Trends in foreign trade in music goods can be identified from one group, 898, in the Standard International Trade Classification (SITC). Developed by the United Nations Statistics Division it is used by most countries, which makes international comparison possible. SITC Group 898 consists of musical instruments and sound recordings.
The final section discusses the problem that formal foreign-trade statistics have not yet been developed for digital music products and services, so we are currently limited to trade in goods (SITC Group 898). Furthermore, the only country we have found to have published music-related statistics on intellectual property foreign-trade services is Australia itself.
The Australian statistics cover two topics: music goods compared with other “cultural goods” as defined by the Australian Bureau of Statistics (Tables 1 and 2), and our only reference to trade in services based on music as part of a group of intellectual property classes (Tables 3 to 5). Not all categories shown here have to do directly with music, but they help to put music goods and services into the context of other goods and services with which they coexist.
Musical instruments and recordings is one of three foreign trade classifications of cultural goods. The other two are SITC Group 892: printed matter (books, periodicals) and 896: works of art, collectors’ pieces and antiques. Tables 1 and 2 show exports and imports of each group for each year from 1988-89 to 2013-14. Both tables have two halves, one showing the data in current prices, one using export and import price indices which are not ideally suited because they are barely specific enough.
The export and import price indices for SITC Division 89 follow some odd paths rather than generally rising inflationary trends like the consumer price index. Expressed in 2011-12 values (=100) the export price index generally increased between 1988-89 and 2001-02, remained at levels significant above 100 up to 2008-09 before dipping below that level in 2012-13 and 2013-14. The import price index looks even more “extreme” with 1988-89 and the base year 2011-12 both being lowest and the index rising to above 150 in 2000-01 and 2001-02 before declining to 100 in 2011-12. It recently showed a significant increase to 111.7 in 2013-14.
The main finding is that Australia has a heavy trade deficit in all three cultural goods categories. Recent imports of printed matter (using current prices) have been in the order of $1 billion per annum, while exports have fallen below $300m. Imports of music goods have also been around $1 billion, but exports have declined to less than $150m. Trade in works of arts, collectors’ pieces and antiques is lower (imports $186m in 2013-14, exports averaging around $90m recently).
Based on the right-hand columns (using the export and import indices), exports of printed matter show an average of 32.3% of imports, with the ratio first rising from 21.2% in 1988-89 to 43.3% in 2001-02, and then declining to 28.3% in 2013-14. However, much of this movement disappears when the statistics for printed matter are not adjusted by the indices: from a minimum of 17.3% in 1988-89 the ratio then rises to 34.3% in 1996-97, and stays above 30% until 2010-11 before a reduction to 25.2% in 2013-14. The average export-import ratio for the full period was 28.1% for printed matter, lower than using the adjusted numbers. So the question is whether to use the adjusted data, or the original numbers without adjustment. There are flaws in both.
Similar findings apply to works of art, collectors’ pieces and antiques, though the export-import ratio is generally higher and more variable. Using the trade price indices, the ratio starts at an average of 43% in the initial three years to June 1991. It rises to a positive balance in 2002-03 and 2003-04 before falling back to about two-thirds in 2012-13 and 2013-14. The average for the full period was 71.7%. The unadjusted ratios are again lower, rising from an average 36% in the three initial years to a small surplus between 2001-02 and 2003-04, and then falls to 57% in the three years to June 2014. The average for the full period was 59%. Music goods have the lowest export-import ratio of the three groups of cultural goods. The ratio averaged 18.4% when adjusted by the trade price indices and 15.9% for the unadjusted calculations. Using the indices, the ratio rose to 23% in 1991-92 and 1992-93 and again to 20% and above from 2000-01 to 2004-05 before falling to 13.9% by 2011-12. It recently improved to 16.9% in 2013-14, still below the average for the full period.
The unadjusted ratios are lower but show a similar pattern: the highest export-import ratios are again in 1991-92 and 1992-93 (17.9% in both years), and from 2000-01 to 2003-04 (averaging 20%). Again, it fell to a low level in 2011-12 (13.9%) before recovering to 15% in 2013-14 (still below the average of 15.9% for the full period).
