Wednesday, June 18, 2008

Music Continues to Reposition and Change

Today’s Times article 'Music sales fall to their lowest level in over twenty years' must send yet another shiver down the backs of those who run the major music production companies. Worldwide music sales are now at their lowest level since 1985. The figures released by IFPI yesterday stated that the equivalent of 1.86 billion albums were sold last year (for comparison they counted ten individual song sales as being the equivalent of one album).

So what does this tell us about the state of what we all know is an industry going through radical change where the once dominant record producers are being squeezed from both ends of the value chain the artists and the consumer?
The sales peaked in 1996 at 3.4 billion so have effectively halved in just over a decade. 1996 ironically was the year when the Internet started to change from being the old dirt track to the superhighway and companies such as Amazon were becoming established.

Today CD sales are not only collapsing in terms of volume but have finally also collapsed in terms of value with prices now being significantly discounted down from those heady days when some would have said that the industry fixed high prices in the UK. This double collapse is further compounded by digital sales continuing to fall far short of bridging the gap. Production company revenues in the UK are 13% down and on last year. On one hand UK CD sales fell by 16% to £871 million but although digital sales increased 28% this only amounted to £132.2 million. Today the consumer wants to make their own compilations and not pay for the extra tracks they don’t want. The charts are revivant to a few but not to the many and social sharing as it always has been is a given.

The IFPI is calling for the usual suspect to be culled, fined and thrown in jail claiming that between 50 and 80% of ISP traffic was accounted for by illegally swapped content. To us a 30% variable would appear a wide margin of error and would serious raise the question of whether they actually know the facts or whether a lot is based on assumptions and the fist waving we are used to from the production companies.

Music companies and lobbyists are trying to reach agreement with ISPs but this is not the problem. The issue is a value chain shift that is disintermediating one of the previously strongest links in the music chain. It isn’t about copyright infringement its about change. Change in how artists are taking control of their revenue streams, branding and merchandising. Change in how, when and what the consumer wants and is willing to pay. Change in how the artist and consumer are linked and the relationship.

The music business is still huge and influential. It will survive and make money going forward but it will change and have to change. Some look to other media sectors such as book publishing and ask what are the lessons we can learn from the music industry – and there are many. We would say that the one thing that is certain in any value chain is that once you stop adding perceived value then your place is in question and that no one has a divine right to remain in perpetuity.

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