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Digital content distribution: lessons from the music and audiobook sectors

David Abecassis Partner, Consulting

Creators and consumers appear to have benefited from the digital transition in the music and audiobook markets, but the role and distribution of value between intermediaries has been transformed.

Active network sharing in Asia–PacificDigital distribution over the Internet has had a significant and well-documented impact on content industries – from considerably reducing the costs of distributing recorded content to enabling piracy on a large scale. The Internet has challenged established business models and enabled new ones.

Following on from our series of articles about connected TV, we are broadening our perspective to look at the dynamics of digital content distribution, which holds lessons for many creative industries, including TV and video. This relates to shifts in revenue, costs and market power – and the role and positioning of new distributors and intermediaries are increasingly under scrutiny.

The Internet has precipitated huge shifts in parts of the traditional creative content value chain

The best understood example of a creative industry that has experienced enormous shifts is perhaps the music market. In the UK, music publishers appear to have suffered a massive loss of revenue, primarily between 2006 and 2011, as downloads (legal and illegal) put significant pressure on recorded music prices and sales. Since 2011, the increased take-up of legal streaming services has helped stabilise the market, albeit at a much lower level than in the 'pre-digital' period (Figure 1).

Figure 1: Music publishers' wholesale revenue by format, UK, 2003–2014 [Source: Analysys Mason estimates, based on BPI, 2015]

Figure 1: Music publishers' wholesale revenue by format, UK, 2003–2014 [Source: Analysys Mason, 2015]

Publishers' revenue only tells part of the story – overall consumer spending on music has held firm, partly thanks to streaming but also because of strong growth in revenue from live music events. This appears to have benefited artists – live music revenue now represents 50% of artists' income,1 and royalties appear to have doubled between 2006 and 2013 (from about GBP375 million to GBP750 million).2

Value is being redistributed from traditional intermediaries (labels, publishers, physical music shops) to new ones (streaming platforms, digital music stores, concert organisers and promoters). This creates tensions, but competition for talent appears healthy – employment and economic output in the UK's music industry are growing at 5–10% per year.3

The Internet has facilitated the emergence of creative content that was previously hampered by physical distribution costs

The audiobooks market offers a very different perspective – online distribution has helped to reduce the cost of, and barriers to, distribution, production and collaboration. As a result, the number of new audiobooks produced reportedly increased from about 3000 in 2007 to 40 000 in 2014 (see Figure 2).

Figure 2: Number of new audiobooks published worldwide, 2007–2014 [Source: Oak Branch Media's Good E-Reader blog, 2015]

Figure 2: Number of new audiobooks published worldwide, 2007–2014 [Source: Oak Branch Media's Good E-Reader blog, 2015]

This is a market that is unrecognisable from its pre-Internet incarnation, and this transformation has offered opportunities for new intermediaries to position themselves as unavoidable suppliers (or customers) for creators. Audible (now part of Amazon) is a pioneer – it offers an integrated environment for the entire production (Audiobook Creation Exchange (ACX)) and distribution processes, using a variety of mechanisms including subscription-based services and one-off transactions. Since 2003, Audible has been the exclusive provider of audiobooks on iTunes, meaning that publishers who wish to distribute on the iTunes platform must go through Audible.

Audible has actively contributed to the expansion of the global audiobook market for creators and for listeners. Market revenue has increased from about USD1 billion in 2007 (of which Audible accounted for 10%) to over USD2.5 billion in 2014,4 a compound annual growth rate of 15%, and the growth in revenue from digital downloads far exceeded that of the overall market.5 Audible offers over 150 000 titles in a catalogue that is expanding by between 10% and 20% per year.6

As a result, Audible is lauded for its innovations, lowering the barriers to audiobook production and facilitating the route to market for audiobooks. However, it is also vilified for trying to profit from them – it offers lower royalties for ACX productions that do not grant it distribution exclusivity and, in 2014, it unilaterally lowered the royalties payable to rights holders who use ACX, so Audible, not the rights holder, controls the sales prices of audiobooks, which determine the royalty payments.

Conclusions

In the music and audiobook markets, creators and consumers appear to have benefited from the digital transition, but the role and distribution of value between intermediaries has been transformed. In other creative industries (for example, publishing and audiovisual content), the challenges are arguably greater given the importance of advances against royalties and pre-financing, which digital intermediaries have not yet replaced.

In the long term, the efficiencies and innovations linked to Internet-based content delivery are likely to also support creative industries by giving them access to more talent and new sources of revenue, and in turn a different approach to financing and risk-taking.

The digital transition of the past 15 years has led to incredible innovation and a sharp increase in creative ambition. For this to continue, it is clear that all market participants must remain vigilant and innovative in how they deal with their partners. In particular, new intermediaries that have both driven and benefited from the digital transition must tread carefully and ensure that the market power they may have does not become harmful to creators.

 


 

Analysys Mason works across the creative content value chain, including for investors and policy makers, to provide insight and expert advice in a fast-changing market driven by convergence, from public policy to market positioning. For more information, please contact David Abecassis (Principal) or Lluís Borrell (Analysys Mason's Head of Media).

 

  1. UK Music (London, UK, 2014), Measuring Music. Available at www.ukmusic.org/research/measuring-music.
  2. These figures combine data from Phonographic Performance Limited (PPL) and PRS for Music.
  3. The Department for Culture, Media & Sport (London, UK, 2015), Creative Industries Economic Estimates – January 2015. Available at www.gov.uk/government/statistics/creative-industries-economic-estimates-january-2015. We have taken 'Music, Performing and Visual Arts' as a proxy.
  4. Oak Branch Media (Vancouver, Canada, 2014), Global Audiobook Trends for 2015. Available at http://goodereader.com/blog/audiobooks/global-audiobook-trends-for-2015.
  5. Audio Publishers Association (Philadelphia, PA, 2014), The audiobook industry continues to grow. Available at www.audiopub.org/October_APA_2013_Survey_Press_Release.pdf.
  6. The New York Times (New York, NY, 2014), An Art Form Rises: Audio Without the Book. Available at www.nytimes.com/2014/12/01/business/media/new-art-form-rises-audio-without-the-book-.