Nielsen’s 2016 Music Industry Report: A Bullshit-Free Guide

It’s the beginning of the year, which means that people like ourselves who write about music and the music industry received a nicely-formatted press release from Nielsen’s PR firm touting their shiny new year-end report on the music industry from the past year. For those of us who find the sorts of things these reports deal with – namely the increasing prominence of digital streaming and its effects on all sectors of the industry – fascinating, this report is like a second Christmas. And though the press release lays out all of the top-line findings of the report in neat little bullet points, it’s still a lot of information to take in with a lot of spin (or at least things left unsaid) to make everything sound as rosy as possible. So, as a public service to those who care, we present to you a brief, unfiltered guide to Nielsen’s 2016 music industry report.

Digital Streaming Continues To Climb At The Expense Of Everything Else

The report’s toppest-line conclusion is that the music industry “experienced steady and consistent growth” this past year with a 3.1% increase in “volume” over 2015, fueled mostly by a 76% increase in digital, on-demand audio streams – though in reality it’s a 39.2% when you take into account “video” streams, i.e. Youtube. Now, the word “volume” is a fun term the industry has created over the past few years to somehow quantify digital streaming through platforms like Spotify, Apple Music, Google Music, Tidal, Pandora, Youtube, etc. and combine it with the traditional metric of “sales,” which accounts for units of songs and albums purchased either physically or digitally.

And on that end, the industry is practically crumbling right in front of them. Total album sales tumbled 16.7% from 240,655,000 to 200,540,000. Physical CD sales fared about the same, plummeting 16.3%, while LP/vinyl sales continued to grow at 10% (will unpack that next). By far the biggest casualty of streaming’s unstoppable rise though continues to be digital album and song sales, which dropped 20.1% and 25%, respectively. As for streaming, 2016 marked the first time that on-demand audio streaming accounted for the largest share of audio “consumption,” making up 38% of total consumption (album sales + track equivalents + on-demand stream equivalents), surpassing digital sales. This makes sense as more people move from purchasing music through places like iTunes and instead consuming music through Spotify, Apple Music, and elsewhere.

The biggest takeaway though should be that, in essence, the 3.1% number means nothing. As digital streaming consumption as a flat figure is utterly devoid of attachment to anything relating to sales – there is no breakdown of what percentage of those streams were done for “free” by the user vs. coming from paid subscriptions, nor are there any figures on how much money was ultimately paid out from the streaming services to labels and artists as places like Spotify don’t willingly release those figures – the number here is using two completely different metrics in an attempt to cobble together something that looks simple and positive. It’s important and notable that digital streaming is increasing at such a huge clip, but it does not counterbalance the gaping hole it’s left in physical and digital sales, as the report flat-out claims it does.

Vinyl Is Still Growing, But More Slowly, And Is Relying More Heavily On Legacy Releases

There’s been a lot of hullabaloo in recent years over what has been dubbed the “vinyl revival”, or the marked increase in vinyl sales over the past decade. While Nielsen made a point in promoting the continued increase in that market – 10% over 2015 – it belies two very important trends that undercut that news. The first is that it appears we officially hit “peak vinyl” in 2014. What this means is that starting from 2007 until 2014, the trend in vinyl sales was not only growing year-over-year, but increasing in growth year-over-year. Beyond that point though that growth has slowed noticeably, and with two full years of data to go off of now, a definite trend is forming.

 

I am far from the first person to raise this issue and call out the music industry for their continued bullishness on vinyls. This notion came to my attention courtesy of Michael Nelson over at Stereogum (whose analysis of the music industry as a whole tends to be far more well-founded than his thoughts on the metal industry). He’s written about this very issue as recently as this past summer when Nielsen released their mid-year report. The results of the end-of-year report are, in fact, even worse than the mid-year, as sales were reported to have grown by 11% at that point. So while it is true that vinyl sales continue to climb, and in itself a 10% year-over-year increase is not insignificant, it is becoming quite clear that growth is slowing rapidly. To make it a bit clearer visually, here’s another graph using the same data but including year-over-year growth.

