Tuesday, March 27, 2007

What Is Happening To The Music Industry?

I've been having repeated discussions and debates with friends over the past few months about the music industry. Clearly, massive changes are roiling the business. Album sales for Billboard's Top 10 are down dramatically. Just five or ten years ago, the #1 CD would often sell 300,000 -400,000 copies, especially a new release. Today, if you sell 100,000 copies in a week, you're a blockbuster. Hundreds of record stores - including the iconic Tower Records -- have shuttered. People are buying iPods and digital songs and ringtones for their phones, but is that really making up for the shortfall in CD sales? No. Here's my back-and-forth with a friend at NYCD.com.

Here's a New York Times article from Monday on the same issue.

And here are my thoughts on what's happening with the music industry.

The late 80s to the late 90s featured a bizarre, once-in-a-lifetime spike in sales for the music industry, thanks to the introduction of the compact disc. The CD dramatically changed the business and over a decade the record labels significantly increased the cost of an album from $8-$10 to $18 or more.

They also destroyed the singles format, even though the single was once the lifeblood of the industry, a great way to break new artists and the entry level purchase for kids and teens that got them in the habit of buying music, a habit that would last a lifetime. Why? Because the record labels thought it was clever of them to force people to buy an $18 CD instead of a $2 or $3 single, even if people suspected or knew they didn't really want the whole album or simply couldn't afford it.

Finally, the CD allowed the record industry to convince everyone to replace albums they already owned on LP or cassette or 8-track with a far more expensive copy of the same album on CD. Then they convinced you to buy it AGAIN on CD because the album had been remastered or now included bonus tracks. Imagine the joy of publishers if they had a product that convinced everyone to replace the hundreds of books they owned with more expensive, more profitable versions of the same title. This is what happened in the music business and it was a fluke that led to a bulge in sales that simply could not be maintained.

The CD is often compared to the DVD, but the comparison doesn't hold up. Yes, both formats were far superior to the ones they replaced. But CDs were more expensive than cassettes, while DVDs were far less expensive than most VHS tapes (not to mention laser discs) or at worst the same price but made available far more quickly and with extras that the VHS tape could never begin to match. The DVD solidifed the burgeoning habit of building a film library the way people own libraries of books and music. Yes, some homes had lots of VHS tapes, but except for titles for their kids and, say "Top Gun" and "Beverly Hills Cop," most homes didn't have more than a handful of videos. Nowadays, lots of homes have DVD collections. It's a $20 billion business. Has some of the money that would be spent on CDs gone to DVDs? Absolutely.

Now, the new formats for CDs are hi-def CDs with even better sound quality and digital downloads. No one cares about the next generation of CDs; the sound quality simply isn't that dramatically better to convince people to make the switch. And of course they come with higher prices that the record labels would love to maintain. If the next generation of CDs had vastly better sound quality and more extras for the SAME or less money, record labels would be learning the lessons of DVD. But they're not.

And then there are digital downloads. In almost every way, this format is inferior to the CD. Digital tracks that play on an iPod can't be easily switched to a different machine. Buy a digital track from one company and it won't play on another company's player and certainly not the iPod. Wanna put that song on your phone? Good luck. If your computer crashes, every single digital track you have ever purchased may very well be lost for good. The sound quality isn't even close to a standard CD. The record companies fought digital downloads tooth and nail and still make it extremely difficult and unpleasant for people to use with ease in the ways they could reasonably expect.

And yet, people are spending billions of dollars on them and more "units" (ie digital downloads of singles and ringtone and entire albums, etc) were sold in the digital format than CDs last year. One big reason? After years of being dead, suddenly people can buy singles again. How many times in the 90s did you hear people complaining about buying a $15 (or $16 or $18) CD that only had one or two good songs on it? The record companies forced people to spend more money to get, say, The Fray's "How To Save A Life" when people suspected they would really only want that one song. It worked in the short term as CD sales boomed but it made people very unhappy. It also kept kids from buying music, so they migrated to video games and mangas and other diversions. Now, suddenly, people can again buy a single and for the cheap price of $1. And the one way that digital downloads are far superior to CDs is ease. There's a record store in virtually every single home in America. Yep, there's Amazon.com, which has more albums available than any record store in history. And there's iTunes, with an increasing number of songs available.

There's also the mobile phone. People are spending billions of dollars on ringtones, a market that's much more mature in Europe and Asia and will only get bigger here. People are buying singles and putting them on their phones both to appreciate the music and say, 'This is the person I am; this is the music I love.' Record labels are making billions of dollars off of singles via digital downloads and ringtones, the very format (a cheap song that kids could snap up, play over and over and then move on to the next one) that labels crushed into nothing, despite the worries of radio stations and other observers who knew this was a big, big mistake.

Record labels are going to see a HUGE increase in the next few years in catalog sales for singles. If a song is featured in an ad or on "American Idol" or "Grey's Anatomy," people can go online before the show is even over and purchase that old Tony Bennett gem or the Archie's "Sugar, Sugar" or whatever new song it is that has caught their fancy. Will they spend $18 on a CD that contains that song? Not always. Will the consumer be happy and be encouraged to buy more music by this experience? Yes.

