SIGNALS

A quick look at the pie chart suggests that the music industry exists in a nice state of equilibrium. Sales appear to be evenly split among downloads, streaming, and physical media. If you were a financial planner, and your client's portfolio was as neatly balanced as that, you could sleep soundly. But of course, that equilibrium is only a snapshot of a very dynamic situation. In reality, the way we listen to music is changing fast.

The Recording Industry Association of America (RIAA) is a trade organization supported by record labels; among its many obligations is to keep tabs on U.S. music sales. It periodically reports the numbers and its latest report covers 2014 sales. The news is generally okay; wholesale revenues were up 2%, but retail revenues were down 0.5%. In dollar amount, retail value was about $7 billion, and it's been hovering around that number for five years now.

More interesting is how we get our music. Permanent downloads deliver the lion's share at 37%, but that's down from 40% in 2013. Streaming revenue stands at 27% and that's up from 21%. Physical media are at 32%, down from 35%. Looked at another way, the smart money is in streaming. Not only is it the only growth area of the three, but it's a money maker; revenues from streaming music services grew 29% last year. Did your stock portfolio do that well? So that you can adjust your own stock holdings, you should know that the hot streaming category includes subscription services (such as Rhapsody and paid versions of Spotify), streaming radio distributed by SoundExchange (like Pandora and SiriusXM), and other non-subscription on-demand streaming services (like YouTube, Vevo, and free versions of Spotify).

Moreover, within the banner of streaming music, revenues of each of its components are growing nicely. Paid subscriptions grew 25%, ad-supported on-demand grew 34%, and SoundExchange grew 31%. Actually, the RIAA adjusted the way it calculates retail revenues for paid subscriptions; if that is taken into account, the subscriptions numbers would be even better.

And physical media? As a category, that is in decline, both in volume and value. The CD format is still soldering onward, and dominates the category with an 82% share, and still supplies the overall music market with $1.85 billion, or 27% of its total retail value. But clearly, we are switching from CDs to streaming.

One bright spot among physical media is full-length vinyl. It grew at 49%, to $315 million; that's 4.5% of the overall market value. That's very respectable growth and the vinyl trend will be interesting to watch. Amid the torrents of bits washing over the music business, listening to Dark Side of the Moon on vinyl is, of course, entirely appropriate.