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2008: The Year in Review
by
Paul Resnikoff, Publisher
Digital Music News, December 31st,
2008
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Survived 2008 okay? The year proved difficult for an already-disrupted
industry, though "accelerated transition" could be the best description
of current forces at work. As in previous years, consumers continued
their shift towards digital formats, and free continued to beat paid.
But a widespread economic downturn appears to be intensifying a
long-running disruption.
Labels - both major and indie - once
again found themselves weathering the brunt of a plunging CD. But the
trend is worsening. By the fourth quarter, pre-recorded CD sales were
slipping approximately 20 percent year-over-year, and Christmas
shopping volumes appeared weak. Indie distributors started feeling the
pressure, and many entered bankruptcy. The dire backdrop raises the
question of whether 2009 will be a make-or-break year for labels, and
the broader recording industry.
Still, an elite class of
superstars managed to thrive - AC/DC quickly scored double-platinum
sales, and Usher grabbed a Diamond accolade on a 2004 album. But the
broader softening still means lower revenues, and most artists are
swimming in shallower waters.
Superstars also found themselves
battling pre-release leaks, almost an automatic occurrence in 2008.
The list of top-level artists dealing with high-profile leaks included
Usher, Metallica, Coldplay, Nas, and Lil Wayne, among many others,
though the impact on sales - positive or negative - remains unclear.
The
list also included Axl Rose-led Guns N' Roses. The group opted to
prosecute a fan behind a pre-release leak, a process that remains
ongoing. The album, Chinese Democracy, largely flopped.
That
was just one of many stressful moments for the big four. At the onset
of 2008, the freshly-acquired EMI Music started a serious round of
layoffs. The multi-month process ultimately pushed past 1,500, and the
cast of top-level executives shifted throughout.
Other labels,
including Sony BMG, also experienced serious changes. The troubled
joint venture decoupled, and the legendary Clive Davis was demoted.
Quarterly
reports were mostly disappointing at major label groups, even Universal
Music Group. But some executives kept collecting handsome payouts,
including the top brass at Warner Music Group. In August, Lyor Cohen
cashed out $6.8 million in shares, just one example of an executive
compensation structure at Warner that kept investors wondering.
Still,
majors are making changes, and one of the biggest announcements came at
the end of the year. Just ahead of Christmas, the RIAA announced that
lawsuits against individual file-swappers would be discontinued, in
favor of broad-based ISP enforcement measures. The RIAA decision comes
several months after a major, multi-industry agreement in the United
Kingdom, one that includes mass-mailings of warning letters by ISPs to
suspected infringers. But as 2009 begins, serious questions surround
the nature of the RIAA agreements, and the willingness of US-based ISPs
to cooperate.
Conversely, another major shift happened at the
beginning of 2008. A DRM-free leap started by EMI in 2007 spread to
the other majors, and by January, AmazonMP3 was offering MP3s from all
four majors. That set the stage for a massive, Pepsi-powered Super
Bowl promotion, though the broader impact appeared modest. A raft of
other music stores were soon granted DRM-free access.
Those were
big steps, though external winds proved powerful. By September, a
serious economic crisis started rippling through nearly every business
sector and nation. Stocks like Warner Music Group (WMG) and Live
Nation (LYV) brushed all-time lows, and even Apple (AAPL) now trades at
a seriously-depressed valuation. The Wall Street malaise was
complemented by widespread layoffs across a number of music-related
companies.
Others managed to grow, market issues
notwithstanding. YouTube continued to amass users and views, and
despite ongoing issues, players like Pandora continued to expand. On
the gaming front, Rock Band turned into Rock Band 2, and Guitar Hero
expanded into a World Tour.
Other areas simply started to
plateau. That includes paid downloads, which appear to be leveling at
roughly two billion annually, at least according to iTunes Store
figures. Apple is also losing steam on its darling iPod, though the
iPhone was all the rage in '08 - both for Apple and an army of
application developers. The latter class now includes music-related
companies like Pandora, Sonos, and Shazam, as well as labels like Sony
Music Entertainment.
On the M&A front, Buzznet acquired
Stereogum and Idolator, part of a music blog roll-up. Imeem scooped
the distressed Snocap, Sony Corporation of America purchased Gracenote
for $260 million, and Disc Makers purchased CD Baby for $22 million.
Best Buy purchased Napster for $121 million, though other takeover
attempts were dropped, including a bid for SanDisk by Samsung.
And
what about mobile music? The once-heady area was surprisingly cool
this year, at least in the West. Ringtones are now past their prime,
and hopeful formats like OTA downloads have failed to break through.
On the hardware side, Sony Ericsson experienced softer demand for
music-specific devices, and downer financial results. On the broader
mobile stage, the bigger breakthrough is coming from a more complicated
class of smartphone, a group that includes the iPhone.
The year
also witnessed the heavily-hyped rebirth of MySpace Music, thanks to
the blessing of major labels. But independent playlisting startups
Muxtape and Mixwit exited, while Project Playlist and Seeqpod continued
to tussle with the majors.
At Yahoo Music, it was the year of
the outsource. By February, the company offloaded its subscription
service to Rhapsody America. By December, the company outsourced its
streaming radio offering to CBS Radio. CBS also started powering AOL
Radio in March.
Perhaps the biggest flop of the year goes to
Qtrax. In January, the company staged a massive coming-out at Midem in
France, though major labels quickly pointed to nonexistent licensing
deals.
Starbucks had a tough year, and music-related initiatives
were largely shuttered. The shift followed a scathing review of the
initiative by the New York Times in March.
On the performance
side, Live Nation continued to make serious moves. The company
announced plans to create a homegrown ticketing solution, a move away
from Ticketmaster. The mega-deal spree also continued, specifically
with Jay-Z, U2, Shakira, and Nickelback. But internal discord soon
followed, and a late-year options cash-out by U2 raised questions on
whether the aggressive Live Nation strategy makes sense in the current
economy.
Meanwhile, Ticketmaster acquired a controlling interest
in Front Line Management, and appointed Irving Azoff as the CEO of its
newly-minted Ticketmaster Entertainment unit.
In satellite
radio, Sirius Satellite Radio and XM Satellite Radio finally got their
merger approved by both the US Department of Justice and Federal
Communications Commission. But massive debt and an overbearing
overhead are threatening to overwhelm the combined company in 2009.
Elsewhere,
artists continued to exercise their independence in 2008. Radiohead
may have been the story of 2007, though Trent Reznor helped to carry
the mantle into 2008. The NIN frontman rustled a quick, one-week purse
of $1.6 million, based on direct-to-fan sales of Ghosts I-IV. On a
broader scale, artists large and small continue to question the merits
of the major label arrangement.
-----
Paul Resnikoff is the founder and publisher of Digital Music
News (www.digitalmusicnews.com), a premier industry source for news,
information, and analysis. Digital Music News has quickly grown from its humble
roots as a small, executive news service to the most widely read information
source in the field. |
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