Digital Is Transforming the Music Business | American Funds

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Investment Insights

May 2015

Digital Is Transforming the Music Business

“There’s a lot of disruption going on, and media is right in the middle of it. Traditional media companies have a lot of competition that didn’t exist five or 10 years ago.”

— David Carpenter

David Carpenter
David Carpenter Investment Analyst Los Angeles office 22 years of experience (as of 12/31/16)
iTunes rocked the industry, but streaming may represent another seachange

Music Downloads Top the Charts

Source: Recording Industry Association of America. Data are based on year-end shipment statistics for the recorded music industry in the United States and represent the cumulative total of all four music formats shown in any given year. Units refers to the raw volume of products, which may be physical or digital, in a given category. Vinyl, cassettes, CDs and downloads all include both albums and singles.

Yes, sales of vinyl records are surging — nearly 10 million old-fashioned platters were sold in 2013, the most since 1997. Who’s buying records? Mostly hipsters into indie-rock, and diehard audiophiles who contend vinyl recordings sound better than digital (among recent bestsellers on vinyl: Jack White’s Lazaretto and Beck’s Morning Phase). While it’s nice for old times’ sake to see vinyl win a battle, the war over how we listen to music may be over, and if digital hasn’t already won, the others may be down for the count.

One need not look further than the music business and Apple’s iTunes Music Store for an example of how innovation can transform an industry. After decades of distributing music to consumers in essentially the same fashion, with the launch of iTunes, everything changed in 2003. Since then, music sales have dropped from about $12 billion to $7 billion in 2013. But during that same time, people have been buying more music than ever, but in the form of the digital singles popularized by iTunes. The low cost and ease of downloading digital singles may have been a blessing for music fans, but it’s caused massive disruption in the music industry.

Little more than a decade after iTunes revolutionized the music world, the industry is undergoing what may be an even more radical, digital transition — streaming. Many listeners are moving away from CDs and downloads to streaming services like Spotify, Pandora and YouTube. The music industry may be in for yet another seachange.

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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.