But one thing clearly is NOT going to happen. People are not going to replace their CDs with digital downloads of the album for the obvious reason that they already own it and can rip the music off the (better sounding) CD and put it on their computer or iPod. I doubt we'll see any other format in our lifetimes for movies or music or books that convinces people they need to buy a new copy of something they already own. It was a fluke thanks to CDs that created a huge bump in sales (powered by boomers who wanted CD copies of all their oldies) that we won't see the likes of again.

So album sales were artificially inflated for a decade by the remarkable CD. Sales were goosed by people buying 40 year old albums all over again for more money. That will never return. As the NYTimes says, signing young artists to a one or two or three single deal and seeing what happens is exactly the way the music industry worked for most of its history. Having songs available for sale as a cheap single (or ringtone) is also the way the industry worked for decades. It's definitely a major positive that singles are back.

I haven't even touched on MySpace. Today, if you read about an artist in a story, there's usually a link to a song of theirs so you can immediately hear them and decide if you like them. If there isn't a link, most music consumers know they can type in a band's name and find its MySpace page where three or four songs can be streamed. It's on-demand radio for virtually every artist out there today. Yes, people are file-sharing but iTunes has made it clear that if music is reasonably priced and could be swapped from player to computer to phone back to player again, people will choose not to steal.

And no, the single is not "replacing" the album and the album isn't dead. The single is simply bouncing back where it belongs -- side by side with the album as a format just as important and exciting and fun as a CD. (It's not only 45 minute albums that make people love music. It's also the 3 minute single.) The single won't replace the album any more than a concerto would replace the symphony. They're different and serve different artistic needs.

More music is available more easily to more people than ever before in history. Every home contains its own record store, not to mention its own on-demand radio station via MySpace and artist home pages. Many artists can afford high-quality recording studios and will go the indie route since they can record and distribute their own albums and make a lot more money than via a record label. Young people are snapping up singles again, something they weren't allowed to do for a good decade and which forced them to go underground and file swap. It is a great time to listen to music.

Yes, the music industry is in major upheavals and fat, stupid suit-heavy record labels might be dinosaurs. Why would any artist with deep pockets and name recognition sign with Sony when they can make so much more money on their own? Paul McCartney's new album will be released by Starbucks, for heaven's sake. Clearly something is up. The record label isn't going anywhere; it's just going to have to get nimbler and adjust to lower sales. The album isn't in trouble; it's just going to have to readjust to a world where the single is also a major player and huge seller in the business instead of the bizarre decade when it was shunted aside by stupid record labels. Music stores can't compete on price with Wal-Mart for the top few artists and indie stores can't compete with the range of selection and penny-pinching prices of online sellers. So a lot is changing. It's a very tough, sad time for indie music stores and I have no idea what the future holds for them -- though I can't imagine a world without them. But when you add in ringtones and ringmasters and digital downloads, music sales aren't down so dramatically. When you figure that the sales of the 90s were goosed in a way by catalog sales that can never be reproduced and adjust expectations accordingly, music sales are pretty solid right now and the future looks so bright.... (There's a good example: does anyone need to own an entire album by Timbuk 3 or will they be a lot happier with just that song? And which is better for the industry long-term?) As soon as record labels stop shackling digital downloads and make them easier to use for all players in all formats, they'll be able to combat illegal file-sharing a lot more effectively and make a lot more money in the digital realm.

So anyone who thinks there aren't major changes afoot for record labels and record stores and music fans is clearly dumb and blind. But anyone who thinks music long-term is in "trouble" or that the album is going to disappear or that there aren't any good artists out there or people just don't care about rock and pop and soul and country and jazz and classical and world music anymore, well, they're just deaf.


Anonymous said...

Brilliant. And I think you nailed it.

I heard someone compare the 90's CD Boom to a CD Bubble and it crashed in the 2000's.

And I'm one of those people who no longer buy albums. 10 is an artifical number, and most artists don't have 10 good songs in them. They have about 4. So I just buy those four songs.

Michael in New York said...

Well, Justin, if you've stopped buying albums and only buy singles, that's a shame. Some artists are only worth one song. Some are singles artists, but some def create worthwhile albums. It wasn't so much a CD Bubble (speculation leading to overbuying) as just a freak occurence where they got to sell a lot more albums than usual and enjoyed huge catalog sales.That of course doesn't explain the massive change in first week sales from 300,000+ to 90,000 or so. Thanks for reading it to the end. And Steve, I'll be interested to see if the iPhone lets you use the songs on it as ringtones. I can't see why not and of course they'd be cheaper or free.

Britt said...

Honestly, since I do not own an Ipod, but a MP3 player, I can't use Itunes. And I just believe that when you buy the CD, sure it costs more, but that helps to promote that band, and it also shows what you got from your money. Can you do that with your Ipod?...Not nessacirily. I would rather buy the CD and show what I got my money for then buy it cheap and barely support the band by getting only one song.

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