaming-only company that's publicly held, which means it routinely reports financials. Consider it a proxy for the music-streaming industry.
Spotify—which has stated publicly that it's not yet pursuing profits—is nonetheless already intermittently profitable. The company's Q4 financials reported revenue up by $188 million to $2.69 billion, quarter over quarter. Paid subscribers rose 16%, to 188 million. Spotify, though, was slightly in the red, reporting a net loss of $7 million. Contrast that with the previous quarter, when Spotify reported a $75 million net profit.
The loss is of no concern: Spotify can turn a profit whenever it decides to simply by spending less to build their subscriber base. Spotify's future looks bright.
Of greater importance are the audiophile-friendly streaming services, the ones that offer streams of at least CD resolution—preferably hi-rez—that are willing to work with hi-fi manufacturers to make their streams accessible on hi-fi components. To my mind, the best examples are Qobuz and Tidal because they work seamlessly with Roon, which allows local libraries and the streaming services to be searched simultaneously. That's a huge advantage.
Until recently, both Tidal and Qobuz were privately held, but in March 2021, Tidal was acquired by Square, the electronic-payments company, for $293 million. (In December 2021, Square changed its name, to Block.) Square—now Block—is publicly held, so it files quarterly financial reports. According to its Q3 2021 shareholder report, Square's "Corporate and Other" category "generated $58 million in revenue" and "$15 million in gross profit." That revenue and profit "was primarily TIDAL during the quarter," the report states. In Q4, Block (same company) reported that the "Corporate and Other" category "generated $56 million in revenue during the fourth quarter and $7 million in gross profit. For the full year, Corporate and Other generated $152 million in revenue and $32 million in gross profit." Again, that revenue and profit was "primarily TIDAL in the quarter and full year." It sounds as if Tidal is already profitable.
I've got no information about Qobuz, but if Tidal is profitable, there's reason to hope that Qobuz is, too.
Threats remain. Qobuz and Tidal could be bought up by a larger streaming service and integrated or killed off. About a year ago, Apple acquired classical specialist Primephonic. Hopefully, Apple Music is better for it, but Primephonic is no more.
Earlier, I called vinyl sales a sideshow. That might have been ungenerous. As expected, 2021 vinyl-record revenue exceeded CD revenue for the first time since 1987. Vinyl sales reached $1 billion for the first time since 1985. Even adjusted for inflation, that's the highest they've been since 1988. LP revenue was almost 7% of total recorded-music revenue; 83% of revenue was from streaming.
Some lovers of physical media found hope in the apparent recovery of CD sales, which rose in 2021 for the first time since 2012. I fear, though, that their hope is misplaced. CD revenue was up only because it was down during COVID-restricted 2020. CD revenue in 2021 was still well below what it was in 2019.
We're living in a hi-fi golden age, with vast catalogs of music available in high resolution and frequent vinyl reissues (especially jazz) of the highest quality. There are no guarantees, but at the moment, the future looks as golden as the present.
