This week the IFPI reported that the worldwide sales of music were at a 23 year low. Combining digital downloads, at a equivalent rate of 10 tracks per album (an unrealistically low estimate), with physical sales, there were only 1.86 billion albums sold last year. That is down 11% from 2006. The last time album sales were this low was in 1985 (remember “We Are The World”?). The peak year since that time was 1996 when album sales were 3.4 billion units worldwide.
The knee-jerk reaction to this news is to predict the inevitable death of the music industry. It seems natural to join the chorus of the doom and gloom advocates. I must admit that sometimes I wonder if digital distribution companies like mine are part of the future of the music business or merely the top deck of a sinking cruise ship awaiting our ultimate drowning.
We still mourn the death of most large brick and mortar retailers. The loss of Tower Records and others affected not only the sales figures but severely limited the available shelf space for music product. It appears that not even Walmart, the stalwart seller of CDs, can withstand the relentless growth of iTunes. In April, Apple announced that iTunes was the largest retailer of music in the U.S. They cite a NPD study that credits iTunes with 19% of the U.S. market versus Walmart’s 16%. [Note: iTunes uses an equation of 12 individual downloads per album and not 10 as the IFPI uses. That makes iTunes a more reasonable album count.]
While there are many downward trends in the music industry, there are also very positive developments that, I believe, will lead to digital sales increasing enough to compensate for the declining physical sales. Here are a couple of positive trends that are worth noting:
- Most of the largest digital music services are ingesting 10,000’s of tracks per month. One of the great benefits of digital store is the unlimited “shelf space”. Even though this can make searching for music unwieldy, it also gives every music creator access to buyers around the world. Often, I am asked, as a content aggregator, if there is a lack of available music to distribute and that every label is already signed up to a digital distributor. Two years ago, I might have agreed to this. However, as I write this column after the first day of London Calling, a prominent digital music conference, I can honestly say that there is still of lot music that has not been made available to the digital stores (and I don’t mean just The Beatles catalog). Today, alone, I was presented with about 20,000 tracks of material that has not been digitally released.
- Digital sales continue to grow internationally. The U.S. market is still the leader in digital sales. UK is a distant second with the rest of world trailing behind. One reason for this lag is probably the reluctance to use credit cards for Internet transactions. U.S. consumers have been accustomed to give the credit cards out to catalog companies for decades. In contrast, much of Europe, for example, simply distrusted websites and were uncomfortable to use their credit cards online. Amazon should be credited with converting a lot of these skeptics by providing a secure haven. Still, this prejudice lingers and is evidenced by the meager adoption of services like Paypal outside the U.S. The trends for digital music consumption internationally are continually positive. If the rest of the world matched the U.S. purchases of digital sales, then no one would be negative about the prospects of the music industry.
- The last, and most powerful, major indicator of growth is the launch of music services by strong, retail organizations. I would put AmazonMP3 and Tesco stores at the top of this list. When Amazon launched its download service, the big question is would they steal some of iTunes’ market share. The more important issue is whether or not they could grow the entire digital music market or not. It benefits no one to have market share shift from one online retailer to another. However, it is crucial to create more buyers. Utilizing their powerful search and recommendation engine, Amazon, I believe, is doing just that. Many other retailers are launching music stores and betting on being able to convert buyers of non-music products into digital music consumers. This is a great strategy that I believe is destined to work.
The main take-away from the above points is that the music industry is still in the pains of adjusting to the digital world. Admittedly, it is taking longer than most would have predicted and certainly longer than anyone likes. It is clear that the dust still has not settled and that it likely will be stirred up more before it does. When it does clear up, we will find more artists making more money from their work than ever before and that the music industry will continue to flourish. It may just take a different path and follow a more convoluted timeline. We will get there eventually. The music industry may be in a slump. But it is ultimately a growth market.
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