How The Music Industry Is About To Change – Guest Blog

Jerry Del Colliano - Inside Music Media

By Jerry Del Colliano

The bad news is in — as it has been almost every year since 2000.

Album sales in the U.S. are down year to year 13% and that includes digital revenue according to Nielsen SoundScan.

That’s a decline for eight of the last nine years for record sales.

It’s an ugly scene.

Sales down and that’s with 40% of music purchases coming from online sales – notably iTunes.

It never occurred to the label executives that you can’t make a customer buy what they don’t want to buy. And consumers don’t want to buy what they can get for free.

And they especially don’t want to buy albums – whatever these days.

Downloads sold 1.16 billion songs individually (or cherry-picked, as I like to say) – that’s up 8.3%.

But before you get too excited, that 8.3% increase must be compared with a 27% increase posted last year compared to 2007. So when is a lot not good enough – when analyzing downloaded music sales.

SoundScan does some pretty creative “research” by combining album sales with what it calls “track equivalent albums” — 10 separate song downloads as the equivalent of a single album purchase. Even with that monkeying around, sales fell by 8.5%.

In my opinion, 2009 was another year without the next Beatles or a new genre the equivalent of rap or hip-hop. No killer music trend is predictable because record labels are into cutting costs and not going out and finding new artists, new music and new genres.

But the lesson is never learned.

It’s not nice to screw with the consumer – especially today, when consumers have so many choices.

Obviously, consumers spend lots of money on albums and downloads and Apple apps and monthly cell phone fees and on and on. But the record industry wants to rebound from its nine-year slide the old fashioned way — dictating what they think consumers should buy.

The labels are old school but now Apple is the new record industry.

And in a few weeks, there will be another way to push music to consumers on Apple’s cool new tablet device (announcement expected January 27). When Steve Jobs conned the labels into thinking he was going to help stamp out illegal downloading of music back in the Napster days, they never dreamed that they were creating a monster.

That “monster” sold lots of what he wanted to sell – iPods, then iPhones and soon tablets. In the record industry today, music is no longer the star. It is the fuel that drives the sale of devices – iPods, iPhones, iTablets, smart phones, etc. And the new gatekeeper is this mysterious genius named Steve Jobs.

You could never have created a music maven like Jobs – only the record labels could in their shortsightedness, their unwillingness to buy Napster and be a player in the digital world or their inability to see what the consumer wants.

They are not alone.

Netflix did a deal with the devil – I mean, Warner Brothers – to allow Netflix to have access to a wider variety of movies online. Currently, if you rent a Netflix DVD you have about 100,000 titles to choose from. Rent a movie online and you have only about 17,000 choices.

Now, with the new deal that presumably the other studios will emulate, Netflix will have a ton of content, but wait …

Because that’s what a renter will have to do — wait!

They will now have to wait 28 days to access new movies so as to reduce the appeal of Netflix when compared to buying a DVD. That’s how Warner Brothers wants it and damn the consumer.

Like holding back their releases to Netflix is going to sell more DVDs.

In other words, Netflix gets a lot of new titles for online distribution — after all 70% Netflix customers rent older titles and that is a big part of it’s deal with Warner Brothers. But to put a time delay for Netflix customers so Warner Brothers can think it will sell more DVDs is compromising Netflix.

And they are driving Netflix customers to competitor Blockbuster to rent the DVD if that’s what it takes.

What a lousy deal.

More content at the expense of new titles – at least for 28 days.

Of course consumers are independent and they may decide to watch fewer movies using these outlets. After all, Apple may have something to say about all this in the next few weeks. The Apple tablet could have a nice ten-inch screen very suitable for watching movies direct from the iTunes store. That’s why ignoring the consumer is a loser of an idea.

If Apple makes a tablet that allows a consumer to read books, periodicals, scan the Internet, listen to music and view videos, watch TV shows, movies and/or offer streaming music using monthly subscription plans then both Netflix and Blockbuster are headed out of business.

And that brings me back to where I started – the record industry.

You need look no further than a desperate, outdated industry trying to force its will on consumers to see how it is all going to turn out.

