Am I breaking the law with my embed above of this copyright-violating music video on YouTube? Or am I providing a valuable marketing service to Silversun Pickups and their current tour? The answer is: both.
The Wall Street Journal notes that CD music sales are down 20% from the same week a year ago. The seven year decline in CD sales doesn’t look to be turning around anytime soon.
And while legal music download sales are increasing by 50% or so a year, overall industry revenue is still down 25% from a year ago by some estimates.
The faster music labels realize their massively profitable days are over, the better it will be for them, as well as the bands they represent and us, their customers. Digital music sales are not going to make up for lost revenue. Suing their customer base is not going to make up for lost revenue. In fact, absolutely nothing is going to make up that lost revenue. The industry, revenue-wise, is going to continue to shrink.
The problem is that their main product, recorded music, has a zero marginal cost to produce. It’s so cheap to make that consumers can actually make it themselves. And they do. A billion songs a month are downloaded, mostly illegally, from P2P networks.
As the marginal price of recorded music continues to fall towards zero, its natural price, bands will need to make money elsewhere. Live concerts will become more and more popular, and will be the largest source of revenue for many artists. Recorded music will be used to promote those live events. Popular artists will still make a very, very good living. Others will have to decide if love of their art is enough to keep going.
I like most of your readers haven’t bought a cd in years. My concern is that the RIAA has pushed the CRB to increase the royalty rate to an extreme. So much so it may kill internet radio as we know it.
Tim the founder of Pandora describes as much here:
http://blog.pan..._new_royal.html
I dont care about cd’s going away, I do care about loosing internet radio.
Yeah, the old days are definately over.
My favourite website when it comes to new ways of downloading music :
http://www.jamendo.com/
Features bittorrent, Creative Commons, and more!
For several thousand years, musicians have always been broke and on the road most of the time. The exception were the handful that were subsidized by wealthy households, royalty, or the church.The last 50 years of record sales has been a weird break from the norm. Now we are correcting. I agree that live performances will become increasingly important.Go see a show this weekend.
Thats crazy the artist has always made there money by touring name one artist unless he or he writes her own songs that makes millions of their records. The record company makes so much of your record plus you have to pay back the record company for all the recording you did. so that is a bunch of BS. The artist has always made money by touring.
I’m confused about the statement “…bands will need to make money elsewhere. Live concerts will become more and more popular, and will be the largest source of revenue for many artists.”
Why will live concerts become more and more popular simply because recorded music is free? If anything, it would make them less popular because recorded music would lower the need for live music. Before recording, if you wanted to hear music, you had to go to a concert. Now you can stay home.
Live music revenue for 2006 was way up — 35% over 2005. (source: http://www.bill...uring/index.jsp)
I’d love to see numbers that compares Sony’s sales of CDR media vs. their individual loss per year on music CD sales vs. individual songs downloaded from iTunes.
People don’t want to be forced into buying full records when most of the record is filler anyway.
I can’t speak for the majors, but the larger indie labels, like Matador, aren’t convinced that file sharing even hurts CD sales at all. They think the loss in revenue is probably better attributed to people copying whole CDs.
love silversun pickups! have seen them 5 times in the last year and a half.
I agree that the major labels/artists gross revenue will shrink. That appears undeniable.
The trend will be in favor of indie bands/small venues- that segment will make more money than past not less thanks to more efficient discovery, longtail etc.
Tamago… and music shouldn’t be free; and live shows won’t make up the difference.
What a great band to give the attention to . . . I have been listening to them for a few weeks. Their album is great (purchased whole album legally online after a friend “loaned” me a few tracks . . .
If you look at the top selling CDs released last year, it was pretty lame – http://www.bill...harts/bb200.jsp
If 2007 sees expected releases from top acts : Linkin Park, Coldplay, Radiohead, etc. I suspect that 20% could be easily erased.
Honestly, motherhood (ie. Lauryn Hill, Shania Twain, Celine Dion) and musician apathy has impacted the industry more than P2P.
I have never purchased a single digital track or album, though my media center has over 900 albums ripped to it. I also don’t download illegal music.
Why would you pay more for DRM encumbered music when amazon sells used CD’s for an average of about ~$7 shipped.
I did purchase the new shins album new to support Seattle label SubPop, and I buy directly from the artist when I can.
I don’t know what direction the music industry will go, but I’m sure it’ll get less top-heavy than it is now.
