Digital Music Sales Drop in 2013; Is That Surprsing?

2014-01-09 14.14.34.pngFor the first time since digital music sales have been recorded, Billboard reports that digital track sales fell 5.7% […] while digital album sales fell 0.1%, according to Neilsen SoundScan, which tracks such sales. CD sales also dropped 14.5%.

This is no surprise. As you can see in the graphic to the left, music sales are competing with free. Spotify and other services – Pandora, Rdio, iTunes Radio – offer free ad-supported listening along with paid premium services.

As a serious, long-time music fan, I still like to own my music. But I use iTunes Radio to discover music I wouldn’t have heard other than at random. (I have a $25 per year iTunes Match subscription, so I don’t hear ads.) I’ve been fiddling with Spotify, but I’m not sure I can justify its cost. With the ad-supported “free” version, I get an ad every two or three songs. It’s not that big a deal; I just press the Mute button on my remote (I mostly listen at my desk), but if I were listening more often, it would irk me.

It’s fair to say that we’re living in a world where people don’t generally care about ads any more. My guess is that anyone who listens to enough music to be bothered by the ads will pay for the premium, ad-free service. In fact, with Spotify, 25% of users pony up, while 3/4 of listeners are ad-freeloaders. The casual music listeners – those who don’t spend a lot of money on music anyway – put up with ads. But the serious listeners pay the $10 a month and stop buying CDs.

It would be interesting to try and figure out how much money that represents in lost sales. Spotify says that the average music listener in the US spends $55 a year on music. However, those who pay for streaming services certainly spend more than the average on music, and would have spent much more than the $120 they spend on Spotify. So the music industry is most likely losing out.

While I’m still not ready to move to subscription listening for a number of reasons, I spend several hundred dollars on music each year. If I were to stop buying music and pay a monthly fee to Spotify, that would be a big dip in my expenditures, and a net loss to the music industry. (And most of the music I buy is on CD, not digital.)

Some people have suggested that it’s not streaming that has hurt the music industry but apps. This is foolish; people are certainly spending time with apps, but that doesn’t stop them from listening to music. And it’s not a question of how much money they spend on apps; the same people who listen to ads on Spotify are happy to view ads in free versions of apps. And even if they do buy apps, most just cost a buck or two.

The way people listen to music is certainly changing. It’s not just streaming services, either. Lots of young people just go to YouTube to hear their favorite new songs. In many, perhaps most, cases, these YouTube videos are illegal uploads. (YouTube makes it quite difficult for record labels to take down illegal uploads.) Some of them aren’t even videos; they’re just a single still of an album cover with the music behind it.

The music industry has struggled for years to figure out the best way to make money, since digital music came along. It still doesn’t have the answer. Streaming services most likely reduce overall revenue, and are merely a temporary band-aid. There’s got to be a better way.

P. S.: I think it’s pretty disingenuous of Spotify to be running ads like this: