The Shift From CDs To Downloads Is So Much More Than A Format Change
from the when-you're-in-a-hole-quit-digging dept
Although overall music sales in 2006 fell, unit sales told a little more complex story. Sales of physical formats dropped, while unit sales of digital music skyrocketed over the previous year, while older music sold quite well and new music stumbled. Data from the first three months of this year follow this trend, with CD sales off 20%, would-be blockbusters not selling as well as they have in the past, and retailers like Tower Records just giving up. The WSJ article is hung on the idea that digital sales (in revenue terms) haven't grown enough to offset the decline in CD sales. Certainly, they haven't, but this isn't exactly the proper comparison to make. Switching to digital and online distribution isn't a format change, like the switch from cassettes to CDs -- it's allowed for a whole new way of selling music. Not just the ability for people to buy only the songs they like, but also the ability to easily search huge inventories of music from their computer, which is likely behind the rise in sales of older music. This comes as retailers like Best Buy and Wal-Mart, which dominate CD sales, are reducing the space they devote to CDs, making it even harder for consumers to find older music in their stores. The problem isn't that piracy and file-sharing are destroying sales; in fact, there's plenty of evidence to the contrary. The problem is that the record labels haven't shifted their business models to accommodate the new environment, and remain committed to the old, physical-format-driven model. While they may not be changing, there are signs that other folks in the music business are. The article quotes the manager of several well-known acts who says he now sees CDs as promotional material, that they're "the vehicle that drives the tour, the merchandise, building the brand, and that's it." Recognizing that music has promotional value, and not just direct pecuniary value, will allow the industry to open up all sorts of new business models to revive its flagging fortunes.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Reader Comments
Subscribe: RSS
View by: Time | Thread
Read up on your topic
[ link to this | view in thread ]
using FM radio to sell physical objects
The truth about the RIAA supporting higher licensing fees
Recordings were first invented to simulate live performances and the first record companies (Edison) were the phonograph manufacturers. It was a way to make sales after the sale of the machinery. Soon, independent record companies began manufacturing these "phonograph disks of recorded music" as well, thus providing a "record" of some musical performance that has occurred in the past, be it in a studio or a "live" performance. If you think about it, it is much like today, a bunch of engineers and scientists are dictating musical taste, applying their skills not to provide the best music or even the best recordings, but to engineer product lines that return the best investment performance for their shareholders.
Bands on the radio probably would not get national exposure without the aid of the record companies. There are hundreds of other acts that sound just like the them, but without company support, they will never get out of the garage. Many would even argue that many do not deserve to get out of the garage.
Since the sixties record companies have learned to manufacture pop superstars made up of amateur models playing simple tunes.
In this current model, the overall quality of music that is consumed by the public is generally low and formulaic. The radio stations engineer their play lists in the same manner, ensuring that they are pleasing the majority of their listeners and their advertisers.
This limits the overall choices to the publics ear, ensuring that only the most profitable music has the best chance of exposure to the general population. This very market force artificially lowers the publics taste for more complex and creative musical styles.
This is also why the RIAA wants the government to impose unmanageable fees on podcasts and internet radio. Since they and the record companies do not have much influence on these play lists, there is the risk of dilution away from the most profitable songs. On the surface the strategy is to raise more licensing revenue from internet broadcasts, but the real strategy is to keep music off the internet where musical taste is harder to dictate, and instead use FM radio to direct record sales to profitable categories.
Let's assume a world where free internet radio becomes the standard for exposure to new music -- Selling copyrighted recordings will eventually become a somewhat silly business to try to get into. It won't be cost effective to support bands and spend $400,000 on recording studio fees If radio is free and recordings are free, this leaves live performance as the main revenue model. So after a brief stint with the obsession of pre-recorded music, the music business returns to its more natural, market-driven business model, and almost everyone wins.
The only artists that will be able to survive in the new music business will be the ones that can perform live *better* than on a recording. This will force the musicianship and quality of popular music to a higher level. Artists that rely on electronics and studio gimmicks will fall out of favor because their live performance will be almost non-existent. And without support from record companies, manufactured music will be difficult to promote and distribute on a national level. This will have the effect of returning the music business back to the musicians (to a certain extent). After a while, the public's tastes will change as they are exposed to better music and experience more live performances.
-hank
[ link to this | view in thread ]
[ link to this | view in thread ]
Re: Read up on your topic
[ link to this | view in thread ]
Re: Read up on your topic
In the mean time, you suggest people read more - but I see you didn't provide any evidence to counter Carlo's claims.
