David Emery Online

The Sky Is Falling

23 May 2007

CD sales are falling.

Digital sales are rising. But not nearly enough to counteract the fall in CD sales.

CD sales are only going to get worse and worse, as the whole set up is in a feedback loop; CD sales are falling, which means that record stores are having a very hard time of it (see the death of Tower Records, and Virgin shutting some of there stores). This has two knock on effects: firstly, their are less places to buy CDs from, so CD sales fall further and quicker. Secondly, the retailers that are left become even more conservative, as they’re on really shaky ground. Which reduces CD sales even more.

So, CD is dead; no surprise there.

What is more of a surprise – to the record industry at least – is that digital just isn’t picking up the slack. Album sales currently just don’t seem to happen digitally – they only make up on average 10% sales. The format seems to be working well for single sales, where (in the UK at least) they are starting to dominate (we again have a download-only number 1 at the moment), which makes a lot of sense considering the format’s ease-of-impulse-purchase.

So, the album is dead then; unless the wind changes and the format starts working digitally.

If you’re a record company, then; what to do, what to do…

I think this is the biggest opportunity the record industry has ever faced.

At a stroke, they have the chance to eliminate all sorts of barriers between them and the music consumer, which will have a radical – and good – affect on music as a whole. For a start, it’s obvious that the physical music store as the most popular way of selling music has a limited future. Other then small, niche independents (there will always be a market for physical-based music).

Taking up the slack at the moment is mostly iTunes – although eMusic makes a good showing in certain markets – and interestingly enough, iTunes is far worse for an independent artist then your traditional bricks and mortar store. Quite simply, if you are not on the front page (or one of the genre front pages), in the charts or featured in some other way you just don’t get any sales. The drop off is huge. The one saving grace is that, unlike many stores the iTunes home pages are done by an editing team at iTunes, as opposed to being paid for by the labels. It’s still very, very pop/radio hit driven, however.

So, if iTunes isn’t the future – except for pop – what is?

I think labels should just cut out the middle man, and sell the music themselves. It’s an obvious step, but would have a profound affect on what gets released. Firstly, so many antiquated ideas can get thrown out the window; release dates (just release as soon as the music is finished), albums (why wait for an exact collection of 12 songs? Release them as you get them), paying for tracks…

Yes. Paying for tracks – or even groups of tracks.

It’s quite obvious now – based on how people consume music these days – that the concept of paying for specific tracks, or groups of tracks as albums, is just not a concept that works with today’s reality. People download music, for free. Lots of people. People listen to songs for free on MySpace, and download mp3s from blogs. For a long time labels have been worried about music becoming devalued; it’s already happened, without them having a say.

That’s not to say that labels are dead, or that their is no future in having a business based on music. On the contrary, there are so many more outlets for music now, and those outlets are prime for monetisation.

Advertising. Sponsorship. Subscriptions. All are methods that work well for other forms of media, and could work incredibly well for the music industry.

Other angle to look at is how businesses that are based on creating open source software work. Their primary product – which traditionally would have been sold in a box on a store shelf – is completely free. Not only is it free, but it is in part created by other people. And yet, they make money.

They do it by creating and adding additional value to the core product, whether that’s by providing services, creating documentation or other extra content and creating additional products that do cost that work along side.

Which is exactly what labels need to do. Give away (in some form) the music, and make the money up on additional services: live shows, merchandise, advertising (most music sites get quite a lot of traffic), paid-for additional content like higher quality music, source files and physical artefacts (posters, vinyl etc). I’m just scratching the surface.

The open source parallel is good in another way as well; many people have opined recently that record labels are unnecessary in this day and age where anyone can release music online themselves. But, in reality labels serve a similar place to companies like Redhat or MySQL; adding massive amounts of value to items that have little or no inherent value. In the case of labels this comes in the form of marketing, promotion, market experience, content generation and a large dose of venture capital. In essence, the claim that an artist could be successful by themselves is a myth – they need some team of people helping them out, getting their music in the right place, making sure they have an up-to-date website etc and they need the money to tour and record.

That’s what a record label is now.

Giving away music is the only chance they have left, otherwise someone else will end up covering these areas instead.