In Shift to Streaming, Music Business Has Lost Billions

What gets lost in the battles over fractions of pennies, however, is just how much money has vanished from the music business as consumers have abandoned its most profitable product: the CD.

Interesting article from the New York Times about the new face of the music industry. The graph in the article is quite telling. You can see that not only have the total amount of money generated by music in the US dwindled, the share of this that comes from CD sales has plummeted:

Music industry sales

Several points:

  • Ringtones: This was one a $1 billion dollar market in the US, until people wised up and realized that paying more than a buck for a snippet of a song was a rip-off. Good riddance. (Also, you can make your own.)
  • CD sales: The music industry constantly looks at the drop in revenue from CD sales, and glosses over the fact that much of that income, for a long time, came from over-priced product. CDs should never have cost more than LPs, and record companies ripped people off for years with high prices, which led, in part, to a great deal of ire at the music industry as a whole. This made it morally justifiable for a lot of people to pirate music. You reap what you sow.
  • Long view: Music sales peaked in the mid to late 1990s, as consumers replaced their music collections that were on LPs and cassettes. So if you compare the total amount of money spent on music now, it is much less than at its peak, but it’s not that far from what it was in the pre-CD era. The music industry likes to show graphs that go back to around 2000, rather than looking back to the 1980s, because it skews the decline in revenue. Here’s a better view from 1973 to 2015, adjusted for inflation (from an article on LinkedIn by Jason Hirschhorn; the entire article is worth reading):

    Long view music sales

    Total revenue has certainly fallen, but not as much as it looks when you only see the last few years of the graph. It’s interesting to see two peaks: one around 1978, and then a catastrophic fall in the years that followed, as the Walkman because popular, and “home taping was killing music.” The second comes around 1999, and then Napster arrived.

  • YouTube vs. vinyl: There’s a meme going around, saying that vinyl has earned more money than YouTube. The Times article says:
  • Last year, YouTube and sites like it generated $385 million in royalties. In comparison, vinyl records — a niche if there ever was one — brought in $416 million.

    Apples and oranges. YouTube generated royalties; the vinyl number is gross sales, which includes the profit made by record stores, the cost of producing and shipping records, and more. If there’s, say, a 10% royalty on these records, then YouTube earned 8 times as much as vinyl, at least as far as record labels, publishers, songwriters, and artists are concerned.

  • Concerts: The “music industry” is more than just record sales. There’s nothing in this graph about synchronization (music used in movies and TV shows), and especially nothing about concerts. A friend spent $350 for two tickets to see Bruce Springsteen the other night in an arena, and he had seats that were far from the best. There’s a lot of disposable income being spent on concerts, and much less on music. Sure, only a handful of artists can charge prices like that, but that’s still a lot of money spent on music.
  • More competition: It’s facile to say that music isn’t very good anymore, than people don’t want to buy albums which only contain a few good songs. The biggest factor that has hurt the music industry is that people have many other expenses that they prioritize over music. When I was a teenager, we had no cellphones, no cable TV, no internet. A couple with two cellphones, an internet connection, and a Netflix subscription, pays well over $100 per month; add in an expensive cable/pay TV subscription, and it can be double that amount. People obviously have less disposable income. Music didn’t have a lot of competition back in the day; now it does. Many people would rather buy a video game than an album; only the hard core music fans buy a lot of music any more. If anything, streaming is what’s keeping the music industry from crashing completely.

While I still prefer to own music – in part because I have a big collection – I understand that this shift is happening. The “music industry,” long used to limousines and cocaine, had contempt for its customers for a long time, and that karma is biting back. Too bad.

Source: In Shift to Streaming, Music Business Has Lost Billions – The New York Times