The Big Picture: CD Sales Rise as Economy Recovers

The Big Picture: CD Sales Rise as Economy Recovers

The economy slows, CD sales slow. The economy recovers, CD sales recover.

If I am going too fast for you with this complex and sophisticated economic argument, please let me know.

Barry Ritholtz has a good post on music industry sales/revenue (link courtesy of BusinessPundit). It's a little surprising to see the data that shows music sales recovering right along with the rest of the economy. You'd think after all we've heard over the past couple of years about how file-sharing was killing the music industry that the impact of the economic cycle had been cancelled for the music industry, but think again. Despite that, as Barry points out, CD revenues are tracking closely to the overall economy. So maybe those nasty p2p guys aren't all to blame after all - maybe it's also disintegrating retail distribution channels, crappy music, rotten pricing models, rotten licensing models, technology eroding traditional industry economics...and maybe also a crappy economy.

Economic cycle or not, I do think that the music industry is caught in a "perfect storm" that they are desperately trying to hold off (or ignore). But the whole music industry is in the process of being disrupted, like it or not.

Part of the problem in the music industry is the focus on home runs. Or has Ritholtz says:

A large part of CD sales is that the music industry remains wed to a "superstar" business model. Despite the fact that consumers are demanding ever more diverse music in increasingly narrow genres, we see a continued overdependence upon a small number of artists producing the lion's share of sales. This model --more suitable for the film industry than music -- is vulnerable anytime there are weak offerings. That's the risk when only a handful of artists become the main beneficiaries of the ever more consolidated radio industry's limited playlists:

There are really two problems in the preceding quote - one is the focus on building the next megahit and the other is the problem of homogenized radio playlists (thank you, Clear Channel et al.). I'm no expert, but those seem to me to be related. I think there's a big opportunity to give the fans who follow all of the myriad of niche music markets (e.g. blues, bluegrass, cajun, zydeco, celtic, gospel, etc.) ways to follow (and buy from) their favorite artists while at the same providing ways for those artists to take their music to the market either just for listening or for sale/licensing.

Ritholtz goes on to worry...

The question now remains whether the industry and the RIAA will continue its ruinous course of litigation and self destruction. As the industry alienates its customers, they risk losing an entire generation of music fans. "Some experts and users say that file sharers are only being more secretive, and that file swapping is actually increasing. At least two research firms say more than 150 million songs are being downloaded free every month."

Young consumers are increasingly turning to other forms of entertainment --the internet, video games, and music DVDs. The industry should expect to see additional negative reactions, including boycotts and consumers increasingly seeking alternatives to mainstream fare, as they react to the music self inflicted foibles.

The danger is the industry may be alienating an entire generation of music fans. Once lost, these fans will be gone forever.

I'm not so worried that the music industry's self-destructive actions will drive an entire generation away from music. I think that's unlikely. I do think that their behavior is helping to make both established music fans and younger fans even more ready for alternatives to "big music". We're already seeing such alternative emerge (for example, check out Magnatune, the self-described "open music label"). I think we'll see more in the near future.