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Old 01-17-2008, 01:35 AM   #1
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The end of the music industry.....

.....well at least as we know it. Sales continue to decline year after year in the music industry at an alarming rate. The average sales in any given week today are comparable to the early 1980s when the potential music buying population was about half of what it is today. The physical sale of CD's in stores is declining so rapidly that by the middle of the next decade it probably will be a thing of the past. Since 2000 when the music industry was at its peak, music stores have been closing up left and right. Most are now attached to book stores or larger department stores, or if they are stand alone, will have nearly half of their shelves stocked with movies, TV shows, video games and other things as opposed to music CD's. In 2000, one could find every CD by an individual artist on the shelf, usually with multiple copies available. Now typically only the compilation and greatest hits albums are available, along with a few of the most popular or current albums, even for mega popular artist like U2. The chief reason for all this happening in such a short space of time seems to be the easy availability of free music through the internet and other means. It does not appear that this trend is going to be reversed leading to some puzzling questions about how the music industry will be able to survive and how new artist or the next U2 will be able to make enough money and gain enough exposure in order to succeed or even be able to make a reasonable attempt at success in the first place.


I thought the following article on the music industry in the economist was interesting and it includes some possiblities about how the music industry might be able to survive in the future, but it is likely to be a future where most people will not pay directly for music they obtain. Of course, many would say that future is already here.


The music industry

From major to minor
Jan 10th 2008
From The Economist print edition

Last year was terrible for the recorded-music majors. The next few years are likely to be even worse

IN 2006 EMI, the world's fourth-biggest recorded-music company, invited some teenagers into its headquarters in London to talk to its top managers about their listening habits. At the end of the session the EMI bosses thanked them for their comments and told them to help themselves to a big pile of CDs sitting on a table. But none of the teens took any of the CDs, even though they were free. “That was the moment we realised the game was completely up,” says a person who was there.

In public, of course, music executives continued to talk a good game: recovery was just around the corner, they argued, and digital downloads would rescue the music business. But the results from 2007 confirm what EMI's focus group showed: that the record industry's main product, the CD, which in 2006 accounted for over 80% of total global sales, is rapidly fading away. In America, according to Nielsen SoundScan, the volume of physical albums sold dropped by 19% in 2007 from the year before—faster than anyone had expected. For the first half of 2007, sales of music on CD and other physical formats fell by 6% in Britain, by 9% in Japan, France and Spain, by 12% in Italy, 14% in Australia and 21% in Canada. (Sales were flat in Germany.) Paid digital downloads grew rapidly, but did not begin to make up for the loss of revenue from CDs. More worryingly for the industry, the growth of digital downloads appears to be slowing.

“In 2007 it became clear that the recorded-music industry is contracting and that it will be a very different beast from what it was in the 20th century,” says Mark Mulligan, an analyst at JupiterResearch. Last year several big-name artists bypassed the record labels altogether. Madonna left Warner Music to strike a deal with Live Nation, a concert promoter, and the Eagles distributed a bestselling album in America without any help from a record label. Radiohead, a British band, deserted EMI to release an album over the internet. These were isolated, unusual deals, by artists whose careers had already brought years of profits to the big music companies. But they made the labels look irrelevant and will no doubt prompt other artists to think about leaving them too.

The smallest major labels, EMI and Warner Music, are struggling most visibly. Warner Music's share price has fallen to $4.75, 72% lower than its IPO price in 2005, and it is weighed down by debt. EMI's new private-equity owner, Terra Firma, paid a high price for the business in August 2007. Now, having got rid of most of EMI's senior managers and revealed embarrassing details of their spending habits (£200,000 a year went on sundries euphemistically referred to in the music business as “fruit and flowers”), Terra Firma is due to produce a new strategy later this month. But many observers reckon the private-equity men are out of their depth.

