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RIAA Issues 2005 Year-End Shipment Numbers

The Recording Industry Association of America (RIAA) released its full-year retail shipment data for 2005.

During the past year, the music industry continued to innovate, transform itself and deliver compelling music to fans. Music is now available through an ever-expanding array of digital formats, while record labels continue to work with their partners in the retail community to offer fans a high-value experience for physical products.

Reflecting the emergence of new revenue streams for the music industry, the RIAA year-end shipment analysis now includes retail value information for music subscription services, in-store kiosks, music videos sold online and mobile phone master ringtones, in addition to a la carte digital downloads.

"The music community has pivoted hard to the digital age, and fans are the true beneficiaries," said Mitch Bainwol, Chairman and CEO of the RIAA. "We have transformed the way we do business and deliver music to consumers. The ways fans can enjoy music -- and the ways the industry can recognize a return on its investment -- have never been greater: download and subscription services, mobile phone content, enhanced value CDs, burn-on-demand kiosks, digital radio services. We are working hard to deliver consumers the music they love in the formats they want."

"At the same time, we recognize the very real challenges that continue to plague our ability to invest in the next generation of music," Bainwol continued. "The Supreme Court's unanimous Grokster decision was extraordinarily meaningful, but the theft of music in its various forms continues to exact a heavy price. The emergence of new digital radio platforms, while exciting and holding great potential, present new challenges if allowed to morph into download-like services without commensurate compensation."

The overall approximate retail value of the industry, when combining shipments of physical products to various outlets with the estimated value of various digital revenue streams, was $12.27 billion in 2005, compared to $12.34 billion in 2004 (note: the 2005 figures include some categories not collected in 2004, such as mobile, digital subscription, digital music video, and kiosks). The wholesale value equivalent of the music industry in 2005, when combining both digital and physical revenues, is $7.0 billion.

Overall album shipments, when including both physical and digital albums (albums plus individual full-length tracks divided by 10), were 794.7 million in 2005, a 3.9 percent decline from 2004 (note: albums include all full-length formats including video).

The number of overall physical units (CDs, DVD videos, cassettes, etc.) shipped to retail decreased by 7.6 percent, when compared to 2004. Counting all formats and all distribution channels (retail and special markets distribution), overall unit shipments of physical product decreased by 8.0 percent in 2005. The decrease is based on 749 million total units shipped in 2005, compared to 814 million in 2004. The suggested retail value of all physical products shipped to various outlets was $11.2 billion, a 7.9 percent decline from 2004. The wholesale equivalent was $6.4 billion in 2005, a 9.0 percent drop from 2004.

Mobile formats (such as ringtones, ringbacks and other artist-related content) shipped 170.0 million units, which represents $421.6 million in retail value. Online music videos are also a promising new digital way for fans to enjoy music. Some 1.9 million digital music videos were sold online, for an estimated retail value of $3.7 million. Sales of digital singles grew by 163 percent (as did the retail value) – from 139.4 million units in 2004 to 366.9 million units in 2005. Full-length digital album shipments grew 198.5 percent, from 4.6 million units to 13.6 million. Subscription services also continue to gain traction in the marketplace: approximately 1.3 million music fans subscribe to a service. The suggested retail value of those subscriptions, when tallied, is $149.2 million. According to data from The NPD Group, 4.2 percent of Internet-connected households used a legal online music service in December 2005, an all-time high.

Along with other factors like competition from other entertainment products, various forms of piracy -- including illegal downloading sites, illicit CD burning and the sales of counterfeit and pirated CDs -- continue to be major factors undermining the health of the music industry, particularly impacting major releases, with artists and songs illegally downloaded most often mirroring the top selling albums. According to SoundScan, the top 100 albums in 2005 cumulatively sold 128.1 million units at record stores, compared to 153.3 million units in 2004.

Relative to the growing adoption of high-speed Internet connections, illegal peer-to-peer traffic on the more popular sites has been held in check due to the industry's education and enforcement efforts. However, the piracy problem on college campuses is evolving and presenting new challenges. Internal campus song distribution networks, the piracy of songs or albums before commercial release dates, and the pirating of artists' entire catalogue in a single keystroke on certain sites, are all becoming increasingly popular.

The 2005 statistics are supplied by PricewaterhouseCoopers, LLP to the RIAA and are broken down by U.S. music shipments from record companies to retail outlets and by all U.S. music shipments from record companies (including retail shipments and direct-to-consumer sales and special markets).

An interesting point that stuck out to me is that although sales were down 3.9% for albums, they shipped 8% less meaning more than half the loss in units shipped were more than made up for with Digital album sales. And the profit margin on the Digital album sales are significantly higher than non digital. This all could have started 2 years earlier (not really before since not enough folks had broadband then) and they'd be far better off today. I think these numbers will shift considerably over the next 2 years until Digital becomes the most important income producer.

Brian

Hi Brian,

After reading your 1st Post, I was going to ask you if you could sum it all up in 25 words or less,,,but then, in your 2nd Post (with a little editting:-)) you did. Thanks!

Midnite

[QUOTE]Originally posted by Brian Austin Whitney:
I think these numbers will shift considerably over the next 2 years until Digital becomes the most important income producer.



[This message has been edited by Midnite Bob (edited 04-04-2006).]

I especially like the quote about the music community making a hard shift to the digital age. Duh, it's been a big shift to digital every since the CD came out. Beyond that, I think they mean the concept of Internet Distribution. Which it seems they're now finally embracing. Funny how the consumers can actually create a market effect.

The great thing is, the non-signed artists are the ones that stand to benefit from all the litigation that the RIAA has brought down to get a business model in place.

I'm happy about the situation. I think the music industry will begin to prosper in a couple of years, like never before.

Jody

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