Revenue streams: where the Kiwi music industry makes its money

  • Media
  • November 5, 2015
  • Ben Fahy
Revenue streams: where the Kiwi music industry makes its money

The mode of delivery for audio has changed markedly in the past few decades, to the point where young folk tend to see a cassette tape as the modern-day equivalent of a gramophone. And a PwC report into the contribution of the music industry to the New Zealand economy shows that while total retail sales are down significantly on 2012 as a result of shifting listening habits and illegal downloading, the significant growth in online streaming is making up some of the lost ground. 

Ac cording to the report, which was commissioned by Recorded Music NZ, APRA AMCOS, The NZ Music Commission, Te Mangai Paho, NZ On Air and Creative New Zealand, the New Zealand music industry earned $82.6 million in retail revenues in 2014, down from $92.4m in 2012. Historically, the majority of the industry's economic impacts were related to physical music retail. But that now makes up approximately 42 percent of total retail gross output, as opposed to 67 percent in 2012 (not surprisingly, given those numbers, over the last 20 years, PwC says the number of specialty music stores in New Zealand has fallen from roughly 300 to about 30 and The Warehouse now accounts for roughly half of total physical sales).

PwC says illegal downloading has provided consumers with "an effectively free source of music, which has led to a drop in sales and is likely to have reduced the price point at which consumers are willing to purchase music". But the physical sales reduction has been offset to some degree by legal downloads through iTunes and elsewhere (that category declined from $35m in 2012 to $29m in 2014) and now by on-demand services such as Spotify, Pandora, iHeartradio, YouTube and Apple Music. The report says there was a lag between retail music revenue falling and digital music capturing a significant share of the market, but starting from a small base of $2.2m in 2012, gross revenue for online streaming has grown to $18.6m in 2014, which is 22 percent of total retail output. 

And "given what can be observed over the past several years it seems likely that this trend will continue and that digital and streaming will increase market share". 

For record labels—and some independent bands like Fat Freddy's Drop, which told Idealog it gets about 3 million streams a month—streaming has become a significant income generator that has basically replaced illegal downloading (although it's also an area of some artistic concern given it's such a "passive listen" and, as has always been the way, there have been many stories written about disgruntled artists feeling as though they don't get paid enough). And, in addition, the internet has also given musicians more ways to communicate directly with—and sell directly to—their fans. In the case of Fat Freddy's Drop and many other bands, they have attempted to make up the shortfall from physical sales by making more money from live shows and merchandise. And while vinyl sales have also been increasing in recent years as audio purists and committed fans gravitate towards something you can hold onto and treasure, it's worth looking at the longer term trends. 

For users, these streaming services have ushered in a new era of algorithmic listening, with the likes of 25 Most Played crunching numbers to show global trends and Spotify and Pandora using data to provide music suggestions—and even giving listeners a sense of self-satisfaction

Plenty of effort has been put into promoting New Zealand music over the years. On commercial radio, a voluntary quota of ten percent New Zealand music content was agreed in 1989, according to NZ on Air. And that was doubled to 20 percent in 2006. But that hasn't been reflected in sales, because of every $100 of music purchased at retail outlets, $10 is spent on New Zealand music, a number that has remained constant over the past four years.

Overall, the music industry (defined as the “activities related to the creation, production, distribution, sale, communication, and performance of music in New Zealand, regardless of country of origin”) contributed $472 million to New Zealand’s economy in 2014 (up 4.4 percent from 2013), supporting 4,295 full-time equivalent workers (up 5.3 percent from 2013).

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