The two biggest majors—Universal, which is owned by Vivendi, a French conglomerate, and Sony BMG, a joint venture between Sony and Bertelsmann, a German media firm—derive some protection from their parent companies. Universal is the strongest and is gaining market share. But people speculate that Bertelsmann may want to sell out to Sony next year.

Three vicious circles have now set in for the recorded-music firms. First, because sales of CDs are tumbling, big retailers such as Wal-Mart are cutting the amount of shelf-space they give to music, which in turn accelerates the decline. Richard Greenfield of Pali Research, an independent research firm, reckons that retail floor-space devoted to CDs in America will be cut by 30% or more in 2008. The pattern is likely to repeat itself elsewhere as sales fall.

Circular arguments
Second, because the majors are cutting costs severely, particularly at EMI and Warner Music, artists are receiving far less marketing and promotional support than before, which could prompt them to seek alternatives. “They've cut out the guts of middle managers and there are fewer people on the ground to promote records,” says Peter Mensch, manager of the Red Hot Chili Peppers and Shania Twain.

Third, record companies face such hostile conditions that their backers, whether private equity or corporations, are loth to spend the sums required to move into the bits of the music industry that are thriving, such as touring and merchandising. The majors are trying to strike “360-degree” deals with artists that grant them a share of these earnings. But even if artists agree to such deals, they will not hand over new rights unless they get better terms on recorded music, so the majors may not see much benefit overall. Tim Renner, a former boss of Universal Music in Germany, says the majors should have acted years ago. “Then they had the money and could have built the competence by buying concert agencies and merchandise companies,” he says. Now it may be too late.

By mid-2007, when the majors realised that digital downloads were not growing as quickly as they had hoped, they landed on a more adventurous digital strategy. They now want to move beyond Apple's iTunes and its paid-for downloads. The direction of most of their recent digital deals, such as with Imeem, a social network that offers advertising-supported streamed music, is to offer music free at the point of delivery to consumers. Perhaps the most important experiment of all is a deal Universal struck in December with Nokia, the biggest mobile-phone maker, to supply its music for new handsets that will go on sale later this year. These “Comes With Music” phones will allow customers to download all the music they want to their phones and PCs and keep it—even if they change handsets when their year's subscription ends. Instead of charging consumers directly, Universal will take a cut of the price of each phone. The other majors are expected to strike similar deals.

“‘Comes with Music' is a recognition that music has to be given away for free, or close to free, on the internet,” says Mr Mulligan. Paid-for download services will continue and ad-supported music will become more widespread, but subsidised services where people do not pay directly for music will become by far the most popular, he says. For the recorded-music industry this is a leap into the unknown. Universal and its fellow majors may never earn anything like as much from partnership with device-makers as they did from physical formats. Some among their number, indeed, may not survive.

http://www.economist.com/business/di...ry_id=10498664
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Old 01-17-2008, 02:14 AM   #2
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Printing it off to read on the way home from work, but in general quickly I think what you say first up is correct. "....as we know it". There's absolutely no way that from now into whatever foreseeable future you couldn't run a smart and profitable business that trades in music, be it online or in tandem with physical sales, or one of these 360 deals. I don't think the remaining majors have it in them to do it, and I'm not sure if they even could, even if they do know exactly how it should/would work. It's not easy to essentially trash a $500million (in Australia) a year industry and build it up again from scratch, which is essentially what they will have to do in absolutely every conceivable way, so much so that essentially at one stage all you'll have left is a sign hanging over the front door, but an empty building behind it. They've had a decade to do it gradually and on their own terms, and have spent that time fluffing around with law suits and bad ideas based around protecting what they already have, to now where a lot of these new deals sound like salvaging what they can rather than moving forward.

