The revival of physical music revenues in highly digitized European markets

Last week, Germany’s music industry association BMVI released market figures for the first half of the year. Compared to last year’s first half, recorded music revenues grew 7.6%, driven by a 12.7% increase in audio streaming revenues. Download revenues and physical sales revenues both decreased, while revenues generated by vinyl records grew 5.4%. Germany is the 4th largest music market in the world, and the 2nd in Europe after the UK. As a consequence, it is one of the most significant sources of information to understand the cross-border trends in the music industry. Let us analyze whether the dynamics of the German music market correspond to the reality of the industry at the European level. The recorded music industry is a bull market driven by digital sales On the old continent like in most parts of the world, recorded music revenues have been steadily increasing over the past few years. In the European markets that Dataxis tracks, total trade sales revenues went up from €4.95 billion in 2017 to €6.15 billion in 2020 and €8.10 billion in 2023. This corresponds to a CAGR of 8.6% over the period. Driven by a dynamic growth in digital trade sales revenues, this trend should last in the next few years at a slightly lower pace, as Dataxis forecasts total recorded music revenues to grow at a CAGR of 6.2% in the region by 2029, to €11.7 billion. As a matter of fact, most of the recent growth has been caused by a surge in digital sales. After hard times in the 2000’s, when consumers bought less physical products to massively download music online, the music industry has achieved its digital transformation to now rely more on newer formats, foremost streaming. As shown in the chart below, the digitization trend has entered its last phase in Europe. Digital music trade sales revenues accounted for 83.8% of total sales revenues in 2023, up from 56.2% in 2017 and 78.7% in 2020. This rapid overtake of the industry shall slow down as physical revenues show great resilience recently, reaching no more than 86.4% of total sales revenues in 2029. Audio streaming: the streamroller of the industry Even though early digital consumption modes were diverse, with an emphasis on DTO (download-to-own) models such as on iTunes, streaming has now established itself as the paramount consumption mode. It accounts for the vast majority of digital music sales revenues in most European markets, driven by high take-up rates and price hikes. While platforms such as YouTube generate a substantial share of digital sales revenues, in the form of video streaming revenues, platforms like Spotify, Apple Music and Deezer have managed to amass new users, to convert existing free users...