Thursday, March 22, 2007

More on the music industry

Following up on my recent post, it turns out that ArsTechnica has done some analysis of music industry trends just yesterday. The author points out that "legal downloads continued to grow, but so far the focus from analysts and the press has been on how legal downloads have failed to "fill the revenue gap" created by the shortfall in traditional CD sales. What deserves further examination, however, is whether legal downloads are causing that shortfall. We do believe that they play a significant role in the music industry's current situation." Further described in the story is the projection that "this quarter, 81.5 million CDs will be sold. While that's down 20 percent from the same period last year, digital singles sold by the likes of Apple's iTunes store grew 54 percent, to account for 175 million songs sold. In other words, the quantity of downloaded songs far outweighs the quantity of CDs sold as a whole." The remainder of the ArsTechnica story discusses the author's hypothesis that the massive decline in song revenue is due to the fact that since buyers can now purchase their music by the song, they are not bothering to purchase the "filler" songs that in the past made up the bulk of the content on albums/CDs.

This seems like a blinding flash of the obvious to me; since we can now preview songs before buying and can purchase songs one at a time, we are only going to buy the songs we like and will ignore the rest. The author states the question this way: "how often does a consumer opt to buy just one or two songs off an album rather than buy the whole thing? This phenomenon must affect the top of the music charts quite viciously. I know I'm reluctant to buy an album, especially anything approaching a "hit album," unless I know that there's more than 2 to 3 songs on it that I like." The answer to the question is "approaching 100%". There's no doubt in my mind that just about every adult American has bought a CD after hearing a song they liked and then were disappointed with the rest of the songs included. I personally have had the misfortune of purchasing several CD's due to a popular song only to find out that the style of the hit song was nothing like the artist's core style or any other songs on the CD. That means you, Goo Goo Dolls!

The conclusion I draw is that the incumbent music industry infrastructure will inevitably shrink to the point where the fixed costs can be supported by what consumers are willing to pay for music.

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