What’s really interesting is the range of justification for doing something morally and legally wrong, something that affects a band that people ostensibly like. The marginal cost going towards zero doesn’t mean the consumer gets to decide to steal it. The creator should have the 100% choice to sell their art for whatever they want. It’ll sell or not sell accordingly, but this is one of the most pathetic things ever.
I think people must believe they have a right to anyone’s creation at whatever price they decide is fair. They don’t. But people don’t decide NOT to buy a particular piece of music if the price is wrong, they just take it, because there is no replacement, music is unique. But both sides of a transaction have to agree for it to be a transaction, or else it is something else completely.
I’d love to see someone back me up as I sauntered out of the Nike Company Store with a pair of Air Max 360 after I left a twenty on the counter to cover their marginal cost.
Reminds me a lot of ATM fees, people get all uppity about CD prices and fair use over something that costs somewhere between $3 and $15. How cheap is that. I don’t know how worthless someone’s time would have to be to be streaming and copying Internet radio to get their music, but it’s pretty pathetic.
By the way, for all those people that think the music business is overpaid or whatever, go ahead and start up a band, and try promoting it, and producting the album, and then distributing it. There has to be just a pile of cash at the end since the prices are so unfair. Enjoy.
20% is a vague number. The record heights of the music industry was inflated by the “out-of-nowhere” craze of teen pop. Like the movie industry that had the “out-of-nowhere” success of “The Passion of the Christ”, the music industry is subject to the same with the releases that it has. Music has shifted from the few mega popstars that came from the late 90s like Backstreet Boys and Britney that with their albums sold millions to a shift to more modestly selling artists of high thousands. The audience’s attention just shifted to less broad-appealing artists to more niche-appealing artists.
I also disagree. When Napster and P2P was just starting to catch fire was when the highest selling opening week for a CD occured with N Sync’s second album selling 2.4 million CDs! And since then the ticket sales for live concerts have continued to decrease.
The main problem is not how people are getting their music, it’s the industry overall, people are not passionate about music and running to stores to get the latest album and with the increase of ticket prices and the decrease of interest – ticket sales will continue to fall. And as hornwaggled pointed out above, most people haven’t bought a CD or a single song in years, and continue to listen to the same music, unmotivated by new music.
The decrease in popularity for rap (and just the decrease in the quality of rap) has hurt the market. Generally a new genre of music emerges to help generate sales – R&B, Rock, Disco, Dance/Techno, Rap, but there hasn’t been a brand new sound to drive young kids out to the stores. Look at High School Musical soundtrack – the kids are dying for a new sound or artist to follow.
If you really like a band and want to support them, you might try CD Baby, they claim to only deal directly with bands themselves, the CDs are cheap, and they’re here in Oregon, so thumbs up.
Emusic is pretty great too, although at maybe $2 tops for an album I doubt I’m doing Spoon any favors buying there.
Otherwise, Amazon and Half.
Amen!
The music industry for years have been taking advantage of their consumers although the price of CD manufactering has drastically decreased consumers are still paying prices we’ve seen 5 years ago. The music industry must change their business model and come up with a creative way of distributing music and if not reduce revenue expectations. I know artist suffer, but the international artists have used touring and local shows to make up for CD sales. American artists have gotten fat off of CD sales and when they do tour give half @$$ performances. I’m a fan of reggae music and Jamaican artists tour year round doing 2-3 shows in my area a year. I have no pity for the music industry.
“…industry revenue is still down 25% from a year ago by some estimates.”
Let me guess – those estimates come from the industry itself?
I personaly find important and exciting buying CDs and music – maybe is that a materialist way to enjoy music.
I found your post so pessimistic…
Managing a small label in France, coming from an association, I really worry about the future of our artists, when you see that even “local” CDs are ripped. Our label deals with Psychedelic Goa Trance music ; you said, “Others will have to decide if love of their art is enough to keep going” ; but they won’t have to decide anything, since it is so hard for this kind of music to emerge and go live !
If they neither can sell music through CDs nor make live acts, this kind of music will slowly but certainly decease. Will we have a world made of commercial and variety music, with no place for other styles ? Worries… :/
Popular mainstream artists have and will always do fine making music as a profession. And I agree that recorded music will increasingly become more a marketing freebie than anything else.
However, if anything, artists outside of the major label will only benefit from digital distribution. Major labels essentially monopolized distribution in the past, making it virtually impossible for musicians to make it on their own.
