Is the Music Industry Going the Way of the Newspaper Industry?

Posted: January 11, 2012 in Media, Music, Paid Content
Tags: , , , ,
11

The newspaper industry has had to grapple with a seismic shift in user behaviour over the last 15 years: people just aren’t buying newspapers in the numbers they used to and crucially newspaper buyers are getting older, to the extent that the long term prognosis is for the bulk of newspaper buyers to die off….literally. The irony (in a cosmic irony Alanis Morissette-type usage of the word rather than literal irony) is that more people are consuming more news than ever before, and young people too. But most of that consumption is online and free. What newspapers haven’t yet figured out is how to turn this into a business, and all the while (to mix my clichéd metaphors) watching their cash cow whither on the vine. The reason for this potted history of the 21st century newspaper industry is that it is looking increasingly the case that the music industry is arriving at a worryingly similar place.

Another year of digital stasis. With 2011 sales figures beginning to come in, the scale of digital music’s recent underperformance is becoming increasingly clear. In the UK overall music sales continued to decline with digital some way off yet from being able to pick up the slack. The UK’s record label trade body the BPI reported that digital growth wasn’t enough to prevent a 5.4% decline in total album sales. The picture was more positive in the USwith Nielsen reporting that album sales actually grew for the first time since 2004, up 1.3% on last year.

But the US and UK numbers aren’t quite all they seem. Both the BPI’s and Nielsen’s numbers are for unit sales. One of the consumer benefits of the music industry meltdown has been aggressive discounting, with labels and retailers having to slash prices to persuade us to buy in numbers. While this is great for music fans it means weaker profits for labels and that revenue sales trends are weaker than volume trends. And that means that the UK revenue decline will likely be worse than 5.4% and that US revenues may well be down on 2011 despite the positive performance in units terms. With a decade of digital sales already behind us this is the stage where digital sales growth should be rocketing and lifting the whole market with it.

The continued dominance of the CD. Albums are by far the most valuable component of music sales and despite positive digital growth the album remains largely unaffected by digital. 76% of album sales in UK are CDs and in the US the rate rises to a whopping 82%. When the CD hurts the music industry hurts. Nearly half of the growth in US albums sales came from increased CD sales. Perhaps even more concerning is that three quarters of all US albums sales are offline. Thus the music industry is depending on non-net-savvy consumers who don’t even buy online for the lion’s share of their income. And CD buyers aren’t spring chickens either: nearly 40% of them are over 45. On either count that is not exactly future-proofed revenue. The echoes of the aging newspaper audience are depressingly obvious.

The CD: the Music Industry’s Heroin (and not in the female hero sense of the word). Another similarity between the newspapers and record labels is their addiction to their respective dying formats. The direct consequence of poorly performing digital revenue strategies is that physical revenues become all the more important which in turn makes labels and newspapers less willing to pursue ambitious digital strategies that might hurt physical sales. Which of course results in digital sales underperforming further and the whole thought process starts again. This circular logic begets strategic paralysis. Unless the record labels learn how to kick their CD habit they’re going to find themselves presiding over perennial long term decline.

The danger of ‘the Adele Effect’. Both the UK and US sales numbers were dominated by Adele, with her landmark album ‘21’ topping charts in both markets and selling over 13 million copies (becoming the biggest selling album in a single year in the UK). Uniquely well-performing albums like ‘21’ have a habit of creating reality distortion fields. As I explained in a previous post Adele, along with Coldplay, is an increasingly rare breed: an album artist. Adele and Coldplay both appeal to the older album buyer (which is exactly why Coldplay won’t let ‘Mylo Xyloto’ go on Spotify until sales have peaked). The strong performance of both these artists’ albums in 2011 has helped boost albums sales, but more importantly they lend a veneer of vitality to the album market that is not accurate. More typically 21stcentury artists – the likes of Pitbull, Rihannna, Katy Perry and LMFAO – will be measuring their 2011 success in terms of singles sales, live sales, merchandize revenue, YouTube views and Facebook likes.

Rumours of the CDs’s demise are much exaggerated…perhaps. Of course the album is far from dead – after all, as we have seen, the CD remains the bedrock of music sales – but it is becoming just one, weakening, part of a broader mix of artist revenues. In some ways artists are better protected from the music industry meltdown than record labels: they – along with their managers – are rapidly acquiring new skillsets and business acumen. Record labels however are left having to put a positive spin on the album’s apparent longevity. However the fundamental fact remains that the CD is a dying breed. It may have a good few years left in it yet, but the long term prognosis is terminal.

Innovate, innovate, innovate! Newspapers and record labels are both at a crucial juncture: physical format revenues will continue to pay the bills for the coming years but paradoxically they must pursue radical format and product innovation strategies that will actually hasten the demise of those same physical revenues. If they don’t, record labels and newspapers will find themselves with the lose-lose scenario of depleted physical revenues and pitiful digital income.