[ link to this | view in thread ]
Reply to QJ and JJ
QJ, I've looked through existing economic studies on the effects of piracy. I will write them up on PFF shortly.
[ link to this | view in thread ]
The manager is talking apples and oranges. For most acts, where does their money come from? Does the act get its money from CD sales (or downloads, for that matter) or does it come from concerts? Doesn't most of the record money go to the label while the act gets the concert money? If that is true, then of course the act doesn't care about revenue from the recordings, since they are not the one's who profit.
[ link to this | view in thread ]
there was a report that the dixie chicks only made $300,000 each from the first two records or something like that. 60 minutes perhaps?
[ link to this | view in thread ]
If you go into Wal-Mart or any other place to buy music - they simply can't stock enough music to fit everyone's tastes...
I haven't been to blockbuster in a while, other than them spinning the 'no late fees' BS (yea, they are 're-stocking' fees now).. The main reason I use netflix is because of the selection. Of the last 9 movies I have gotten from Netflix, blockbuster had zero...
Same with music - when I looked last at Wal-Mart they just didn't have any of the 5 different CD's I was looking for. Although - the 18+ dollar price tag would likely chase me away in any event, but even if it didn't - they still didn't have what I wanted.
With digital music:
1. I don't have to fight for 15 minutes with the 'anti-theft' device. DRM is just that - same reason I won't buy it. you know how BAD I hate those plastic anti-theft devices?? Only difference is - the last time I 'fought' with DRM - on a legit file no less... required 2 updates and a reboot. After which I had to so some other BS to get it to work.. Not sure which 'anti-theft' device is more annoying.
2. I don't have to wait in line
3. I can find what I want in seconds, not an hour
4. Digital Music doesn't get scratched
5. Don't have to find a parking space or waste gas. Afterall, aren't we supposed to be saving gas?
6. I can download the music faster than it would take me to get dressed and get in the car.
Now.. I can think of one - and only one reason why a retail CD is better... because I actually get the CD and a spiffy jewel case. Of course, I can fit far, far, far more on a single blank DVD...
From just a pure logical standpoint, I see not one reason at all to go buy a CD.
[ link to this | view in thread ]
Progress & Freedom Foundation
I just shot coffee through my nose onto the keyboard.
[ link to this | view in thread ]
Reply to Giggler
I am interested in actual science. Didn't I just say I would report on my survey of piracy and sales displacement articles- probably by the weekend. I hope you don't drown in coffee before reading it.
[ link to this | view in thread ]
CD Sales are slipping
[ link to this | view in thread ]
Re: Reply to Giggler
The only thing outfits like the Progress and Freedom Foundation are interested in is maximum possible revenue for their clients and founders.
I'm a huge fan of your company's noxious tobacco industry disinformation. It's utterly charming.
Your organization is a public relations firm, nothing more. Personally, I'm not much for dressing up PR as economic theory and science, but I'm a minority these days.
Lamenting a lack of objective analysis after years of scientific cherry picking and noxious propaganda tickles me.
But yes, please do write up your objective and thoroughly compelling report.
[ link to this | view in thread ]
Oh yes.
Objective and Compelling? I think not.
Funny and Sad at the same time? Certainly.
[ link to this | view in thread ]
Sillyness
Oh, so are we implying that piracy doesn't hurt CD sales now? Really, do you honestly expect people to buy this stuff? I mean, the industry's "every pirated copy is a lost sale" argument is stupid, but this is just as dumb. There is some number of pirated copies that equal a lost sale. The RIAA says 1, you say infinite, but I suspect the truth is more like 10 or 20.
You guys like economics, so here, I will give you an economic question. If Joss Stone's new album came out yesterday, and I can buy it from Amazon for 15 bucks, get it from ITunes for 10 bucks, or get it from the Internet for 0 dollars, which am I going to do?
Ok, so, assuming I want the album, why won't I just download it for free?
1) Perhaps I want to support the band, or have a moral code that thinks that it is wrong to screw someone out of money they have earned because of their creativity and hard work.
2) Perhaps I don't have a good enough Internet connection.
3) Perhaps I have so much money I can't be bothered to go looking for it.
4) Perhaps I don't know where to find it for free.
5) Perhaps I am afraid if I download it I will get sued.
6) ????
Ok, so every time someone buys an album nowadays, they buy it because they fit into one of these categories, and I suspect that the majority of reasons are 4 and 5. And both of those reasons exist today because of the RIAA's massive lawsuit campaign. Is that a good enough reason for them to continue it?
