It began with Tony emailing me a Wall Street Journal article from last week that began:
MICHAEL: Hmmmm. You look at the sales total of the Top 10 albums and clearly something is up.
In a dramatic acceleration of the seven-year sales decline that has battered the music industry, compact-disc sales for the first three months of this year plunged 20% from a year earlier, the latest sign of the seismic shift in the way consumers acquire music.
The sharp slide in sales of CDs, which still account for more than 85% of music sold, has far eclipsed the growth in sales of digital downloads, which were supposed to have been the industry's salvation.
TONY: So if ringtones and digital single sales are saving the music industry, why does the music industry appear to be collapsing? You don't see label execs lighting their Cohibas with $50 bills nowadays, you see them laying off entire departments. Ringtones are wonderful, no doubt, and if you believe that listening to a snippet of a song on your phone is going to make lifelong music fans of the kids today, then God bless ya. But clearly, something isn't adding up. Perhaps the number of digital singles and albums purchased include a large number from subscription services, where a song costs something like 15 cents? I've heard that the labels barely make any money at a buck a song on iTunes, so I can't imagine what kind of revenue stream 15 cent songs produce.
In a nutshell, my guess is that the article is correct -- to make up for the loss of a $15 CD sale, you've got to sell quite a few $1-4 ringtones, even if your margin is higher. And that ain't happening.
My guess is that, eventually, the vast majority of music will be given away, and supported by advertising dollars on the web. Physical CDs will be little more than a merchandising tool to promote the live show, at least for pop music -- I think that jazz and classical fans will want the higher fidelity that physical objects provide. The really interesting question, apart from what kind of work will Sal, Tony and Rob find, is how this will affect the music itself. And on that count, your guess is as good as mine.
Did you read that REVENUES were up in '06 over '05? Or sales? Because, from what I know, '04 has been the only up year this decade, and that was less than a 1% increase. I think revenues have been tanking fairly steadily since 2000. Do you have evidence to the contrary?
MICHAEL: I think you're right about music being given away basically. 90% or more of artists never made money on album sales at major labels anyway -- they made all their profit touring and in merchandising. I think the artist of the future just doesn't need a record label so much. You can make yor music available to the world with MySpace, develop a following there and touring, get placed on a TV soundtrack and so on, or get exposure via a major label and then go independent, etc. etc. etc.
MICHAEL (AGAIN) :
Kennedy said he now hoped online sales would compensate for the decline of CDs sometime this year.
“There’s nearly the holy grail in three major markets — the United States, Britain and Japan. Next year I would like to be announcing that is the case for around 10 markets,” he said....
Kennedy pointed to mobile music sales as a major area for growth this year, with the launch of Apple’s much anticipated iPhone and the development of music phones by Nokia Corp. and Sony Ericsson. [He's talking about the US of course. It's already huge overseas.]
(I also think the movie biz is fucked, once computers come along that can do with movies what is currently being done with music. The DVD biz will tank, people will download movies illegally, and those $400 million blockbusters will become money losers. It's just gonna take a few years for that to happen.)
As for the $9 billion number for ringtones -- that would mean that every man, woman and child in America bought ten ringtones last year. Or wait, was that worldwide numbers? That still seems quite inflated, considering that in 2000, the music biz's peak, only about $25 billion worth of music was sold, by my best guess. And again, the bottom line shows that everyone's losing money -- not something the labels want to tell their investors, especially if it's not true.
I do like this spirited conversation, even if we never agree on who's right!
MICHAEL: The $9 billion is a worldwide figure. Only $1 billion comes from the US. The other $8 billion comes from the rest of the world, led by Japan (which has HUGE phone bills thanks to texting, ringtones, etc.) and then followed by Western Europe. The US is way behind in ringtones as a business for lots of reasons, but that just means lots of room to grow.
TONY: I will respond to the rest of your email later, because I love this kind of thing. But, personally, I ABHOR paying for downloads. I will do so if I have no other option, like with the Herb Alpert albums that are only available on iTunes. But if I can find it easily enough, I'll steal it every time. If I spend money, I want a physical artifact, not a fucking file on my computer. I have no idea what kind of minority I'm in on this one, but I'd assume there are others like me. And it's not like I want to be a criminal or anything. I'm very happy to spend too much money on a CD. I just don't like paying for downloads, that's all.
MICHAEL: Me too.
TONY: Wait, "me too" you love this kind of argument? Or "me too" you hate paying for downloads?
TONY: I fear being labeled an old fogey because I've never downloaded a ringtone. Actually, the one time I tried to download a ringtone, my cellphone wasn't compatible or something and I lost $2. Never again, I say. NEVER AGAIN. Do you download ringtones? I will not judge, regardless of what your answer is.
MICHAEL: Ringtones, no. I can't be bothered.