I agree with Jeff K in that digital distribution/longtail will eventually create a “middle-class” of artists who will DIY themselves into a sustainable living making music. While the recording itself might get closer and closer to free, minimally saavy artists will know how to build enough of a fan base to monetize off of licensing, marchandising, video content, and other such revenue sources we haven’t even begun to imagine.
But that just might be the music lover in me thinking wishfully
This is just a replay of what happened in South Korea years ago. With higher connectivity and small music industry, it tipped over fast. Yet korean music industry still stands. As Mike and others have predicted will happen here, korean music industry no longer expects to make money off selling CDs. Instead, they have diversified their revenue sources. And to compete with downloaded music, concerts are evolving from music played live to performances like Broadway shows.
The good news is that, to consumer, music industry will appear to…more entertaining.
I’ve said this before and I’ll say it again. This is what is going to happen:
1) Internet becomes ubiquitous in wireless form, especially on mobile devices.
2) Streaming, on-demand music popularity goes up.
3) Providers of streaming, on-demand music begins signing exclusive contracts with artists (”Shakira, only on Yahoo Music; Dashboard Confessional, only on iTunes”)
4) Artists get a cut of the profit (from the subscription costs) based on how many individual listeners are playing their music.
5) Providers of streaming, on-demand music will provide the service that record labels provide now, at a cheaper cost to the consumer, with greater profits to the artist (who is not getting raped on the miniscule % they get off cd sales), and with easier accessibility.
* puts away crystal ball *
Let me start off with saying I don’t feel bad for the labels, they have been caught price fixing (I received my 15 bucks out of $67,375,000 that they were forced to pay a few years back).
Bottom line is I dont want music in CD format, neither do most of the people I surround myself with. I want DRM free music that I can transfer from device to device and take along with me. No one cares that vinyl record sales are down and when was the last time you saw an actual tape in a store (for some reason car makers continue to add them to cars). Cd’s are dying, thats a good thing. Music will be distributed digitally from here on out.
Sites that promote sharing and discovering new artists will flourish if given the opportunity, this will in turn promote more purchases of tracks and albums. If these services are shut down people will go back to file sharing to find new stuff. The industry will receive nothing.
Yeah we should all go to a local show this weekend, I like that idea.
Someone has to fund the new artists (studio time, promotions, etc.). It may now be in the best interest of large concert promoters to start doing this. Find the small acts, record/produce their tracks, promote, and then sign to manage their tours. Sell the music on itunes or another service and make the primary income from touring.
Nice going, Silversun Pickups, who’d believe they’re on your playlist
Amazing band. Some good points too.
Quit crying about lost rev and get a real job, hippies!
Wink wink
From an environmental point of view I’m very happy to see this news.
Millions of tonnes of CO2 that would of been released from the manufacturing and distribution of the CD’s will have been saved.
that’s a nice song. hadn’t really heard it. thanks for posting.
(i guess, for me, it’s marketing, and the band should be happy you posted it)
Since I’m in the Industry, and own one of the more popular blogs concerning it, I’ll add a couple .02 cents.
#12, you’re spot on.
#14, you’re way off on live event sales… PollStar points out it’s going UP… 16% last year!
Recently there have been some good blog post about this topic…
Rob Hyndman has one that refrences a really good one by
#23, you’re right, as this is the model that has a bunch of smaller bands scared to death… Clear Channel, thru their Live Nation subsidiary has begun or is talking about, at some venues, offering a “contract” to play live there … in order to play, you sign recording rights to LN for them to distribute your live album … sounds good to me! on a large scale with a large company like that… the scary part is the mom and pops are trying the same thing – and let me tell ya, signing as an artists to a small mom and pop, even for one night to play in a venue, is a TERRIBLE plan – but it’s happening from what I understand. That one night can cost bands thousands of dollars easily.
Artists and writers don’t really make money from digital sales – labels do. The best place for an artist to make money is on the road… it’s always been the case. An example? … record companies are paid for every blank cd sold… artists get nothing – equity would say that there should be a formula to split revenue in that regard… it doesn’t happen.
Labels are even going after the touring market.. there’s a lot of deals recently bandied about where the label enjoys a percentage of ticket sales… I suppose this is better in some ways depending on your contract, as “tour support” was always a recoupable expense (as well as everything else).
