Thursday, April 07, 2005

Digital Music: Fixing The Problems (Part 2)

Yesterday, I posed the question, "Just what is the benefit to the record labels, two-years after having listened to and adopted Steve Jobs' technology cure?" Today, I'll look at the answer.

I'll drop my bomb, first, instead of contriving some sort of suspenseful writing method. And, here it is. Steve walked a cure around the music industry a couple of years ago to a problem that existed nowhere but in the paranoid minds of the record label executives. The supposed problem was that freely distributed electronic song files were undermining sales of CD's. That has never been the case, and is still not the case. So, the entire iTunes/iPod "solution," as well as the remaining digital rights managed download service "solutions" are completely specious, at best. And, at worst, their existence has made the real problems facing the record industry even more difficult to solve.

The Real Music Industry Problem

I will ask you to take a few minutes and read a report prepared by a spinoff group of the Stanford Research Institute, from July, 2002. Not only is this a terrifically rational exposition of the state of music industry sales, it happens to correspond pretty well to the very time that Steve Jobs was about to undertake his famous "lap around the music industry."

Finished reading that report? Good... now we can talk.

Digging To The Root

It should be clear to any student of the music industry's success with CD sales over the past 20-years that the main factors driving down CD music sales have actually been (A) shifting demographics in the buyer base, and (B) other forms of entertainment media. Against those two huge factors, the minor blip that may or may not have resulted from the emergence of online music file sharing is insignificant.

Over the past decade, music buyers have gotten older, and, DVD movies have appeared on the market. The DVD format first appeared in 1999, and, the DVD movie market began to blossom in 2000 and 2001, with both sales and rentals of DVD movies kicking into high gear during that period.

Here is a telling snapshot of the video sales and rental industry from July, 2002, that is not only indicative of information that Steve Jobs also then had available. But, it is also, again, contemporary with his planning for his walk around the music industry. Video sales and rentals were burgeoning. And, 2001 was the first year that the DVD outsold the venerable VHS tape.

People only have a certain portion of their income that they are willing to spend on personal entertainment. And, it is to that slice of a person's wallet that all forms of entertainment media must compete with one another. It is clear that the DVD movie has brought some incredible pressure to bear on the music CD, over the past several years.

One last piece of data I want to share is about the game console market's performance during this same time period. Recall the music sales figures showing a decline in younger buyers over the past five years? It seems that much of that wallet slice of purchases has been shifting from CDs to games among these younger buyers. They have not "disappeared." They are just spending more money on games, and less money on CDs.

The root of the record labels' problem in sustaining revenue growth over the past few years has much more to do with increasing competition from movies and games than from any lost sales to online song downloads. Steve Jobs knew this when he went and pitched the music industry on his iTunes plan. But, he also knew that the lure of an easy, quick fix will always sell more quickly than a complex plan involving hard work and major change. So, he succeeded in leveraging the fear then widespread in the record label offices into a quick deal to launch iTunes.

That's The Problem. What's The Solution?

In part three of this series, I will offer a few real solutions to the real problems facing the major record labels. And, as I suggested in part one, much of that material can be drawn directly form the very media successes that are pressuring CD sales: movies and games.

In summary, the problem with flat CD music sales is not a technology problem, and, it is certainly not a problem created by internet music downloads. It is a simple problem of increasing competition from other entertainment media for those scarce consumer dollars. For the record industry to win back customers, it is going to have to face the real enemy in this scenario, and get to work on making a CD purchase more attractive than a DVD or game cartridge purchase. In my next installment, I'll look at some ways to do that.


Blogger fixyourthinking said...

The DVD format first appeared in 1999, and, the DVD movie market began to blossom in 2000 and 2001, with both sales and rentals of DVD movies kicking into high gear during that period.

Wow, I was watching movies in 1997 on my Wallstreet laptop. Total licensing was finished until 1999 - that's when Disney joined the fray. My 1st DVD purchase was a DVD called Sydney's Psychidelic Adventure 3-D. I bought it in late 1997.

This was a good post otherwise - and while I don't agree that Apple's iTunes has complicated the problem - I do agree that the only threat is the perceived paranoia the RIAA seems to have over P2P networks. I know of few people that download songs regularly off of Kazaa that don't regularly attend concerts and actually promote CD sales to fiends and family by letting them "be nearby listeners"

9:10 AM, April 07, 2005  
Blogger Jack Campbell said...

That's my M.O., as well, and is the way many of my friends use P2P... as a sampling method, to turn us onto possible new music we might like to own. I actually discovered Alanis Morrissette through a lucky P2P hit one night. And, I've since gone on to buy every CD she's ever had released.

I should have been more exacting in defining the DVD date. It should have been something like, "The DVD first gained commercial success in 1999." See Here.

Sorry for the error.

9:25 AM, April 07, 2005  

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