Tag Archive for 'Digital Music News'

How Low Can Album Sales Go?

Published on April 11, 2008 in Blog. 1 Comment Tags: , , , , , , .

Spotted on: Digital Music News

It’s nothing new that the music industry is experiencing a steady downward trend in album sales. A few years ago, chart toppers were moving millions of albums a week. This trend isn’t just continuing, it’s advancing. For the first quarter of 2008, albums sales were down 10.7% from the same period last year, according to SoundScan figures.

As if that isn’t enough, last week’s sales showed an almost 25% drop from last year, and the number one album sold 166,000 copies. This is a very impressive figure for a mid level label, and indie labels would breaking out the champagne, but for transnational companies whose yearly sales are in the billions, these figures point a major crisis. The boat isn’t just taking on water anymore, it’s halfway under the waves.

It’s important to note that this measures only physical sales, and beyond that, only albums registered with SoundScan. While physical sales are traditionally the most lucrative part of the music business, digital sales are where the action – and the money – is at now.

People are still buying music, and billions of dollars worth of it. What’s shifted is the variety that is being bought is expanding at an exponential rate – an alarming development for the companies who invest millions into a single artist. The market isn’t so much evolving anymore, it’s already evolved. The focus around 360 deals is a perfect example of the shift the flow of money around music.

With the the combination of iTunes, Amazon, eMusic, and the army of other digital music sites that now dominate the market, the entry of Wal-Mart, Target and other major retailers into full scale album sales, and the diversity of music offered to people through social networking and file sharing, the business of selling music isn’t the same business it was five years ago; in many ways it isn’t the same business it was two years ago.

The issue at hand isn’t so much the collapse of physical sales as it is the diversifying of people’s tastes. Music is so easy to create and distribute now that the choices are nearly limitless. Anyone with a few ideas and a computer can have an album out on the web for sale, and even produce physical copies cheaply.

So how low can album sales go?

In my opinion, we’re nearing the bottom of the spiral. Physical sales may shrink a bit more, it seems that at this point the only people buying physcail albums are the ones who want the album, and fans can always be counted on to support artists.

I’m not a soothsayer, but I predict that 2008 is the year we see a major shift in the way major labels conduct business, adopting more elements of the DIY and underground communities in signing, developing and marketing artist.

Bottom Line: Sales figures measure something in reality. In reality, the music business is a brand new entity. Welcome to the Age of Variety.

The End of The Music Industry As We Know It?

Published on March 20, 2008 in Article and Blog. 0 Comments Tags: , , , , , , .

Spotted on: Digital Music News

The folks at Forrester Research recently published an 18 page paper on the decade long decline in music sales. The article points to the idea that the shift in music sales is permanent, thanks to the Internet. I haven’t read the paper, but thanks to the blogosphere, information abounds.

The Forrester paper predicts half of all music sales will be digital by 2011, but that the boost will not make up for lost revenue in CD sales.

The paper predicts that subscription services will only grow “modestly”, and (no surprise here) that DRM will die.

In other words, technology is the future of the music business.

A synopsis on Cnet points to some of the concrete data in the report:
“A Q3 2007 survey of more than 5,000 U.S. adults with online access showed that 94% of them still listen to the radio, and on average spend 43% of their overall audio-listening time with radio–far ahead of #2, CDs, which occupy only 20% of listeners’ time.” – Radio and streaming audio are still powerful tools for listeners, and in the era of choice, people are exercising their freedom to choose.

“…the survey showed that 62% of the subjects listen to music files on a PC, while only 43% of them listen to music on an MP3 player. Even 48% of them listen to Internet radio.” – True convenience isn’t defined by product availability or features, it’s defined by the individual.

The paper also suggests that corporate sponsorship and advertising will become a major factor in platinum music success.

While this is a comprehensive analysis of the music industry, it’s not really new information. Technology has become the key to the future of music, and I believe that the future of music will be more artists selling less albums. Labels will have less investing in broader catalogs, and artists’ will become more business minded, using the resources of labels instead of being exploited by them.

Bottom Line: The music industry isn’t collapsing, it’s evolving. Welcome to the future.

Is Trent Reznor Reshaping the Music Business?

Published on March 4, 2008 in Blog. 0 Comments Tags: , , , , , , , , , , , , , , .

Syndicated from: Digital Music News – by Paul Resnikoff

Ghosts is a variation on a theme created by Radiohead. The latest NIN album is part free, part paid, part digital, and part traditional. And a broad range of consumer preferences and budgets are accommodated by the initiative.