The majors, or new players who want to be successful, need to understand first and foremost that this is not simply a shift in format. It's also not about theft and piracy or whatever. They need to firstly recognise that there has been a significant shift in how people search for and discover music, and where influences over that search come from. So no, loading Nokia phones with your music is not the solution. It's salvaging. Streaming your music over social networking sites is not the solution, it's salvaging. Those ideas + some of these commercial/sponsorship/branding ideas coming from this Terra Firma takeover of EMI I think are fine when you are talking about the mass marketed, mass produced, mass turnover stuff, ie the very base of the pop charts (the Fergie's etc), but not for 85% of the artists on any of the major record companies books. But overall, I think the majors are spending way too much time trying to protect what they have, or thinking that old world answers will fit new questions. It is NOT just a shift in format. If it were, they were on the right path with fighting/protecting their ownership of the product as their sole focus. Clearly, they weren't. Clearly, it's not the right path.

I don't know the answer, and if I did I'd be off putting it together, not sitting here telling you. I know it is definitely more about networks and community over MTV and Rolling Stone and your local major commercial radio station just telling you. I know it's about individual tastes over a feeling of mass acceptance. I know it's about a playlist of 500+ artists, not just a few favourites. I know it's as much about the past as the current or future. I know it's an interactive experience from start to finish. Music is growing rapidly, incredibly so. There are signs of that absolutely everywhere. It's only Ye Olde Music Industry that is dying. Napster was a huge first wave. iPod/iTunes was another. Pretty soon some smart little fucker will come up with 'the way' for a whole new style of music business to operate successfully in the 21st Century and that will be the next wave.
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Old 01-18-2008, 02:10 AM   #3
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It's not like music isn't selling, it's just changed form again, as it did when records changed to cds. I just hope shops never close up because I still buy cds.
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Old 01-18-2008, 03:51 AM   #4
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Quote:
Originally posted by COBL_04
It's not like music isn't selling, it's just changed form again, as it did when records changed to cds. I just hope shops never close up because I still buy cds.
I agree, i still buy cd's.
Thats half the fun when you go to the shop and buy the cd, you get to look at the album cover which is always fun.

CD's should never go out of fashion...
And if they ever do I would feel sorry for the older people who dont know how to use a computer or download music. It's not fair on them.
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Old 01-18-2008, 01:35 PM   #5
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Quote:
Originally posted by COBL_04
It's not like music isn't selling, it's just changed form again, as it did when records changed to cds. I just hope shops never close up because I still buy cds.
The music industry has declined every year since 2000. Today, the #100 album usually only averages about 7,000 copies sold in any given week, while the #200 album only averages about 3,500 copies in any given week. 7 years ago, those figures were more than twice as high. The size of the potential music buying population has only expanded over the past 7 years, and so has the economy. Yet, music album sales, even when including online sales through things such as i-tunes, have continued to rapidly decline every year.

The biggest selling album in 2007 sold 3.4 million copies in the United States. The biggest selling album in 2000 sold over 10 million copies, while the #10 selling album did 4.5 million, a full million copies more than the biggest selling album in 2000. That is an enormous change in a very small period of time. One only has to extrapolate this continued rate of change over the next 7 years to see what the industry will look like in 2015.

When records changed to CD's, the music industry was still rising consistently and often rapidly year after year. In fact, the switch to CD's led to a massive boom in album sales in the 1990s as people converted all their old record collections to CD's. Today, people are not replacing their CD collections with new purchases. If anything they are now getting rid of their CD collections after uploading it to I-pods or a computer and obtaining anything they don't have online either for free or a purchase through a website.

Bottom line, more and more people will opt to obtain music for free through friends or over the internet rather than purchase the product. Why buy something when you can get it for free? That has essentially become the popular thing to do this decade and its unlikely to stop. Once people get into their mind that they no longer have to pay for the music they want to have, its nearly impossible to reverse the trend or mindset. Technology is great, but in this case, its created a way to wipe out a particular business.

The industry will likely still be here in 10 years, but the era of multi-platinum or multi-million selling albums, even as little as 2 million may be long gone by then. In addition, I doubt that people will still go to a shop or store to buy music in 10 years at the rate such things are disappearing. There is no reason for artist or what is left of music companies to continue to produce a physical product that you buy in the shop if less and less people continue to buy it.

