It was widely reported in the UK media that digital services accounted for 55.5% of UK recorded music revenues in Q1 2012, as income from subscription streaming platforms doubled (up 93%) to just under £9 million. In significant news, this growth was enough to offset a 15.1% decline in physical formats (to £69.3m). Despite the fall, the digital boom ensured overall year-on-year record industry revenues grew by 2.7% to £155.8m in Q1 2012.
Digital income from all sources including à la carte, subscription and ad-supported services grew year on year by almost a quarter (23.6%) to £86.5m. Sales of digital albums contributed substantially to rising digital revenues, with the format’s sales increasing by 22.7% to £35.9m, outstripping revenues from downloads of single tracks for a second successive quarter. The ad-supported tiers of digital services such as Spotify and We7 raked in revenues of £3.4m, an increase of 20% on Q1 2011.
So where does this leave physical? Well the only remaining major retail chain, HMV, has recently moved all CD sales to full consignment and has started trimming certain areas of its business operations (they only yesterday sold their prestige London venue the Hammersmith Apollo). They have recently also been hit with the loss of a tax loophole that allowed them to house their mail order operations in the Channel Islands and import to the UK at a lower rate of tax.
That is not to say physical is over though; just that the sales method has changed. The traditional high street record store has all but disappeared expect for a few notable indies like Rough Trade in London, Jumbo in Leeds and others still selling in the physical space. The HMV chain has suffered an identity crisis with more and more floor space year on year being taken away from music and mail order sales have seen stores like Amazon and Play offer stiff competition.
So what does this mean for the UK music industry?
Well firstly it means that a label ignores a digital strategy at their peril and in fact should give the marketing of their digital and physical product the same resources. Digital has often been seen as the poor relation to physical in the UK and as such has often been an afterthought for some labels. The really interesting part of the info released was that sales of whole digital albums are outselling single tracks so consumers are now not just cherry picking individual tracks but are committing to buying full albums.
Let’s hope that with the continuing growth in both streaming and download revenues any future losses in physical revenue will be covered by the growth in digital.