After Napster, the music industry winds up humming
Fifteen years ago today, the recorded music industry landed what turned out to be a death blow to Napster. It secured a federal court decision that found the Internet file-sharing service -- which enabled millions of music fans to download music for free -- was encouraging the wholesale infringement of copyrights. The music industry hasn't been the same since then.
According to data from the Recording Industry Association of America (RIAA), sales peaked at $14.6 billion in 1999, when Napster was in its heyday, and had shrunk to $6.97 billion in 2014. Like newspapers, the transition to the digital age has been painful for the music industry, which has seen the average age of CD buyers increase in recent years.
Change, though, is coming, thanks to the surging popularity of streaming services.
"There are so many more ways for fans to access music today than there was 15, 16 years ago when Napster came on the scene," said Cara Duckworth, an RIAA spokeswoman. "Today, the marketplace is stable. It's more robust than it ever has been. There's a lot of optimism in the music industry."
In 2014, the music industry derived 46 percent of its revenue from sales of physical music and 46 percent from digital music sales, the first time those sectors had achieved parity, according to the International Federation of the Phonographic Industry (IFPI), a trade group.
Although data from 2015 is expected to be released in a few weeks, PwC forecasts sales from digital music to reach $9.65 billion last year compared with $9.08 billion for CDs, vinyl records and other formats. The supremacy of digital will continue for the foreseeable future.
"There really isn't a single music industry to talk of now," said Mark Mulligan, an industry analyst at U.K.-based MiDia research. "It has become very fragmented, even though the industry likes to think of itself as a single industry."
The next battleground for record companies is in the streaming music market, which PwC expects to overtake the download market next year and post a compound annual growth rate of 14 percent between 2014 and 2019.
According to the IFPI's Adrian Strain, steaming has attracted consumers that "weren't in the licensed music environment before." That's a good thing for the industry, given that spending on downloads and mobile music is expected to drop in the years to come.
Leaders in the sector include Alphabet's (GOOGL) YouTube, Apple (AAPL) Music and Spotify. Shares of Pandora (P) rose sharply on Thursday after Bloomberg News reported that the Internet radio service had hired Morgan Stanley (MS) for a potential sale. Pandora shares fell in after-market trading, however, after the company reported disappointing results.
"YouTube is outgrowing everybody else," Mulligan said. "It's outgrowing Spotify, Diva, Apple Music ... the lot."
Indeed, for many in the music business, Napster seems like a distant and unpleasant memory.
The RIAA earned the wrath of some music fans by filing lawsuits against individuals who had illegally downloaded music from Napster and similar services. The industry had little choice because its survival was at stake, according to the RIAA's Duckworth.
"The operators of Napster and other services that popped up after Napster had no interest in going legit or following the law," she said. "We needed to make sure that parents were having kitchen table conversations with their kids about illegal downloading and the devastating impact that it had on artists and music."
The tactic worked. According to Duckworth, awareness about the problems of illegal downloading surged in the wake of the lawsuits, and today piracy is certainly more under control.
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