Reznor and Radiohead are important market-movers and fearless risk-takers. But are these experiments really relevant to the broader music industry?

The problem is that only part of the consumer population is going to play along. Radiohead found that a disproportionate number of fans downloaded In Rainbows for free, an offered option. But an even larger number of fans downloaded the album for free outside of the Radiohead page, on BitTorrent, P2P, and other sharing protocols.

These fans wanted the album on their turf, not Radiohead’s. And that has been the bigger story for the recording industry for the past ten years. Sure, the iTunes Store has sold 4 billion downloads, but that is just a tiny fraction of the free downloads obtained from other channels.

Outlets like Limewire offer instant, on-demand bulk downloads and comprehensive recording catalogs for free. The iTunes Store offers a cleaner copy, but for a price that makes collection volume difficult to achieve.

Now, Trent Reznor is about to learn a similar lesson. Most likely, fans will grab the first, free volume of the album in heavy numbers, and a smaller percentage will pay for the expanded collection.

But that is only part of the story. Outside of that sandbox, volumes II-IV will quickly creep onto Gnutella, BitTorrent, and IM. Sure, Reznor seeded the first volume onto BitTorrent. But who are we kidding? Fans are in charge of this channel, not Reznor.

That means far lower volumes for NIN, or any other established artist, compared to the 90s. Other factors are also sapping energy, including an increasingly-fragmented media market, and the lowered attention spans that come with it.

Then again, who needs 90s volumes when the major label is suddenly optional? After all, Reznor can now keep the revenues (almost) all to himself, and achieve robust revenues on far smaller volumes.

The math is alluring, and a major disincentive for signing with a label. Marketing specialist Seth Godin urges artists to cultivate targeted, niche audiences, and any business school graduate will lecture you on the value of consumer targeting. Why not translate those principles and percentages into a healthy, more controllable career?

The question is becoming less and less academic, and artists like Trent Reznor are putting the possibilities into motion. But it remains unclear if artists can healthily sustain themselves using this philosophy, at least in scalable numbers.

And smaller artists will have difficulty applying the Radiohead model, at least until their recognition grows. Why? The reason is that most lesser-known artists have trouble getting people to download their content for free, much less pay for it. Why pay for something blind? That is a game for pre-2000 consumers.

In contrast, Reznor and Radiohead have established names, thanks to a massive, major label publicity machine. That tailwind is a critical component of the current models – and a major reason why media outlets are focusing heavily on their initiatives.

In the middle are artists like Saul Williams, a poet and rapper that exists outside of the mainstream. Reznor actually helped Williams create a Radiohead-like model with the help of Musicane, and the results were mixed. Less than 20 percent opted to pay $5 for the album – a total of nearly 28,000. Then again, that translates into roughly $142,000, a revenue total that easily pays the bills.

And any starving artist knows that six-figures is a goldmine for a life in the arts. A major would drop Williams in a heartbeat after a performance like that. But sailing solo, Williams could command a decent and consistent payout.

So is the Radiohead model relevant? For more established, post-label artists, the concept probably maximizes recording profits, and creates momentum for other revenue generators. And the results are boosted if the recordings are dispersed across a broad number of sales outlets, including the artist page, iTunes, Amazon MP3, and even traditional brick-n-mortar.

Sure, the result is smaller than 90s recording sales potentials, but it is something nonetheless. And if the consumer elects to pay, they have the opportunity to do so.
What about everyone else? For mid-size artists, the concept can translate into meaningful revenues, and for smaller artists, the idea is probably premature ahead of broader audience awareness. But more than ever, artists have the potential to reach super-targeted audiences, and that greatly increases the chances of a paid transaction.

How Serious is the Sales Decline in the Music Business?

Published on February 7, 2008 in Blog. 1 Comment Tags: , , , , , , , , , , .

Syndicated from: Digital Music News – Paul Resnikoff

Despite strong digital gains, recent quarterly losses at Warner Music Group are part of a continuing profit slide. But just how serious is the financial picture?

This isn’t a rosy period of double-digit gains, that’s for sure. And flagship CDs are in a free-fall. But the financial picture at Warner is showing more resilience than you might imagine under the circumstances.

Warner Music Group first went public in 2005, a period that featured far more investor optimism. But the profit picture has been slipping since, and Wall Street has been mostly unsympathetic.