Even these powerful people couldn’t muscle consumers into buying whatever it is they are selling.

And then Apple comes along again and puts everything consumers want into their hands at a reasonable price to enjoy on a very cool portable device.

And that’s how the music industry is going to change as well.

Apple will be the enabler. And artists can go directly to an ever-increasing audience of tablet owners but in the end the magic is no longer in the music (as the Lovin’ Spoonful used to tell us).

The magic is the tablet.

The music is what fills the tablet.

Artists, arrangers, writers and producers will soon be able to bypass the labels like never before getting direct access to that mass audience.

And the music will exist to service the electronics industry — not the other way around.

http://insidemusicmedia.blogspot.com/2010/01/how-music-industry-is-about-to-change.html

Posted by Dexter Bryant Jr. [d.BRYJ]
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5 comments

  1. Don Rath · February 3, 2010

    Interesting conclusion to your post as the supposition is that it is Apple, (read Steve Jobs), and the new iPad that is the cause of the destruction of the marketplace. Is Amazon guilty of the downturn in book sales due to their Kindle product? Not sure how you arrived at your conclusions.

    If you put 333,000, hungry for exposure songwriters placing 3 of their best songs on the internet as free downloads, totaling almost 1,000,000 free songs that are easily attainable, is it any wonder there is such a drastic and continuous drop in CD and mp3 sales? Mind you, these are new songs, mostly, from the new generation of music creators comfortable with the internet and digital devices. They have created a new market, one where paying for music is no longer the norm, where “free” is.

    In essence they are destroying the marketplace and its potential. Not only for their current work but for their future work as well. I don’t know about you but my iPod doesn’t hold a million songs and even if it did when would I have time to listen to all of them?

    Granted, the speed of acceptance, by the major music industry publishers and distribution outlets, of digital content and the means used to transfer it to the consumer, has caused a lot of the harm now seen throughout the industry. Should we put the blame solely on them?

    Secondly, if music plays second fiddle to the electronics “gadget” industry, also as you espouse here, at what point is it that those who write good music will bother putting them out into the world if they cannot make any money from their efforts? What real value will there be for the iPad without any new and high quality music/content? Whose going to pay the creators of music? Certainly not the marketplace under the current model.

    Should we blame piracy alone for the 2-5% drop in CD sales as claimed? Maybe we should blame the 20% drop in CD sales over the last four years on the recent rise and broad movement into the use of digital streaming? With the entire industry trying to figure out how to proceed in this new and wondrous digital age of information and music transfer to its consumers, I am wondering what you think is a possible solution to the overall dilemma or should I ask Steve Jobs that question?

  2. d.BRYJ Music · February 3, 2010

    Don,

    I think music creators should shift the focus of their business model to collecting revenues from B2B music buyers. Instead of expecting consumers to pay for music, give them free songs and digital mixtapes because that’s what they want. Leverage your most popular works to negotiate license fees from multimedia production companies for the use of your music.

    License your best (and most popular) songs to production companies, ad agencies, films, TV, games, etc. The amount of money you make on the front-end for licensing can be quite substantial and you earn performance royalties on the back-end for broadcast use of your music as well. To put it into perspective: you’d have to sell 500 or more CDs at $10 apiece to equal the amount you could earn from just one licensing deal.

    The beauty of giving away free digital copies of your music is you can still distribute and sell your most popular tracks and mixtapes on iTunes and other digital outlets and hopefully make a few sales (anything is better than nothing right?). Just don’t assume that because your music is for sale on iTunes that people are going to buy.

    Don’t forget to tour relentlessly whenever you have a “hit” song gaining popularity in the digital realm. Sell merchandise and premium products at your shows and give away free CDs or even mini-flyers with download links to your music.

    Thank you for your comments. You brought up some very interesting points and I’d be interested in hearing what you think of my proposals for a re-worked business model in the music industries.

  3. d.BRYJ Music · February 3, 2010

    Don, I think the point that Jerry was trying to make is that the Apple iPad is going to accelerate the downfall of the music marketplace, not that it caused it. The products Steve Jobs has put out in the last 10 years have all certainly had a big impact on music commerce (iPod, iTunes, iPhone). I believe that the iPad will bring music streaming to a whole new level. The potential for streaming and sharing unlimited free music is enormous especially when you consider the implications the App store has had (and will continue to have) on podcasts and internet radio.