Chart 1 uses a logarithmic scale to convey a visual impression of relative rates of change in the trade of music goods. If the lines are parallel, the percentage change is the same (and the export-import ratio is constant). It was noted above that the ratio declined between 2000-01 and 2011-12. This is also clear from Chart 1 showing a decline in exports from 2002-03 whereas imports continued to increase up to 2007-08 and then showed less of a percentage fall up to 2011-12. It is only in the two most recent years that exports of music goods have risen again (while imports kept falling). It remains to be seen, of course, whether this signifies a change to a brighter future for Australian exports of music goods.
This trade is recorded as debits (including a minus sign) when the service is imported into Australia, and a credit when exported from Australia. The charges are for the use of intellectual property “not elsewhere indicated”. They include licences to reproduce and/or distribute computer services; outcomes of research and development; franchises and trademarks and licensing fees; music; and “other charges”.
Tables 3, 4 and 5 form a group. All are at current prices in the absence of a suitable price index. Table 3 shows debits, the total value of which for this group of intellectual property items exceeded $4 billion in 2012-13 and is likely to do so again in 2013-14. In nominal values, the total increase has been reasonably steady since 1997-98, the first year available. The growth was strong in computer service debits, exceeding $1.3 billion in each of the four latest fiscal years – slightly ahead of franchises and trademarks which also showed strong growth. Imported R&D outcomes have declined since 2007-08, and their nominal value is now below $500m and lower than any previous years in Table 3.
Music debits in the latest period totalled $229m, accounting for 5.7% of the total $4 billion on Table 3. These debits reached their highest share in 2000-01 (13.4%) and the share now seems to have stabilized at or below 6% of total IP debits. On the credit side, the share of music if anything has increased from about 8.5% at the end of the 1990s to 9% to 11% in recent years (Table 4). There are some oddities in the credit data, however, with computer services declining, especially since 2005. The most impressive growth in credits shown in Table 4 was in R&D, indicating a significant improvement in the trade balance for these services. It appears to have declined to less than $300m in 2013-14, compared with $666m in 2006-07 (Table 5).
The total deficit for this group of intellectual property items nevertheless remains deeply negative at around $3.3 billion in recent years, of which computer services and franchises and trademarks account for about one-third each. The music deficit appears to have been on a declining trend and now averages about $180m per annum, not much above 5% of the total deficit for the total of these services – compared with as much as 15% in 2000-01. It is legitimate to ask whether these and other music-related trade statistics indicate that significant change is possible, given the right impetus from governments, the music industry and educators.
Chart 2 demonstrates the trends in music debits and credits (with the minus sign removed for debits for a clearer comparison with credits). Since 1999-2000, the nominal value of debits has fluctuated around a flat trend. Credits have grown a little, and this growth may have resumed after a decline to lower credits in 2010-11. But the deficit remains substantial.
Comprehensive statistics for the 27 members of the European Community provide an opportunity to identify nations with a significant positive or negative music goods trade balance in a recent year (2009). The values are in Euro, averaging about $A1.77 in 2009 (the rate has since improved in favour of the $A). The statistics show the three components of SITC Group 898 separately: musical instruments, CDs and DVDs. Furthermore, two alternative trade balances are available: total external goods trade (Table 6) and total trade outside the EU on the assumption that the area is becoming more of an economic entity in itself (Table 7).
Three groups of EU member countries were identified: those with a positive balance of trade in music goods totalling EUR 10m or more, those with a negative balance of similar magnitude, and member nations with a balance of less than EUR 10m either way.
Including intra-EU trade, five member countries had significant positive music goods balances in 2009 (Table 6). They were dominated by Germany exporting EUR 2.08 billion’s worth and importing for EUR 1.17 billion, yielding a positive music balance of EUR 911m for that country. Four other countries (Poland, Austria, the Czech Republic and Sweden) exported a total of EUR 913m and imported for EUR 640m, resulting in a balance of EUR 273m, a fraction of what Germany achieved on its own.