What was once slightly-in-the-black has now gone red. During Warner’s calendar fourth quarter of 2004, profits landed at $36 million, only to improve to $69 million the following year. But by 2006, the holiday story started losing steam. The company earned a smaller $18 million during the period, though profits turned to losses – of $16 million – during the most recent Christmas buying quarter.

But not everything is so bleak. Major label executives often temper the picture by pointing to more stable revenues, less severe profit declines, and bullish digital gains. Of course, some of that is spin, but in the case of Warner Music, balance sheets actually support those claims.

In fact, the revenue story has not been disastrous. Revenues topped $1.088 billion during the fourth quarter of 2004, roughly 9.1 percent greater than revenues reported during the recent period. Of that total, digital assets now account for 14 percent of total revenues – up from nearly zero several years ago.

On an annual scale, a similar revenue picture emerges. Dialing back to the fiscal year ending November 30th, 2003, revenues neared $3.23 billion. Fast-forward to the fiscal year ending September 30th, 2007, and revenues of $3.39 billion appear – hardly an implosion. Not the envy of companies worldwide – after all, a flattening revenue picture is rarely good news. But not exactly a sinkhole, either.

Why the revenue resilience? Is creative accounting at work? Almost every company dances the numbers a bit, but artistic accounting has its limits – especially in the current regulatory climate.

And ugly profit losses year-after-year prove the point. Warner Music dropped $21 million during the most recent fiscal year, and actually gained $60 million during the previous year.

But the worst financial losses happened during the earlier part of the decade. In 2005, the company lost $169 million, an improvement over 2004 declines of $1.42 billion. And losses hit an immense $1.35 billion in 2003, and a disastrous $6.03 billion in 2002, in part because of accounting methodology changes.

Those are major drops, though at least the earnings picture is showing improvement. The question is whether Warner – and other majors – can survive the current turmoil, one that now includes a massive, 15 percent US-based album sales decline in 2007.

The current terrain is characterized by serious overhead cuts and slippery traditional retail declines. That is a worsening picture, though major labels like Warner carry enviable recording and publishing assets.

Perhaps the best prognostication involves a breed of smaller major labels ahead, though survival depends on a leaner, greatly diversified model. And in the case of Warner, and other labels, the financial picture is less severe than generally reported – and that spells a little more wiggle room for radical reinvention.

Kids Today, “Greatest Generation Gap Since Rock N’ Roll”

Published on February 1, 2008 in Blog. 0 Comments Tags: , , , , , , , , .

Reprinted with Permission: Digital Music News – Paul Resnikoff

By the late 90s, investors, entrepreneurs, and even music industry executives sensed a profound shift ahead. The early days of the internet witnessed a massive stock bubble, and the creation of instant millionaires, billionaires, and outrageous valuations.

Of course, that bubble popped, though society, communications, entertainment, and relationships have all experienced incredible shifts over the past ten years. And those born into a world saturated with the internet, mobile phones, and iPods represent an entirely different demographic. Plenty of older people are tech-savvy and facile on the internet, but teenagers are digital natives, and the vanguard of a completely different consumer class.

That was the focus of a recent Frontline special called “Growing Up Online,” which aired on PBS last week. “It’s been said that the internet represents the greatest generation gap since the advent of rock n’ roll,” the program asserts, hardly an overstatement for anyone connected to teenagers today.

“Growing Up” focused heavily on social networking, IM, mobile devices, and online video, all cornerstones of a “virtual society … largely hidden from parents and teachers”. Well-known names like MySpace and Facebook dominated the discussion, while older players like Yahoo, AOL, and MSN received scant attention.

According to Frontline, approximately 90 percent of teenagers in the United States are online, a figure that continues to grow. “This is the first generation to come of age immersed in a virtual world, outside the reach of their parents,” the program asserted.

For the music industry, that “society” is roiling once-solid physical and album-based models. Frontline did not focus on music-related topics, though the implications of an always-on, ultra-savvy class of internet consumers are already being felt. “It’s hard not to wonder whether a generation that uses the internet to ‘learn’ about the world for ‘free’ … will be willing to pay for content online (whether that be music, television, movies, etc…),” blogged Richard Greenfield of Pali Research.

Kicking and screaming, traditional media conglomerates have been forced to adapt to that reality, with mixed success. Of course, teenagers are only one part of a massive digital disruption, though “Growing Up Online” offers a lucid look into a quickly-changing consumer class.

Review by Paul Resnikoff.

“Growing Up Online” is available online here.

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