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“VALUE GAP” DAMPENS GLOBAL MUSIC INDUSTRY GROWTH

UMG's Michael Nash, WMG's Stu Bergen, Sony's Edgar Berger and IFPI's Frances Moore

In London today, reps from the three major labels were heavy on closing the so-called “value gap” during the launch of the IFPI’s Global Music Report 2016, which revealed an upturn in global music revenues by 3.2%. That gap is something Universal, Sony and Warner are aiming to close with legislation and a new YouTube licensing deal that mirrors terms agreed with Spotify, Deezer, Apple Music, et al.

Total industry revenues grew to $15bn in 2015, the first significant year-on-year growth in nearly two decades, according to the IFPI report. Digital revenues are up 10.2% to $6.7bn, accounting for 45% of industry revenues and overtaking physical for the first time, which totaled a 39% share.

Streaming is up 45.2%, representing an “explosion in music consumption,” said IFPI Chief Executive Frances Moore, but one which isn’t giving a fair remuneration to artists and record labels, she explained. “The value gap is the biggest constraint to revenue growth for artists, record labels and all music rights holders. We’ve had 18 years of decline where the music industry has slumped by 35%. We’ve done everything possible to help ourselves, and we really do need the policy makers to help now. There’s a gross mismatch between music consumption and global revenue. It’s a structural problem that needs to be fixed by legislation.”

Sony Music Chairman and CEO International Edgar Berger, referred to 2015 as the inflection point for the music business. “We successfully emerged from the digital disruption and the future is bright,” he said. “Streaming is at the heart of our business, but we should be growing much faster. If we continue to recover at the same speed as last year, it will take more than 10 years to reach the market level we had pre-digital disruption. Our markets should be way bigger, the music industry is performing below its potential, music consumption is soaring, but the revenues returning to rights holders are not soaring.”

The “68m paying subscribers generating $2bn a year in revenue” are in stark contrast to “the biggest group of music consumers using user upload services,” Berger explained. “The single biggest source of on demand music, comprising more than 900m users, is generating $630m, only 4% of our revenue.”

The answer, agreed Berger, is legislation that revises the safe harbour rules, which he’s hoping will be enacted with legislative proposals from the European Commission expected this summer.

Michael Nash, EVP of Digital Strategy for UMG, spoke about the future depending on a “harmonious convergence between media and technology.” He explained: “The opportunities are enormous, as technology changes and advances, we see new business opportunities and capitalising on all these is crucial.

"No one is investing more in new artists and great music than the record labels. That’s why we need to get this next part right, to take full advantage of digital transformation and fully and fairly recognise the value of our artists and their music.”

Is 2016 the year YouTube finally makes friends with the music industry? Watch this space.

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