Excluding 2007-2008, which saw a ridiculous year-over-year spike due to a low starting point and relative explosion after, you can see the trend line mostly going up until 2014, at which point there is a very obvious and steep decline. 2016 represented the worst year-over-year growth since the “revival” began, and if you’re an industry expert, vinyl manufacturer, or vinyl distributor/merchant, you are probably looking at those numbers and wondering if this means sales are simply going to level out and hold relatively constant over the next few years, or if there’s a major crash coming.

Which brings me to my second point on vinyls, which is where the most sales are coming from. If you’re looking for signs of a healthy market for something like vinyls, you want the highest-selling items to come primarily from new releases and artists and not from “legacy” items – either classic albums or more current albums that have had lasting impact for various reasons. I went ahead and tracked down the top 10 best-selling vinyls in the US over the past 5 years, and while there might not be anything too surprising from the results, there is definitely a worrisome trend present.

Starting in our “peak vinyl” year of 2014, you start to see more of these kind of very old legacy albums make an appearance, as well as a couple of other albums not released that year. 2015 was carried in large part by Adele and Taylor Swift‘s releases that year, but in 2016, a year with the greatest number of vinyls sold yet in this “revival,” legacy albums make up almost the entirety of the top 10. Only two albums from the list were released in 2016, and one of those, David Bowie‘s Blackstar, is in itself somewhat of a legacy item given the circumstances of his death immediately after the release, which almost certainly played a not insignificant part in its sales. Aside from that, Radiohead‘s album, and the somewhat belatedly meteoric rise of Twenty One Pilots (things I learned today: who the fuck Twenty One Pilots are), everything else is legacy or holdovers from the previous year. The data here isn’t as conclusive as the hard numbers are, but it’s absolutely something to watch out for over the next year or two. If vinyl sales growth continues to slow and you see more of the top-selling LPs coming from these legacy artists, then signs certainly seem to point to a crash coming.

The Kind Of Fans Who Are Buying The Most Physical Albums Tell The Story Of Rock’s Impending Demise

For my money though, the most interesting numbers from the report come from the breakdown of share of “volume” by genre and format. Given that the digital streaming revolution is being led in large part by the younger generations, it logically follows that the musical genres that see the highest share of consumption through on-demand streaming are the areas that are seeing the biggest growth. Also logically, the opposite can be said about the genres that have the lowest share of on-demand streaming and highest shares of physical sales. And here there is an exceedingly clear divide that has formed, one that spells doom for anyone still holding out hope for rock to be “saved” and remain wholly relevant.

As you can see above, rock still represented the largest share of music consumed by genre in 2016, followed most closely by R&B/hip hop, and then trailed by pop, country, electronic, Latin, jazz, and classical (I did not include Christian/gospel, holiday/seasonal, and children’s music). There’s nothing particularly surprising or illuminating from these figures (though I admit I thought electronic would represent a larger share than it does). Keep these numbers in mind though as you look at the below chart.

Despite streaming’s increasing dominance over physical albums overall, there are a few genres in which physical still is king, and it’s pretty easy to see a pattern emerge with them. Those genres are rock, country, jazz, and classical, all genres that tend to be more popular with older and whiter people than the national average, and also genres with very strong legacies and generally longer histories. On the other side, we have R&B/hip hop, pop, electronic, and Latin. Not coincidentally, more of the top-selling artists by year are being represented by these genres. In fact, only one of the top 10 artists from this year was rock, and it was remarkably held by none other than Metallica at #10. The remainder were r&b/hip hop, pop, electronic, or some amalgamation thereof. Latin is also an interesting one to watch as shifting demographics in the US point to increasing latino populations, particularly younger latinos.

The biggest takeaway should be this though: all the hand-wringing and think-pieces about the steady demise of rock have been earned. Rock (and by extension, metal) has a big whopping problem on its hands from a sustainability and relevance standpoint. If you’re a hardcore rock and metal fan and already feel out-of-touch with where the mainstream and locus of hype and biggest advancements in music are happening, just wait a few years.

