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 What's
Happening to the Record Industry?
Copyright January
2007 by Keith Holzman,
Keith
Holzman Solutions Unlimited.
All rights
reserved.
Back to The
Academy
During the past few weeks I've been reflecting on what's happening to the record
industry. It's obvious that we've been in a transitional state for the last few
years. The question is -- what are we transitioning to? And how long will it be
until we reach a more stable, defined state? By way of illustration is a
fascinating set of statistics released early last week by Business
Wire.
The
report shows a loss of almost 5 percent in CD sales last year. That means we've
experienced six years of declining CD sales --from a high of 942 million in 2000
to a low of 588 in 2006. That's a scary situation indeed. And this loss
is only mitigated in part by increases of paid downloaded music in 2006. Sales
of digital tracks increased 65 percent, from 353 to almost 582 million, while
digital albums doubled from 16.2 to 32.6 million.
Market shares remained
pretty much the same from the previous year, with UMG leading, followed by
SonyBMG, then WMG, then Independent labels as a group, with EMI in last
place.
Sales by genre also showed some interesting, but curious, data.
Alternative music declined 9.2 percent, R&B was off 18.4 percent, Rap was
down over 20, and Jazz was down 8.3 percent. Meanwhile Classical increased by
22.5 and Soundtracks by almost 19 percent! (There were no 2005 numbers or
percentages listed for Rock.)
Consumers
Buying Less Music
What this information indicates is that
consumers are buying less music each year. Many of the younger set are grabbing,
stealing, or trading great amounts of music for free without compensating
lyricists, composers, publishers, or labels. But it also means that
people are spending more time at other pursuits -- watching television, playing
videogames, visiting Internet sites such as MySpace and Facebook, text
messaging, etc. They're certainly not spending more time at the movies, because
box office dollars were essentially flat last year.
Just
Like the Film Business...
This leads me to muse
on some parallels with the film business, another industry in transition,
brought about as a result of reading a fascinating article by David Denby in the
January 8th issue of The New Yorker. It's titled "Big Pictures, Hollywood Looks
for a Future."
Denby
"wondered about where movies were going" and "were they going any place good?"
He compares the experience of watching a film on a large screen with quality
surround sound in a properly equipped theatre to viewing one on a small iPod
screen while listening to its soundtrack through tiny earbuds. This is a
great concern to movie theatre owners because, although the actual number of
admissions declined, the stability was due to an increase in ticket
prices.
More and more homes are now equipped with big wide-screen
televisions and surround sound, and the public has increasingly turned to
watching movies at home on DVDs either purchased or via rental from
Netflix. This represents a major change in the movie-viewing
experience.
The parallel to our industry is that many people have gone
from listening to music primarily via CDs on quality high fidelity amps and
speakers, to listening on the ubiquitous iPods and other MP3
players.
Other parallels are that the movie industry is predominantly in
the hands of six major studios -- all owned by conglomerates -- and the music
industry is now down to four major groups, owned by some of those same
conglomerates.
Per Denby "the current studio model is not aesthetically
depressing but financially bizarre. The business model now swallows the studio,
which, obliged to supply its conglomerate outlets and subsidiaries, cannot
prevent itself from repeating a failure." That model (keeping revenue flowing to
buoy parent company's stock price) is swallowing the studios and they're choking
on their extreme size.
The same is happening to the big four (soon to be
three?) label groups. (EMI Music last Friday, January 12, fired its chairman and
vice-chairman and, as a result, there's much speculation that this may be a
prelude to its merger with another group, most likely Warner Music.)
Then there's distribution, controlled in both industries by those same majors.
The film and music businesses were in pretty good shape until the Internet came
along and changed the way people deal with entertainment. This could end
up being a plus for the film industry. As more and more theatres transition to
digital projection, studios will no longer have to ship movies in 50 to 80 pound
film cans that have to be individually delivered to theatres. They can instead
download their films from the Internet or receive them on compact media such as
small hard drives or HD DVDs.
Will the record industry in time eliminate
hard goods such as CDs in favor of downloaded music? By the way, Apple just
announced that consumers have bought more than 2 billion tracks from the iTunes
Music Store!
Where expensive marketing and advertising campaigns have
long promoted movie-going and music purchases, the film industry is seeing a
decline in DVD sales after double-digit growth, perhaps in favor of more
video-on-demand over cable, and downloading via iTunes. Where radio was once the
primary stimulant to music sales, it's now the Internet.
Most of the
major film studios own specialized "indie-style" smaller divisions, and it's
these smaller companies, along with true independents, that produced some of the
best movies made during the last five years. These are specialty films made for
an extremely diverse and discerning public.
A music industry parallel is
that the major record groups own or control smaller labels that are used like
farm teams to help develop artists that can be "upstreamed" to the parent when
they become sufficiently successful.
Truly independent film companies
operate much like truly independent record labels. Many are quietly successful,
providing movies or music to their specialized, niche, audiences. Lots of
successful filmmakers work with small highly portable video cameras, and they
can edit their movies in their homes or offices on off-the-rack computers using
relatively inexpensive software.
Independent musicians can record in
their own home or garage studios using similar computer systems and appropriate
music software -- all at moderate expense. As this low cost of entry widens the
field for musicians and filmmakers, the public will be the
beneficiary.
Where is All of This Heading?
I think we'll see a
continuing surge of the indie movement in both industries. And although the cost
of entry is considerably less, marketing will be increasingly expensive. This
will require greater utilization of the Internet and necessitate exploring other
means of getting word out to the public. But the result is likely to be more
exciting and inventive music, readily available to an eager public.
I
like the convenience of owning and listening to CDs when I want, but I suspect
it's inevitable that CD manufacturing and sales will continue to decline, yet
not fade completely. Until another listening medium is developed to replace the
CD, we'll be downloading more and more music for a fee, and we may likely end up
with a form of music on demand, much like viewing movies on demand from cable TV
systems.
The beneficiary of a resulting requirement for greater bandwidth
will be the Internet, phone, and cable carriers, not the creators, artists, and
entrepreneurs. But hasn't that always been the case?
Until next month,
Keith Holzman -- Solutions Unlimited
Helping Record Labels Manage for Success.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Copyright 2007 by Keith Holzman, Solutions Unlimited. All rights
reserved. Adapted from "Manage for Success," Newsletter #67,
January 2007.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Keith Holzman is the principal of Solutions Unlimited, a management
consultant specializing in the recording industry. A trusted advisor
and troubleshooter, he is a seasoned music business senior executive
with extensive experience in all aspects of running a label. He was
President of ROM Records, Managing Director of Discovery Records,
Senior Vice President of Elektra, and Director of Nonesuch Records.
He publishes "Manage for Success," a free monthly email newsletter
devoted to solving problems of the record industry. You can subscribe
at his website <http://www.holzmansolutions.com>. Keith is a member
of the Institute of Management Consultants and has served as a
panelist for the National Endowment for the Arts, and as a board
member of many arts organizations. He can be reached at
mailto:keith@holzmansolutions.com.
Keith is also the author of the recently published "The Complete
Guide to Starting a Record Company" available both as a 235-page,
printed spiral-bound book, as well as a downloadable E-Book.
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