One quick note on the internet radio thing… wrong, wrong, totally wrong! I don’t listen to it, don’t care to – but the RIAA is squeezing the wrong people without doubt… SoundExchange, the RIAA’s puppet organization (the other being Congress) is wrong, wrong, wrong…
Closed the link I hope.
I’m streaming the Silversun Pickups as I write this… thanks to word of mouth and viral marketing, I’m now on their email list and will pay money to see them play next time they are in SF on April 16.
Necessity is the mother of invention… I”m looking forward to more and more marketing creativity coming from “slimfast ” version of the labels moving forward… Just at look at Nine Inch Nails has done for the new album! This is the kind of marketing I’m talking about!
http://en.wikip...ero_%28album%29
“Good News! CD Music Sales Down 20% from 2006″
for a moment, I thought I was reading Perez Hilton’s blog.
“Live concerts will become more and more popular, and will be the largest source of revenue for many artists. ”
Don’t forget the sponsor contracts for the popular artists.
Also, for the starting artists, the good thing about the internet is that they can be heard. These bands don’t necessarily need a label to become popular, which in turn might lead to more gigs, and more income.
The marginal cost of manufacturing software, like digital music, is $0. But the retail price of both will never reach that point for all products. There will always be people willing to pay something. As a big fan of emusic, I don’t mind paying a bit for DRM free downloads. The problem is that the labels keep selling music as if it’s a product.
In the future more and more people will be paying for media services, not products. You don’t own Seinfeld, you only pay a flat rate for the service that brings it into your home.
Great post and choice of video!
I am releasing “Twinkie” in CD before i-Tunes. It should make up the 20% shortfall along with my sophomore release, “You Ain’t Got a Chinaman’s Chance”
“Good News!”…
lol, how can that be good news for the people who work in that industry?
mike is a very pro-music download person
I think Don Park has it right. The shift from a CD sales-oriented model to more innovative models will actually benefit the major lables in the long run because of increased margins, while at the same time creating opportunity for nimble smaller lables that can adapt faster than the majors. Nonetheless, there will be people predicting the death of the major labels anyway.
I disagree with Michael’s assertion that zero is the “natural price” of recorded music. That’s like saying that the natural price of a book or piece of software is zero. Regardless of whether you subscribe to Classical economics or Marginalist economics, I think it’d be hard to make the argument that either the costs of production of music are zero or that the demand for the final music is zero. The marginal cost of reproducing a digital copy of a piece of music might be close to zero but that’s not taking into account the fact that it does cost something to produce and market the music in the first place. Production costs of the final product (whether a physical CD or a digital copy) are only one factor.
I believe the record companies and artists will recover. They are notoriously behind with the times, and with good reason. They will wait for the pioneers to adapt a policy that works, and then steel it and claim it as their own. Until then, they will continue to make hordes of money in the publishing world. Everything will be right for all, including the artists. The thing that sucks is that the music corporations will not learn their recent lesson and will continue to try and trick the public by putting garbage out instead of the rock solid practices of artist development a few decades back.
I agree with #32, I don’t get your marginal cost theory as it applies to music sales. Carried to the extreme for other digital goods, all software, video, etc sold after the first CD/DVD copy should be close to replication and distribution costs.
How about digital content over the Internet where costs are even lower? Why can’t all digital content, music, software, video, written content be free or close to $0. The creator/developer/author can make up the perceived difference in value by appearing at local malls, performances, readings, software support.
I disagree that the natural cost of digital music is zero. The same claim could be made for software, but that ignores the cost associated in creating the digital form in the first place. Anyone who has picked up a guitar and tried to learn will attest that generating good music does come at a cost – the same way programmers need to work hard to create the content people download.
The cost is much lower than the artifical pricing of the current industry, but it’s definitely not zero unless you consider musicians to be unpaid workers.
Its not exactly good news because some of the artists need the money to simply survive and live shows will not fully compensate for CD sales as the musicians can’t be everywhere all the time.
The critical moment which is changing everything is when a new band or artist is offered a record contract and turns it down. There are more options then ever to make a living as an artist without selling your soul to corporations who don’t care about art or the customer.
It will take another 5 years before it really starts to shape up, but I’m really happy with where it’s going and very proud of the role I played at Kazaa.
Mick
http://wheel.bl..._for_music.html
“They will wait for the pioneers to adapt a policy that works, and then steel it and claim it as their own.”
