Streaming services and Adele drive resurgence of entertainment sales

The popularity of digital services like Netflix and Spotify have energised the lagging sector's revenue to a record high of £6.1bn.

by Rebecca Smith
Last Updated: 25 Apr 2016

It’s been a long time coming – a decade of decline in fact – but finally there’s been a resurgence when it comes to the UK’s entertainment sector. Sales reached £6.04bn back in 2004, but then began to spiral, reaching a low of £5.2bn in 2012 as Woolworths and Virgin shut up shop.

All looked relatively glum, but now according to the latest figures from the Entertainment Retailers Association (ERA), digital revenues helped to boost the combined games, video and music markets to a record high of £6.1bn for 2015. The trade body, which represents high street retailers as well as the likes of Spotify, found that digital services were propelling growth across all three entertainment sectors and accounted for nearly 60% of all UK entertainment revenues.

The ‘freemium’ model whereby users can stream music for free (but with adverts), operating with the expectation some will upgrade to paid-for accounts free of advertising, has come under scrutiny over its sustainability. Yet Spotify, Apple Music, Amazon Prime Music and Deezer increased sales by nearly 50% to £251m for the year, as the total UK music market grew 3.5%.

Similarly, Netflix and Amazon Prime strengthened 2015 for video too – digital revenues exceeded £1bn for the first time. Digital game sales from online and mobile services grew 17% to £1.9bn. 

Some high street names have struggled with the transition to digital though – Game Digital had a dismal start to the festive trading period and issued its second profit warning in as many years. The switch over from the older gaming formats to PlayStation 4 and Xbox One software impacted profitability across the UK market, according to Game's CEO.

The ERA figures showed console software (driven by the Xbox One and PS4 platforms) held its own against the growth in digital games, increasing 1.6% to £866m in 2015. For Game though, the demand for new consoles hadn’t been enough to offset the ‘unexpectedly steep decline’ in games for older models.

The entertainment business as a whole though has made a big step in the right direction, according to ERA CEO Kim Bayley. A decade ago it had been 'on the edge of a precipice', with piracy a rampant issue and few legal alternatives. ‘Thanks to huge investments by the likes of Apple and Steam and Netflix and Spotify, there has been a significant turnaround,' she said.

The biggest entertainment success of the year was Adele’s album 25, which sold 2.6m copies in the six weeks following its November launch and knocked football game FIFA 16 into second place with 2.5m units sold. The singer didn’t feature in the top ten lists for most streamed song or artist – though that's hardly surprising since she refused to release much of her music to streaming services like Spotify.

Despite the predicted death of the CD, it’s still hanging on. Sales fell at the slowest rate in a decade – just 3.7% in 2015, generating sales of £468m. This stacks up against a drop of 8% for 2014, 12% in 2013 and 20% in 2012. While digital spending has been driving entertainment sales, CDs seem to be faring better than downloads – sales of which were down 13% last year to drop below £300m.

Bayley said it was ‘way too soon to write off the CD or other disc-based formats’ and that new ways of enjoying entertainment could ‘happily co-exist’ with older formats. ‘That diversity is proving to be the entertainment market’s greatest strength,’ she added.

Vinyl album sales continued to rise – up 65% on 2014 to £42m, though it’s still a very niche corner of the market, accounting for just 6% of the album market. Total physical sales of albums and singles were essentially flat and of course CD sales still fell overall, but these latest figures do indicate that proclaiming their death could prove premature. 

Similarly, it might be too early to tell whether streaming's increasingly important role within the sector will be sustainable, but it does reflect that new routes to revenue will crop up alongside the move to digital.

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