Transactional Online Audio

Future Viability: Decline

Music ownership is in decline.

  • Vast libraries of music and other audio content available for purchase
  • Volume-based business for retailers, with low margins on each transaction

The number of transactions is in decline, reflecting a shifting preference among the listening market from owning content to subscribing to online audio services. Retail music ownership is expected to decline in the coming years in both the English- and French-language markets.

Read time: approx. 6 min

The Fundamentals

iTunes, 7digital, eMusic, Band Camp, CD Baby, eStories… Transactional online audio services allow users to build an audio library from a vast catalogue, and listen to it when and how they want. These downloads are safe and legal, and the buyer knows the artist is being compensated for his or her work. The digital media retailer takes a cut of the revenue from each sale, but the rest goes to artists and labels. For buyers, downloading costs are relatively low per unit. Over time, building a large collection means making a significant financial investment, but in the end, the buyer owns his or her copy of the music.

Keep them coming back for more. Some transactional audio services, like Apple iTunes, represent just one branch of a larger business that sells other products and services, thus keeping users within the company’s ecosystem. Other services, like eMusic, offer memberships for a monthly fee, giving buyers a discount on their purchases or offering content for pre-order. Ensuring that a broad variety and depth of content is on offer is a key strategy for this model, and many services have expanded their content library with non-music audio formats like podcasts and audiobooks. As in the case of streaming audio, many providers use algorithm-derived recommendations to cross-sell to users, keeping their customers coming back for more.

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Canadian Contribution

Important benefits for artists, even in the absence of content quotas. Transactional audio services are not subject to Canadian content quotas and do not have to pay Canadian content development (CCD) contributions. However, they still appear to promote Canadian content to Canadian markets. iTunes, for example, offers a Hot Canadian Releases section and a Musique Francophone section. Moreover, Canadian artists themselves are seeing to it that Canadian music is heard on the global stage. According to BuzzAngle, “Two out of the top five selling albums in 2017 were by Canadian-born artists,” and “The top 1,000 albums by Canadian-born artists accounted for 1.5 million album sales in 2017 and 10% of total album sales for the year.”1 Though they aren’t required to pay CCD, transactional audio retailers must redistribute a share of revenue from each download of a Canadian album or track to artists and producers, and those amounts are reportedly higher than for streaming audio services. Artists using a transactional platform do not have to garner vast numbers of plays to start making significant revenue. For example, with a single track download, an unsigned artist on iTunes makes $0.69, whereas on a streaming service, she or he might make between $0.0018 and $0.018 per play.2 Emerging artists thus have a better chance of being adequately compensated from a transactional audio sale, even if they’re not well known.

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Consumer Profile

A popular, but declining, listening model. About 35% of Canadians say they listen to songs from their digital library in a typical week.3 Listening to this library accounts for 19% of their listening time (except for millennials, for whom this accounts for 25% of their listening time).4 Overall, yearly sales of audio content via the transactional model, including physical album sales, are being affected by declining demand. In 2017, digital album sales amounted to 6.8 million units, down 21.7% from 2016, and digital single track sales amounted to 61.1 billion units, down 18.9% from 2016.5

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Financial

Digital sales are declining, like physical sales before them. Total revenues in 2016 for transactional online audio were $225 million, representing an 8.6% share of the overall audio market. Its market share is down from 11.3% in 2012 because of a decline in revenues and increases in the revenues of other models. Though retailers are likely remaining profitable, their profitability should be declining alongside revenues, particularly with growing competition in the digital space. Profitability is determined by sales volume, and sales have been in decline.

Financial trends for transactional online audio

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Source: CRTC estimates (CRTC data collection; Sirius XM publicly available financial statements; Ovum; MTM consumer data)

Note: Splits by language markets are estimated based on MTM data.

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