The “Youtube Problem” Might End Up Not Being Such A Problem In The Long Run After All

Speaking of hand-wringing think-pieces, few topics have been the subject of as much fervent discussion in the music journalism world in the past few years as how the immense growth of digital streaming is affecting revenue to the music industry and artists. One of the biggest sources of that anxiety though hasn’t come from the expected places – Spotify, Apple Music, etc. – but from YouTube. As little as those places reportedly pay per stream, YouTube is far worse. Seeing as YouTube does not automatically remove any videos featuring copyrighted songs and reportedly pays even less per stream – even with the addition of YouTube Red’s paid subscription service over the past couple of years – labels and artists have long argued that YouTube does not pay its fair share. As recently as a few months ago industry heads were publicly bashing the service for just this. And for years the “YouTube problem” has been given serious attention because on-demand video streaming has actually made up a greater share of consumption than audio streaming has and has been increasing at a similar rate.

And then 2016 happened.

I lied earlier. These are the most interesting numbers I found in the report. The data and trends here are a bit more specious due to the fact that Nielsen has seemingly only been tracking audio and video streams separately since 2013 (hence why the growth is set to be the same for both that year), but it doesn’t change the fact that something incredibly important and strange happened last year. Not only did audio streams officially overtake video streams for the first time, and not only did audio streaming experience another humongous year of growth (over 75% for two years straight!), but video streaming growth utterly collapsed in a way that doesn’t seem like can be remotely correct. Going from 95% growth one year to 7.5% growth the next is an incredibly extreme dip, one that doesn’t seem possible for something that seems as reliable for steady growth as video streaming.

Between this and the simultaneous collapse of the digital sales market, the easiest explanation seems to be that 2016 was the year that finally proved the enormous promise of seismic change that music streaming platforms have been preparing us for for years. People who were once skeptical of streaming services and the thought of paying for music streaming subscriptions to places like Apple Music, Spotify, Google Music, and yes, even Tidal, are finally being converted, and with it are leaving digital sales and streaming music for free through Youtube behind. Granted, video streaming did still grow last year and is still a huge number, and this doesn’t erase the problem with Youtube’s payment model, but if these numbers hold in any sort of way into the future, then the industry should sleep pretty well knowing that monetized audio streaming services are ultimately winning.

Nothing Else In The Report Matters Much, Unless You’re A Huge Drake Fan

Much of the rest of the report is spent talking about how incredible a year Drake had, and he most certainly did have a very good 2016! He was by far – it’s not even remotely close – the best-selling artist of the year, as well as the most-streamed. Beyoncé pulled into second position overall, but Lemonade was the 3rd-best selling album of the year, and she was well below the likes of FutureRihannaThe Weeknd, Twenty One Pilots, and even Justin Bieber when it came to total streams. One area that the report did not touch upon at all was the topic of streaming exclusives, which was a big topic of conversation throughout 2016. One has to wonder what effect that ultimately had on the total sales and consumption of artists like Beyoncé, Frank OceanKanye West, and more, the latter two which don’t appear anywhere in the report. The other question coming from that observation may be whether it matters. If exclusives continue to flourish this year and beyond, and the artists continue to capitalize off of them handily, we may see chart-toppers being less and less representative of the artists with the most overall “value.”

Anyway, if you’re reading this on this site, it’s likely you don’t care all too much about all of that and are wondering why I spent all this time writing about these topics in the first place. The truth is, while the goings-on of the top-selling mainstream artists in the country may not be of great concern to many of us, myself included, the other trends I talked about are legitimately important to all of us. These are the trends that will play a big part in predicting and determining the direction of things to come when it comes to how we access music, how we consume it, how we pay for it (or don’t), and everything else. And it’s just as important to understand the real meanings of these numbers and not just the spin that the industry puts on them to make themselves look as good as possible. Audio streaming is absolutely here to stay, and there are some signs pointing to healthier and more sustainable models for labels, artists, and listeners alike, but there are still a ton of questions and concerns that have yet to be resolved. We’ll do our best to stay on top of these questions for you all though so you don’t have to. No bullshit.

"We're all fools, all the time. It's just we're a different kind each day. We think, I'm not a fool today. I've learned my lesson. I was a fool yesterday but not this morning. Then tomorrow we find out that, yes, we were a fool today too. I think the only way we can grow and get on in this world is to accept the fact we're not perfect and live accordingly." - Ray Bradbury