I too prefer going to a store to buy my music and have a physical CD that you can hold with the booklet and the artwork. Records were great as well, although I did not really miss them too much when they started to be phased out in the late 1980s.
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Old 01-18-2008, 01:59 PM   #6
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It seems to me that the problem isn't so much the downloading, its the content. I'm a gigantic music fan with a very wide ranch of tastes. I buy four or five CD's a year now, not because of choice, not because I'm pirating, but because there are only four or five releases a year that actually interest me. The industry's inability to move away from the Timberlakes, rappers, and pop princesses that's killing it. If you look at the digital download charts, they almost never match what the Billboard Hot 100 is and it's the legal downloaders who are the ones with the disposable income that would be buying the albums. Each decade of rock and roll has had it's mega stars created in that decade. Those megastars, Elvis, The Beatles, Bob Dylan, The Eagles, Bruce Springsteen, U2, Van Halen, Nirvana, Pearl Jam are the ones who fueled those album sales (and continue to, as their new releases typically outsell any millenium band's new release with little exception). With the shift away from rock, sales have plummeted and the shift is highlighted by the utter dearth of new mega stars.

What the industry needs to do is look at the tour receipts, look at who's packing the biggest houses on tour. It's NEVER Christina, Britney or Justin, it's U2, The Rolling Stones, Van Halen. Make a concerted effort to sign and market rock and roll bands and the industry will turn around.
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Old 01-18-2008, 03:02 PM   #7
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Quote:
Originally posted by Snowlock
It seems to me that the problem isn't so much the downloading, its the content. I'm a gigantic music fan with a very wide ranch of tastes. I buy four or five CD's a year now, not because of choice, not because I'm pirating, but because there are only four or five releases a year that actually interest me.

Same here. And lately I've been buying older stuff that I always meant to get but never did. I buy an occasional new album now and then, but the problem is, in my opinion, is that labels spent all their time and enegery promoting the same acts and then the clones of those acts, so all the new sounding acts had to find a new way to get their music out there, cause a record deal, ironically, wasn't going to help.

It's amazing that when I listen to the radio or whatch MTV - 95% of the time I know exactly who I'm hearing. There's nothing new being shown. And when it is "new" it's just the same old shit anyway.

I, for one, welcome the fall of the record companies.
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Old 01-18-2008, 03:09 PM   #8
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Originally posted by UberBeaver

I, for one, welcome the fall of the record companies.

You would.

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Old 01-18-2008, 11:19 PM   #9
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Quote:
Originally posted by UberBeaver


Same here. And lately I've been buying older stuff that I always meant to get but never did. I buy an occasional new album now and then, but the problem is, in my opinion, is that labels spent all their time and enegery promoting the same acts and then the clones of those acts, so all the new sounding acts had to find a new way to get their music out there, cause a record deal, ironically, wasn't going to help.

It's amazing that when I listen to the radio or whatch MTV - 95% of the time I know exactly who I'm hearing. There's nothing new being shown. And when it is "new" it's just the same old shit anyway.

I, for one, welcome the fall of the record companies.
The older stuff is just better.
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Old 01-19-2008, 06:27 AM   #10
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Mr. Brau-Juan, are you actually Doug Niedermeyer from Animal House?

What is that?... I know what that is... that's MUSIC!

~dee snide remark
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Old 01-19-2008, 08:38 PM   #11
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Quote:
Originally posted by MrBrau1


The older stuff is just better.


I agree with all that's been said here, especially about the content. The content is deplorable. I used to love watching Rage, Video Hits in 2000/01/02 because songs were still good. Now? I can't stand it.

I haven't bought an album or single by a recent artist (excluding artists that have been around 30 years and are still releasing records) in probably four years. Music is just that bad. There are bright spots, but they are very, very few and far between.
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