[ link to this | view in thread ]
Reply to Giggler again
I"ll talk to you about any substantive issues you would like Mr. Giggler if you get off this rant. I trust you can back up your views with some research of your own.
[ link to this | view in thread ]
http://www.journals.uchicago.edu/cgi-bin/resolve?id=doi:10.1086/500683
and this one:
http://www.gesy.uni-mannheim.de/dipa/31.pdf
and this one:
http://www.cs.princeton.edu/~felten/boorstin-thesis.pdf
and then I got tired of looking...
[ link to this | view in thread ]
Reply to MJ
My argument is not that file-sharing has zero positive effects. Rather, I disagreed with how Carlos implied that it has zero negative effects.
[ link to this | view in thread ]
Progress and Freedom Foundation?
"... industry is important for consumer welfare ..."? I think you mean that industry tends to have a negative affect on consumer welfare and government must step in to make sure the public isn't abused.
"... and societal progress."? You mean like how the Industrial Revolution was so progressive for society?
[ link to this | view in thread ]
Carlo
[ link to this | view in thread ]
PFF
Biggest thing I see about the PFF is they are closed to opinions. No replies or comments sought. This suggests to me they are a mouthpiece, not really weighing the impact on the consumer.
It ultimately comes down to simple economics and a determination of our government. Do we promote an Free market economy, or do we subsidize obsolete technology. Considering the RIAA and ADM's standing in congress, I fear we are witnessing the end of America as a "Free Market", and heralding the onset of Corporate Led Bureaucracy.
Its often said here "IF Congress wants to do the right thing", and I submit this is folly. If the propping up of the sugar prices to make the production and sale of High Fructose Corn Syrup profitable is any indication of how congress will act on the behalf of Free Market Economy and to benefit the American citizen and eventual consumer of said goods, then we're on our own.
Do not blindly obey a law because some corporate or government goon says not to. Read the fine print, ask artists and check out the story. Download a Brittney Spears tune and see if you feel like knocking over a liquor store... ultimately decide for yourself.
100+ years ago artists made money and along came the phonograph... Free markets worked it out.
50 years ago Radio was born and everyone seemed to work it out without undoing the fabric of the universe (or criminalizing fans).
25 years ago recordable tape became affordable to the masses and the industry lept up and created a fee to pay itself and criminalize the manufacturers.
Now they have Digital reproduction to fatten themselves with. How will we respond. Will we be sheep and continue to pay for gold plated humvees, bling bling and trashed motel rooms?
Or will will we live our lives as best we can with the enrichment of music and digital media, and let the artists and fat cats figure out how to make money off of it.
As an artists I speak for myself when I say "Let them eat CD's if they think they're worth $18" I'll deal with independents.
[ link to this | view in thread ]
Re: Sillyness
The argument isn't that every download doesn't represent a lost sale, but, rather, that the promotional impact of the free music expands the overall marketplace so that there are more ways to profit.
That is, while some people may download for free rather than buy, a lot more people will be exposed to the particular musician (larger market) thanks to the free music -- and then that makes them more likely to either buy a CD or go to a concert or some other way to make money.
So, sure, some of the people will download rather than buy (lost sale), but if you assume that more people will be exposed to the music, meaning more people will make some kind of purchasing decision based on the music, the monetary gain outweighs the loss from decreased sales.
[ link to this | view in thread ]
Re: Re: Sillyness
[ link to this | view in thread ]
Re: Re: Re: Sillyness
[ link to this | view in thread ]
Not worth it
[ link to this | view in thread ]
Re: Re: Re: Sillyness
I'm young and happen to have a job that affords me extra money to spend on frivolous purchases, but even I won't buy CD's any more. It's just throwing away money to purchase a CD because it has a single song I like, wrapped in 8 songs I hate, and I have to buy them all or nothing. Besides, most of these "artists" can't actually sing to save their lives, they just look the part and can be synthesized to sound good enough to make some sales.
[ link to this | view in thread ]
Format change that doesn't obsolete the old one
This time though, the digital distribution model hasn't obsoleted the old format. CDs live quite happily next to downloaded music, and ripping software is accessible to even the most neophyte computer user. I don't need to rebuy the music in my CD collection. So we need to take into account the fact that the record industry sales numbers were profiting from a false inflation for a number of years that is tailing off now, so no matter how good the digital sales are, they're going to have to come to terms with the fact that the market is smaller than they thought.
From the summary of the numbers noted above, it's clear that the record companies have no idea what they're doing. Older music is selling well, and new music badly. This would imply that they are doing badly in selecting bands to sign and market since there is a lot of new music out there that I buy from independent artists (direct DRM-free sales models only, but that's another discussion) that is really very good.