MikeA: That’s not underhanded, sleazy or “stealing” – it’s smart business. You can often gain an economic advantage in many developing markets by allowing others to serve as the guinea pigs. Let them validate a model or market on their dime and learn from it.
I’d recommend the following article:
strategy-business.com/press/freearticle/07102
There’s a section called “First-Mover Fallacy” on page 2 that is a worthwhile read for anybody starting a company, particularly in the online space, where first-mover advantage is considered so important. Key points:
“Rigorous academic research has shown that early movers may achieve a market share advantage, but they do not systematically achieve greater profits or a higher survival rate.”
“First movers do not necessarily find the most fertile ground. Those who wait to explore later, or more patiently, benefit from the experiences of earlier settlers. They can bypass the hulking shells of unsustainable structures built by the first-generation pioneers and salvage the best ideas buried in the wreckage.”
Look at Napster. It was the hottest thing on the Internet, put digital music on the map in the mainstream in a way that hadn’t been done before to a large extent and tens of millions of dollars were thrown at it, but today iTunes dominates digital music sales. Napster validated the demand in the market and Apple came along with a better strategy. Napster prepped the market and most likely gave Apple some ideas on a better strategy and the rest is history.
I sold all of my CDs at the end of 2005… It was my first propheciography. I recently sold most of my DVDs, the average price of used has been steadily dropping on Amazon, and are especially low for popular discs. Everything is going digital. Don’t fight the trends.
Michael – I am disappointed with your title that this is “Good News”. I went to the Hillsdale Mall this week and I could not find a store that sells CDs – this is a drag.
CDs sound way better in my car CD player – on top of that there is too much fiddling around and moving files around – Suppose I want to give the CD to my friend to crank it up in his car – dealing with iPods and iTunes is a big pai in the Ass!
that’s because you don’t know how to deal with a ipod, should take seconds…
The majority of musicians have always been poor, no? And only a handful each year through luck or whatever good fortune (American Idol) actually enjoy commercial success.
Pop-music as a creative art changed with the coming of the spreadsheet and real-time metrics. Since then it’s been about as formula as a can of Pringles, croutons, or baco bits.
No surprise that revenue continues to tank. How can any business compete with the free market?
Live music rock on! Looking forward to catch’n The Police.
In Soviet Russia YOU catch police.
One thing that I can’t stand is how artists charge $200 a ticket to see them live. Why should I pay that much to see a show? What happened to paying $50 dollars for good seats? I used to see about 5 concerts a year but I’ve cut that down to about 1 a year because its just not worth the price any more.
Why are cd’s still costing more than 10 dollars? If the labels dropped the price of cd’s down, more people would buy them.
I saw Silversun Pickups a few weeks ago… I had never heard of them before I saw them opening for Snow Patrol and OK GO… both of whom I had become aware of online. I assume that these bands got a fair % of the $200 I paid for the 4 tickets and the $50 for the 2 t-shirts. Essentially, if it hadn’t been for various artists being online and for live shows… these bands would have received $0… from me.
It will be interesting to see if this shift in the industry increases or decreases the supply of musicians. The profession will become less lucrative, but also the previously large barrier of entry is being removed now that musicians can use a computer to produce their own music.
I both agree and disagree with you Mike. It’s true that manufacturing and distribution costs for music are essentially at or heading towards zero, but it still doesn’t mean that music should cost nothing.
I mean — “Others will have to decide if love of their art is enough to keep going.” — is that argument supposed to work for software programmers or anyone else that produces digital content? I don’t see you or anyone else arguing it for them, so why musicians? I think that live music now is still the biggest revenue earner for huge acts, but there’s no reason why their recorded music should be free.
I don’t care about record labels or the industry they spawn, but I don’t want to get my music for nothing. I want to pay musicians for their work, and believe they deserve to get paid for their work. Sure, CDs can be too expensive, and DRM is a pain, but by judicious choice of CD retailers and using eMusic, I pay for my music, and would always like to see artists getting their cut.
Further moves to cut out the middle men and making sure the artists get a bigger cut of what I pay would be even better of course. Digital distribution of music should cut out the overheads of the industry, but it shouldn’t cut out just compensation for the artists.
The album may be dead, and to the extent that the CD = the album, it too is dead. Single songs = micro transactions, which we are constantly being told is the new economic model in e-commerce. A 99cent song, or t.v. show episode…yeah baby, that’s an impulse buy you don’t feel bad about.
I hope you got a Silversun t-shirt out of this.