A total of 12 EU members had negative music balances of EUR 10m or more, while the remaining 10 members (listed in the footnote to Table 6), had positive or negative music balances of less than EUR 10m in 2009. These countries ranged from the UK with exports of EUR 420m, imports of $814m and a balance of EUR -394m, followed by Italy (imports EUR 127m, exports EUR 324m, balance EUR -197m) and Spain (imports EUR 66m, exports EUR 188m, balance EUR -122m).
As it happened, total EU exports and imports of music goods almost balanced at EUR 4.82 billion and 4.81 billion, respectively – but there was a significant difference between the three types of music goods, with the total balance for music instruments being a deficit of EUR 571m but positive balances for CDs (EUR 111m) and DVDs (470m). Almost every country had a negative trade balance for music instruments, including Germany and three of the four other countries in the major positive balance group.
Most of the trade in Table 6 takes place within the European Community itself – proportions vary up to 100% for some member countries. Table 7 is based on the proportion of intra-EU trade shown in the source tables, providing an approximate picture of the EU’s trade beyond its boundaries. For the 27 EU countries as a whole, the proportion of trade beyond the EU’s borders can be calculated by comparing the grand total in the bottom of Table 6 with the external trade by the “EU27” at the top of Table 7. This proportion varies between musical instruments, of which 38% of exports go beyond the EU while 57% of imports are sourced outside, and the physical recordings which are much more likely to be traded within the EU (CDs traded externally: 18% of exports, 9% of imports; DVDs 14% of exports, 6% of imports). The total external trade proportion in 2009 was 20% for exports (EUR 968m of EUR 4.82 billion) and 23% for imports (EUR 1.13 billion of a total EUR 4.81 billion).
Concentrating on the external trade beyond the EU brings some different countries into the league with a positive balance of EUR 10m plus. Germany, Sweden and Austria retain their place among these major net exporters. Germany exported EUR 439m externally (21% of its total exports of these goods). Sweden, with the second-highest trade surplus in Table 7 exported for EUR 123m beyond the EU which represented a much higher proportion of its total exports (45%). Austria’s total external exports amounted to EUR 37m, which was only 11% of its total exports of music goods shown in Table 6.
Excluding the intra-EU trade results in France and Denmark replacing Poland and the Czech Republic among member countries with a positive balance of EUR 10+. Denmark appears to have particularly strong sales of music goods beyond the EU, improving its negative position of EUR -50m in Table 6 to a positive EUR 38m in Table 7. Sweden also improved its balance when intra-EU trade is omitted, from EUR 38m to EUR 58m.
The main countries with a negative trade balance with the rest of the world were Belgium, the Netherlands and the United Kingdom. The situation changed quite radically for Belgium, with a total negative trade balance of EUR 66m in Table 6 deteriorating to EUR -157m when intra-EU trade is omitted. The same goes for the Netherlands (total balance EUR -33m, external balance EUR -128m). The UK, in contrast, had a total external trade balance of EUR -394m (Table 6), but only EUR -115m was outside the European Union.
The last group of data comes from the United Nations’ International Trade Statistics Yearbook and again refers specifically to musical instruments and physical recordings (SITC Group 898). These statistics represent just a start towards understanding which countries are the top suppliers on the world market, and where the trade flows go for these goods.
Total world trade in music goods is recorded in Table 8 and graphed in Chart 3.At the current prices which are the only available measure, total trade in these goods went through a period of moderate growth up to around 2002, followed by rapid growth to 2007 or 2008 and some decline thereafter. These official statistics tend to hide more than they reveal. Musical instruments, for example, appear to represent a larger proportion of some countries’ music goods trades, which helps to conceal the impact of digital recordings since around the turn of the century. The presentation of these statistics is only a beginning – more research is required.
Table 9 identifies the top 10 exporters of music goods and Table 10 the top 10 importers. Seven of these countries are on both tables as shown by the trade balances (Table 11). Tables 9 and 10 also show average annual rates of change for 2004-08 and 2008-12, corresponding neatly to pre- and post-Global Financial Crisis years. According to Table 9, the deterioration in these rates in the latter period applied to most or all exporting countries. The change from high growth to decline was particularly evident in China, but the rates of decline in the latter period were worst in Ireland and Japan followed by Germany and Austria (based on total trade including intra-EU).