On the other hand, if older music is selling well, for god's sake, open up the back catalogs to downloads. The investment is practically nil as automated ripping plus some data entry would be able to handle the conversion nicely, and then I'd be able to buy some of the music that I simply can't find otherwise. I've done the peer to peer route for some music that I tried to buy on CD, but that simply wasn't available from any local or online retailer. Used stuff is hit and miss and marginal bands at the tail end of the vinyl era are really hard to find.
The numbers are the market's voice and they're saying "we like good music, and are willing to pay to have it in a convenient format, but you're just shoving crap on us right now."
[ link to this | view in thread ]
Re: Re: Sillyness
Well, OK, that has been your position for a while Mike, though I am still waiting for this magic business model that will make up for all this money the music, movie, software, and drug industries are going to lose when IP is routinely ignored. I don't think there is one, but I am willing to listen. You promised that you would get to that part once you establish that IP laws are un-economic, and I really wish you would get around to it.
But it does seem that Techdirt is also trying to make the case in several places that piracy does not affect legal sales, and that is just silly.
[ link to this | view in thread ]
Re: Not worth it
"Do you honestly think that they are producing a product worth purchasing in the quantities of the past?"
"Older music is selling well, and new music badly. This would imply that they are doing badly..."
Ok, so one of the alternate premises here for falling sales is that music sucks nowadays. But it could be that older music is being bought by older (and lass tech-saavy) customers and that newer (kiddie) music is being massively pirated. What we need is another benchmark of music popularity to use as a comparison...like say concert sales. I have tried to find records of concert sales but I have not found anything. Can anyone else find this data?
[ link to this | view in thread ]
Re: using FM radio to sell physical objects
Imagine this. A young new band calling themselves the Beatles are told to map out their tunes and revamp their appearance to ascertain artistic relevance. Jimi Hendrix is directed to gangsta-up and glorify $bling$ for marketability. Odetta isn't signed because she won't cast well as a gyrating video ho.
Dag yo.
[ link to this | view in thread ]
Re: Read up on your topic
[ link to this | view in thread ]
Re:
[ link to this | view in thread ]
Re: Reply to Giggler
So explain again why the industry needs copyright protection for 70 years after the death of the creator or 120 years from the date of creation for works for hire? Exactly how is this supporting consumer welfare and promoting societal progress? Surely, most successful movies, albums, books, tv shows and so forth, earn the creator and all those involved some revenue within their lifetime?
Why was it okay for Disney to create new works based on materials in the public domain, but no one will be able to create a work based on Steamboat Willie until 2023? What was that about balancing between the interests of consumers and the interests of the industry?
[ link to this | view in thread ]
Re: CD Sales are slipping
CD sales are slipping because competition for the almighty discretional dollar is at an all-time high. When I first started buying CDs as a teenager, there were no cellphones, there were no DVDs, video games were not as common as they are today, and so on. Today's consumer has a wide range of entertainment choices. And at $18 a pop, many consumers (and retailers) are walking away from CDs.
[ link to this | view in thread ]
Re: Re: Re: Sillyness
I know it to be true because you can look back at history and see that it's true over and over again. It's the non-scarce "ideas" that help expand every market.
It sounds like it could be correct, but it also could be wrong. Would you really recommend that a label do this if they were paying for your advise?
Yes, it's absolutely what we would (and do!) advise those who are paying for our advice.
There are two things to consider here. The first is what happens if you do nothing. When you do nothing, you are only opening up the opportunity for people to completely route around you and chip away at your existing business model. So standing still isn't an option.
You can fight the tide -- and that clearly isn't working.
So the third option is to come up with a business model that actually serves consumer needs -- and that's what we recommend.
[ link to this | view in thread ]
Re: using FM radio to sell physical objects
[ link to this | view in thread ]
Re: Re: Not worth it
Why sure it could - in the land of "lass tech-saavy" that is. In the free market however, products sell on their merit. CD sales are down - across the board. So, that includes older music - savvy? FYI - that means that whoever is buying older music, is buying it via download :0 Do you suppose that downloaded older music is subject to the same piracy that downloaded "kiddie" music is? Hmm.. I wonder what's happened to all of the pirated recordings of it over the last 30-40 years anyway?
Well, I can't find ALL of the concert data, but I know that the Rolling Stones have a recent sold-out world tour under their belts. And The Who are in the midst of one right now. Perhaps you would Google Justin Timberlake and Britney Spears if you weren't a little lass tech-saavy
[ link to this | view in thread ]