According to figures released by the PRS, revenue earned by the mainstream commercial music industry in the UK declined by 4.8% in 2010, as compared to the previous year (full report available as a pdf here).

Despite the fact that some media reports are still using words like “piracy” to explain the decline, the report actually makes it quite clear that downloading and filesharing are not the problem. In particular, the report makes these points:

• 2009 was an exceptionally good year for the recorded music industry, with a record-breaking debut album by Susan Boyle and several other major big-sellers by the likes of Lady Gaga and Michael Jackson. It was always likely to be the case that 2010 would fall back from this particular high water mark.
• UK consumers aren’t immune from the global recession, and spending on music dropped in pretty much the same proportion as spending on other consumer goods such as clothes and cars.
• The recession also affected artists, who were less willing to risk major tours. Fewer stadium gigs and more use of smaller venues contributed to a decline in live revenue.
• Bad weather in December hit sales of physical products particularly badly, as people kept away from High Street shops and online retailers had problems with deliveries.
• Sales of recorded music on physical media continue to decline (down 8% in 2010), and revenue from digital sales, while growing at an impressive rate (up 18%), has yet to fully compensate.

On the other hand, despite the drop in revenue from consumer purchases (either recorded or live), revenue from business to business sales continued to rise. This includes increased revenue from online streaming services such as Spotify as well as royalties from the use of music in computer games, films, TV, etc. Sponsorship of events also showed a significant increase, despite the lower overall revenue from live gigs.

I’m no particular fan of the mainstream commercial music industry itself (although I am a consumer of its products), but I think this report is well-balanced and demonstrates that there is a strong future for commercial recorded music in the UK. Despite the headline figure for the overall drop in revenue, and the continuing decline in CD sales, the report shows a clear way forward for a business model which is less reliant on direct sales to consumers and more able to adapt to multiple revenue streams. One important point made by the report is that revenues from digital sales are held back by a lack of agreed standards for both distribution technology and catalogue metadata. This lack of standardisation adds to transaction costs and creates barriers to the entry of new legal download services. One of the things that holds back legitimate downloads is the market dominance of a very small number of retailers – not everyone wants to buy from iTunes or Amazon. This lack of competition encourages unauthorised downloading, as there is a significant market for digital music in formats and packages which are not provided for by existing suppliers. Equally, the reluctance of some artists to allow distribution via digital retailers means that legitimate services are unable to offer a full catalogue of products.

The one important conclusion which can be drawn from the PRS report, though, is that unauthorised downloading and filesharing are not causing the sky to fall in. In the short term there will be pain for the music industry as it adapts to new business models – physical product sales still provide the majority of record company revenue, and this is dropping faster than other sources are increasing – but the long term outlook is good. It’s also likely that the music industry of the future will be more streamlined and more diverse, with the large conglomerates shedding jobs in order to refocus and stay competitive and with a greater role for independents and individual artists. The “Big RecordCo” model is not dead, but it will have to adapt to survive. In the meantime, it’s good to see that organisations like PRS are not falling for the hyperbole of their music industry members.