China in 2012 retained its number one position with 13.5% of the global total of music goods exports, followed by Germany (10% of total trade), Singapore (9.7%) and the US (9.7%). China was also the top importer of music goods (11.6%) after strong growth between 2004 and 2008, followed by the US (10%) despite the negative import trends in both four-year periods shown. The expanding importing trends in Asian countries (China, Thailand, and the Special Administrative Region of Hong Kong) stand out in Table 10.
The trade balance is of particular interest (Table 11). It is topped by Germany (including intra-EU flows) with $US 1.62 billion in 2012, followed by China ($1.06 billion), Japan ($295m) and the Netherlands including intra-EU trade ($232m). Strikingly, all four countries had much lower trade balances in 2012 than in 2008, especially Japan.
The United States has hovered during these years with a generally small trade deficit or surplus, much below the UK with its $1 billion deficit in 2012, and Hong Kong which increased its deficit from $546m in 2008 to $1.4 billion in 2012.
The world, according to these statistics, shows a negative trade balance for music goods (which would be due to statistical discrepancies as global imports and exports should balance out). More significantly, the difference between the recorded total world trade balance and the sum of the seven countries shown in Table 11 was about $4 billion in 2012 which represents a strong fall from more than $10 billion in 2008.
In short, there are changes in the world market for music goods (quite apart from the digital transformation of the recording market) which need further analysis. These tables represent just a beginning.
The last world trade table, 12, is based on an annual chart in the United Nations trade statistics. It analyses exports and imports in the main “MDG regions” (developed as part of the UN’s major Millennium Development Goal project). The main feature of Table 12 is its identification of which of these major regions are net exporters of music goods, and which are net importers. Eastern Asia (China) and Southeast Asia are net exporters of music goods. Practically all groups of developed countries (Europe, North America) are net importers, as well as Africa, Southern and Western Asia, Latin America, and other parts of the world included as “all other” in Table 12.
The one main category that is missing from this analysis is imports and exports of digital product, which is an obvious disadvantage in view of the revolution that has taken place. The current state of affairs is well documented in a report by the United States International Trade Commission (USITC), Digital Trade in the US and Global Economies, Part 1 (dated July 2013).
The USITC report defines digital trade as commerce in products and services delivered via the Internet. Digital sales now make up more than half the total music industry’s revenue (57% in 2012 according to Box 1), and smaller shares of the three other “digitally enabled services” which together provide a measure of international digital trade. US exports of digitally enabled services grew from $282.1 billion in 2007 to $356.1 billion in 2011, with exports exceeding imports every year.
The report contains a comprehensive analysis of the strongly growing role of the Internet both in foreign trade and in commerce generally. The growing footprint of digital industries is typified by major companies with a significant online presence such as Amazon, Apple, Facebook, Google and Microsoft.
The growing footprint is also evident from the diversity of content and growth in online use which has transformed the revenue patterns in the four main content industries, as shown in Box 1.
The report notes (p 2-16): “Music is now predominantly a digital industry, leading the way among content industries, despite a tumultuous transition to Internet delivery. The U.S. music-recording industry’s revenues peaked in 1999 at $15 billion but fell by half over the next decade, reaching $7.1 billion in 2012. Reportedly, this decline was in part due to the online theft associated with newer technologies that afforded more opportunities to distribute music files over the Internet. Industry representatives cite 1999 as the year Napster gained in popularity, enabling the peer-to-peer file sharing on a large scale that was later found to be unlawful.
This section of the USITC report also notes:
Despite the significant statistical content associated with digital music both in the United States and elsewhere such as the other OECD countries, foreign-trade statistics remain sparse and non-specific. This situation is unlikely to persist, but we may have to be patient before we can build an internally consistent comprehensive picture of foreign trade of both physical and digital products.
Hans Hoegh-Guldberg, 23 August 2014. Entered on Knowledge Base 30 September 2014.