The disruption of the music industry has undoubtedly benefited consumers, but for many on the inside, its consequences have been both profound and painful. Artists finally have direct connections to their audiences, but they must fight through more noise than ever before. Distribution is no longer constrained by shelf space or A&R men, but a stream or download generates royalties many artists decry as untenable. Audiences can now enjoy more music, more easily and in more places – yet the amount they spend is at an unprecedented low.
Music may have been the first media format to be upended by digital, but it remains deeply challenged even as video, publishing and gaming continue their path forward (however modestly). If the industry hopes to restore growth and fix the problems with today’s streaming models, it needs to confront its evolution: how have ecosystem revenues – from albums sales to concerts, radio plays, digital downloads and streams – changed and been redistributed? What is the underlying value of music? Did streaming erode this value or correct it? What’s the logic behind streaming royalty models and where are its flaws and decencies? How can it be improved? After 15 years of declining consumer spend, it’s time to stop focusing on what was or “should” be. Industries don’t rebuild themselves.
PART I: HOW WE GOT HERE:
The Decline of Recorded Music Sales
Since the RIAA began its comprehensive database of US music sales in 1973, the category has never commanded less in consumer spend than it does today. On an inflation-adjusted basis, sales have plummeted by over 70% (or $14B) since 1999 – even though the American population has grown by some 46M over the period. And this decline is likely to continue. Digital revenues have begun to fall and CDs, which still represent 30% of sales, are unlikely to rebound. In Q3 of 2014, Wal-Mart, which moves one in every four physical discs sold in the United States, nearly halved the shelf space dedicated to the format, as well as the number of unique records it carried. In a few years, Amazon may be the only mass market retailer of physical music, at which point prices will undoubtedly tumble further.
What makes this decline particularly controversial is the fact that consumption of recorded music is greater than ever before. We listen to it wherever we go: on the subway, waiting in line, getting groceries and anywhere else we can. The soundtracks of our lives, so to speak, rarely stop. As a result, music executives often blame the collapse of revenues on iTunes’ 99¢ price points (and claim that the associated deal they struck with Apple arose only out of the extraordinary paranoia and confusion surrounding digital distribution and piracy in the early 2000s). However, much of the industry’s pre-iTunes value was inflated, held up only by bundle-based packaging (viz. albums), rather than consumer demand. Per track prices mattered, of course, but they’re also a distraction.
The End of the Age of Ownership: First Albums, then Tracks
The introduction of true a la carte music purchasing was bound to disrupt the music business. Everyone knew the album model had forced consumers to “own” tracks they didn’t want and prevented them from owning some of those they did, but how this would net out was impossible to predict. Nearly 15 years later, however, the answer has become clear.
By 2010, the total number of tracks (including album track equivalents) sold in the United States each year had fallen by 57% (to roughly 4.6B). Though it’s convenient to blame piracy, NPD estimates that fewer than 340M tracks were pirated in the United States in 2010 (~17M pirates downloading an average of 20 tracks each). Even if every one of these illegal downloads represented a cannibalized sale, the industry would still be down more than 50%. The same is true if the number of pirated tracks were somehow twice as many as NPD had estimated. With fewer than 1.5M Americans subscribed to music streaming services in 2010, this explanation also falls short. The end of the album didn’t just bring about the end of unearned revenues, it revealed that the underlying demand for “owned” music was much lower than most believed. Recognizing this fact is critical. If the music industry hopes to increase sales and better support its artists, revenues will need to be generated outside of conventional unit sales.
But first, it’s also important to note that the album-to-track conversion has been doubly bad for the most popular artists. In the album days, consumer spend was monopolized by a handful of $20 “must have” records released by the Beatles and Michael Jacksons of the world. Today, that same spend (or what’s left of it) can be spread across dozens of artists – with each one compensated only for the specific tracks a consumer picks.
Music may have been the first media format to be upended by digital, but it remains deeply challenged even as video, publishing and gaming continue their path forward (however modestly). If the industry hopes to restore growth and fix the problems with today’s streaming models, it needs to confront its evolution: how have ecosystem revenues – from albums sales to concerts, radio plays, digital downloads and streams – changed and been redistributed? What is the underlying value of music? Did streaming erode this value or correct it? What’s the logic behind streaming royalty models and where are its flaws and decencies? How can it be improved? After 15 years of declining consumer spend, it’s time to stop focusing on what was or “should” be. Industries don’t rebuild themselves.
PART I: HOW WE GOT HERE:
The Decline of Recorded Music Sales
Since the RIAA began its comprehensive database of US music sales in 1973, the category has never commanded less in consumer spend than it does today. On an inflation-adjusted basis, sales have plummeted by over 70% (or $14B) since 1999 – even though the American population has grown by some 46M over the period. And this decline is likely to continue. Digital revenues have begun to fall and CDs, which still represent 30% of sales, are unlikely to rebound. In Q3 of 2014, Wal-Mart, which moves one in every four physical discs sold in the United States, nearly halved the shelf space dedicated to the format, as well as the number of unique records it carried. In a few years, Amazon may be the only mass market retailer of physical music, at which point prices will undoubtedly tumble further.
What makes this decline particularly controversial is the fact that consumption of recorded music is greater than ever before. We listen to it wherever we go: on the subway, waiting in line, getting groceries and anywhere else we can. The soundtracks of our lives, so to speak, rarely stop. As a result, music executives often blame the collapse of revenues on iTunes’ 99¢ price points (and claim that the associated deal they struck with Apple arose only out of the extraordinary paranoia and confusion surrounding digital distribution and piracy in the early 2000s). However, much of the industry’s pre-iTunes value was inflated, held up only by bundle-based packaging (viz. albums), rather than consumer demand. Per track prices mattered, of course, but they’re also a distraction.
The End of the Age of Ownership: First Albums, then Tracks
The introduction of true a la carte music purchasing was bound to disrupt the music business. Everyone knew the album model had forced consumers to “own” tracks they didn’t want and prevented them from owning some of those they did, but how this would net out was impossible to predict. Nearly 15 years later, however, the answer has become clear.
By 2010, the total number of tracks (including album track equivalents) sold in the United States each year had fallen by 57% (to roughly 4.6B). Though it’s convenient to blame piracy, NPD estimates that fewer than 340M tracks were pirated in the United States in 2010 (~17M pirates downloading an average of 20 tracks each). Even if every one of these illegal downloads represented a cannibalized sale, the industry would still be down more than 50%. The same is true if the number of pirated tracks were somehow twice as many as NPD had estimated. With fewer than 1.5M Americans subscribed to music streaming services in 2010, this explanation also falls short. The end of the album didn’t just bring about the end of unearned revenues, it revealed that the underlying demand for “owned” music was much lower than most believed. Recognizing this fact is critical. If the music industry hopes to increase sales and better support its artists, revenues will need to be generated outside of conventional unit sales.
But first, it’s also important to note that the album-to-track conversion has been doubly bad for the most popular artists. In the album days, consumer spend was monopolized by a handful of $20 “must have” records released by the Beatles and Michael Jacksons of the world. Today, that same spend (or what’s left of it) can be spread across dozens of artists – with each one compensated only for the specific tracks a consumer picks.
by Jason Hirschhorn and Liam Boluk, REDEF | Read more:
Image: RIAA