  4. Don Rath · February 3, 2010

    Ok – I am guilty of thinking your presupposition was that Apple or potentially any other technology was the specific culprit or cause of the downfall of retail music sales. Many have proposed that his is true and have blamed Apple to be the root cause. Forgive me for that misunderstanding from your post.

    The iPad does not have a content delivery service attached to the selling price such as the Kindle product. Whether Apple decides to include it moving forward has not been publicly disclosed as far as I know. If it does, then the speed of the downfall, or should I say the changes necessary for survival, should definitely be increased. I think the iPad opens many potential doorways to not only contain things such as piracy but further and more positively focused, to expand distribution possibilities, hence more potential revenues. The issue, in my perspective, has many causes and it is reflective of the process of change rather than caused by any one company or group of companies forcing or attempting to stall change within a given industry. A piece of the downfall will in time prove to be the iPad.

    Further, I think your B2B model is in alignment with what my focus has been. Underlying the creation of new products and/or services is ownership of the product or service, controlling the stored value. The focus of B2B rather than B2C opens up and provides a considerably more secure position since it is in the deliverance of the product to market that there remains a modicum of control, albeit, still contingent upon the quality of the product being brought to the market. See my additional comments about licensing below.

    Synch Licensing is clearly opening up avenues for decent incomes for music creators, which is what I am interpreting your licensing comments to be referencing, more specifically the Film and TV industries. This is clearly an avenue I believe will continue to be lucrative for music creators. I also think the digital age is moving us away from the old stand by of relying on mechanical royalties as our main means of producing an income and replacing the focus to both Synch and Digital performance licensing.

    The expanding digital markets are realizing that survival based upon new content will be at risk without accepting digital performance rights licensing. Further, I think now that Muzak is climbing out of bankruptcy, we will see new business models for digital distribution which may set the stage for even more changes and more advances being made for digital instrumental music. Consequently, I agree on your point to focus on music licensing generating an income for music creators.

    Regarding free music and giveaways – at this point how can you survive without giving something away nowadays? I was not coming down so much on artists or even publishers for taking this approach. After all is said and done I do the same thing. I am just more concerned about the overall impact on the psyche of the general public getting something for nothing and the impact on value for products like music. Maybe I am from the old school in this regard but I still feel that scarcity still plays a part of increasing the value of a product. Correct me if I’m wrong.

    Regarding performances and giveaways – isn’t that the new norm already? It is the enticer for bringing the audience in only to sell them the larger ticket items.

    Change is sometimes brutal and challenging, but at the same time, it is vital for survival of the species.

    • d.BRYJ Music · February 8, 2010

      Don, thank you for giving feedback on my ideas for B2B models. I think you and I are definitely on the same page with this.

      I’m really glad that you felt strongly enough about this topic to write on it so extensively. You share some great insights that more composers, artists, musicians, etc. need to learn.

      Synch licensing is what I was referring to in my previous comment. It opens up revenue opportunities tremendously for music creators and as you said it will continue to be a lucrative avenue in the future. I am anxious to see how the industry for digital performance rights licensing develops in the next 10 years.

      Its very difficult to get noticed without giving music away free since people have so many options available to them for getting free music. If it isn’t the norm already to have concerts and give free music away at them, I think that should become the norm soon. Its a great deal for all parties involved: fans get free stuff in exchange for buying concert tickets and artists get to remain in the mind of their concert attendees long after the concert ends.

      I believe the downfall of the record industry is its stubborn refusal to cooperate with the inevitable. Music “piracy” in this day and age is really just a form of digital marketing and product sampling. But until the record labels see it that way they’re going to keep fighting it and they’re going to keep losing. The customer is always right.

      You are right about change–it is vital for survival of the species. Selling CDs isn’t a sustainable model (on its own) anymore so its necessary to explore as many options as possible for generating income from music, innovate, and experiment. It is forward thinkers like yourself who will lead the way in Music 2.0

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