Wednesday, August 3, 2011

The Dinosaur is Dead, Long Live the Dinosaur

It seems like every time I read an article about music and the music industry the topics seem to have the same underlying current. Whether it is about streaming, the cloud, owning verses access or the financial viability of subscription models, the media is constantly buzzing about the death of buying music. Even downloading is now considered passé as we are told daily that nobody wants to buy music any longer. It is now all about access and the cloud is king. Of all music industry articles, 90% are about some kind of digital services, 1 and most of these seem to be about the latest services that the big boys like Apple, Amazon, and Google are pushing. These companies hope to make a lot of money from these new services and the media seems content to regurgitate their press releases. The truth, it turns out, is that most people aren’t buying it...

The dirty little secret that none of the these stories rarely discuss is that is the dinosaur of buying music is not dead, it is still alive and we, the music buyers are the dinosaurs. Recent studies have shown that despite the deluge of promotions and media blitz regarding music streaming, access and cloud services, people are still buying music.

According to Nielsen SoundScan, album sales for 2011 are up 1.6%. This is the first time album sales have increased since 2004, and only the second time since 1999 that a year-on-year growth has occurred. 2

While CD sales are still in decline, the plastic discs are still the most popular way for Americans to get their music, accounting for half of all U.S. music delivery. In the UK 4 out of 5, or 82.2%, of all music sales un 2010 were still CDs, according to a study by the BPI. 1 No your eyes are not playing tricks on you, CDs still roam the earth.

The recent increase in music sales was fueled by growth in the digital music sector. Individual digital track sales rose 11% and, very encouraging, digital album sales rose 19%. 4 Even the cephalopod of vinyl is rising from the deep. Sales of vinyl for 2011 are up 55% 1 or 37% 2 depending on who you believe.

For now it seems that you can forget all the buzz about Rhapsody,, Spotify and all those other streaming services. They account for an insignificant 3% off all recorded music. Despite all the buzz about streaming and the cloud, an RIAA chart depicting music sales from 1998 through 2010 shows that subscription revenue has actually fallen by 14% since 2007! 5 Most music fans, it turns out, still prefer to buy their music rather than just have access to it.

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While all these numbers are good, analysts are not sure if this is just a temporary increase, as was seen in 2004, or part of a bigger, long term, growth. No one is even sure of what is driving the increase in sales.

A lot of the credit is due to strong showings by artists such as Adele, Lady Gaga, Katy Perry, and Mumford & Sons. Adele’s album, “21”, was the number one selling album for the first half of 2011, with 2.5 million units sold. Lady Gaga’s “Born This Way” was second with 1.5 million in sales. 4 Others point to The Beatles catalog finally being available for digital download. 2

Another factor is retailers slashing prices. The most extreme was who sold the “Born This Way” album for just $0.99 in an effort to lure buyers away from iTunes and promote their new cloud service. The sale crashed amazon’s servers, selling 1.1 million copies in the first week. While this stragtey did bring the majority of digital buyers to amazon, their lose due to the sale prices was in excess of $3 million. This is because they paid Gag’s label full price for each album sold. 6

The Amazon “Born this Way” sale once again illustrates just how little power DIY and Independent artists have in the digital world. Normally when Amazon lowers the price of a Indie or DIY digital album the label or artist receives less income, because the payment is tied to the selling price of the album. So if you have a digital album in the mp3 store and they decide to lower the price for it to less than 50% of their normal $8.99 price, you lose 50%, not Amazon. They get to decide what to put it on sale, but it comes out the artist's, pocket. Their mark-up is a fixed percentage, but your income is not. However, as the “Born this Way” sale points out, if you are a major artist, signed to a major label, your label still has the clout to make Amazon pay them (and you) the full wholesale price, regardless of what amount they decide to sell it for. Unlike the rest of us, Lady Gaga didn't take the hit, Amazon did. I'm sure they'll be fine.

Some analysts believe that the death of LimeWire, after it, and founder Mark Gorton, lost a copyright infringement law suit to the major labels, is also helping to drive up music sales this year. The research firm NPD Group reported that 56% of all peer to peer illegal file downloading for the 3rd quarter of last year was done over LimeWire. By the 4th quarter, after LimeWire was shut down, all internet P2P downloading had dropped to 9%, down from 16% three years earlier. "Limewire was so popular for music file trading, and for so long, that its closure has had a powerful and immediate effect on the number of people downloading music files from peer-to-peer services and curtailed the amount being swapped," said MPD's entertainment industry analyst Russ Crupnick. 3 Gorton ended up paying RIAA members $105 million in damages. 4

In what seems to be the most encouraging news emerging from all of this, NPD senior industry analyst Russ Crupnick said, is that younger music fans are buying music, “We talk about young people and the lost generation but some of these younger music buyers are telling us 'I want that thing I can hold, the liner notes and album cover and the other ancillary materials that come with physical products." 4

Not everyone seems to have gotten the memo that buying music is still the way to go however, as I witnessed today. While standing in line at a Starbucks I spied a hipster, sitting at a table, listening to Spotify on his computer, through a pair of headphone, and tweeting about what he was finding. He didn’t have any Starbucks products on the table either, so I assumed that purchasing in general was not his “thing”.

There is even talk that the decade long drop in music sales is over and that people are interested in music again. However, logic should tell us that predicting the end of a ten year trend, on just six months of data, is not the wisest decision.

How any of this will affect DIY artist is yet to be determined . As we’ve seen in an earlier post, "of the 13 million songs available online for purchase, 10 million, or 77%, never found a single buyer, and of the 23% that were purchased at least one time, 80% of that revenue came from only 52,000 songs, the "hits". Less than 1% of all available songs." Rock is still the most popular genre accounting for 32% of albums shares, while Pop accounts for 40% of all individual digital tracks purchased. 2 Small genres, like World, New Age, Classical, Bluegrass, and Folk really don’t make a dent in the numbers we’ve been talking about.

Keep in mind that in general the amount of income from music sales drops exponentially as a buyer moves from compact disc purchases to the other types of music delivery. From CD to digital album, to individual song, to streaming. Artists still need to sell way more digital product to generate the same about of income that they can get from CD sales direct, or from their website. 7

But still, it is some good news for a change.

Now, back to being a dinosaur...








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