What’s powering the music ecosystem?

Spotify, Pandora, iHeartRadio… Digital subscriptions with unlimited streaming and gigantic music catalogs.

The International Federation of the Phonographic Industry (IFPI) recently released its annual Digital Music Report. In 2012 the industry saw its first year of growth (+0.3%) since 1999. There were some fascinating data points:

• Digital revenues increased by an estimated 9% to US$5.6 billion in 2012, now accounting for around 34% of global industry revenues.
• Download sales increased in volume by 12% globally in 2012 and represent around 70% of overall digital music revenues.
• The number of people paying to use subscription services leapt 44% in 2012 to 20 million. Subscription revenues are expected to account for more than 10% of digital revenues for the first time in 2012.
• Digital channels account for the majority of record companies’ income in an increasing number of markets including the US, India, Norway, and Sweden.

The report also keeps calling out piracy as the main barrier to growth. However, there hasn’t been a significant change in this area that would explain the industry growth in 2012.  Digital subscriptions have become better and more convenient than piracy at an acceptable cost – that’s what is likely driving the growth.

Subscriptions are disrupting piracy. In Sweden, home of Spotify and the Pirate Bay, almost 50% of internet users used a subscription service in 2012.

Looks like companies are recognizing that this industry needs more carrots, less sticks!