Some interesting points on the state of the music industry

By July 3, 2008 2 Comments

There is a great article in the FT this morning which makes some interesting points about the current state of the music industry.

We sometimes hear dire warnings from music labels that if piracy is not decimated, music will die. But there is no evidence of that so far – lots of enjoyable new bands turn up every day.

It is not even correct to say that the music industry is in a bad way. If you include music publishing, licensing, merchandising and live shows, things are going swimmingly. “The music industry as a whole is quite healthy. It is the record companies that are ailing,” says John Rose, a senior partner at Boston Consulting Group.

The really good news for the industry is that in contrast to newspapers and television consumers show no sign of becoming jaded about the underlying product.

However, the labels (as distinct from the whole industry) are suffering:

In the UK, recorded music sales fell by 13 per cent last year despite the fact that income from digital downloads and the like rose by 8 per cent between the first quarters of 2007 and 2008.

The culprits are piracy and the download-driven switch from album sales to single sales. That said, piracy is possibly not as big an issue as you might think:

One executive thinks that piracy takes about £200m ($399m, €251m) out of industry revenues – 20 per cent of the total.

On the good news side, however, the added convenience of buying digitally is bringing older people back to the market:

Digital technology has made it much easier (and cheaper) for people to sample and to buy tracks from new singers and bands. That goes particularly for the, ahem, middle-aged, for whom downloading is a boon.

Take Vampire Weekend, one of the bands that performed at Glastonbury. I own the Vampire Weekend album because it was recommended a few weeks ago by Very Short List, the daily e-mail newsletter. I signed on to Amazon, downloaded the MP3 album for a modest $7.99 (€5.04, £4), it transferred to my iTunes library and I could listen immediately.

As a result of this sort of thing my collection is a great deal fresher now than it was in my 30s, when I had stopped reading New Musical Express and found it both hard to keep up with new bands and inconvenient and expensive to go to shops to buy CDs. I cannot be the only one to benefit since the over-40s now account for 50 per cent of music sales, teenagers having ceased to pay.

I am not quite in my forties yet, but the same phenomena is true for me. I had gotten out of the habit of buying and listening to new music, but that changed dramatically when I subscribed to a new music streaming service that even has the tagline Rediscover music.

There is some good news on the business model side too. On this blog I have sometimes been guilty of talking as if the only interesting business model for music was free ad-supported. Well, I’m sticking with the free part – but it could be supported by mobile operators via Nokia’s Comes With Music service where their phones come with one year’s free music for which the mobile operators will pay the music labels $100. (As an aside, this is an interesting example of free non-ad-supported as a business model.)