November 05, 2003

MP3

The Economist looks at the recording industry.

Economist.com | The music industry: ...For impecunious teenagers and students, the fact that peer-to-peer sharing is free will always be compelling. Paying 99 cents for a song on iTunes, says one British teen, is unappealing because at that price she may as well buy the CD in a shop. Nor do the new services yet come close to matching the libraries of nearly all music ever recorded that the peer-to-peers boast.

As for the risk of a lawsuit from the Recording Industry Association of America, the selling point for new versions of peer-to-peer networks in recent months is that they can guard the identity of users. The most popular now is Earth Station 5, based in, of all places, the Jenin refugee camp on the West Bank. After the RIAA said it would sue, its software was downloaded more than 16m times in 90 hours. So far, it seems to work.

To glimpse the future, big music companies should look not at iTunes' encouraging numbers but at September's price cut by Universal Music Group, the biggest record company of all, which reduced CD prices for consumers by nearly a quarter. One reason for slumping music sales is that customers believe that CDs cost too much. Now, other firms will have to lower prices to compete with Universal. Discount stores such as Wal-Mart, Circuit City and Best Buy will drive them down more.

The success of iTunes has made clear to the music industry an uncomfortable truth: many people want to buy single tracks, not albums. Apple's data show that its customers bought 12 singles for every one album at iTunes. That compares with 0.02 singles per album in American stores, according to research by Sanford Bernstein. The best artists may tempt people to buy a whole album. But the industry can no longer rely on getting the price of an album as a reward for backing a band.

In the end, says Moby, an influential musician, the record industry will have to throw out its current business model. It will no longer be able to make huge profit margins onCDs that cost next to nothing to manufacture. To compensate for lower prices, he says, the industry needs to cut its marketing for artists by as much as four-fifths...

Posted by DeLong at November 5, 2003 08:46 AM | TrackBack

Comments

I worked in music retailing for 15 years, as a manager and a buyer. The implosion of the music business has been building for a long time, and was made possible by stubborn corporate insistance that those pesky music customers keep marching in into stores to buy the discs they were told to buy, at prices designed to maintain large profits and bloated marketing budgets.

They're not customers, they're fans, and music is not like other products. Thanks to the death of singles, vital radio outlets and cookie-cutter bands, music has become just another fashion accessory. To a fan, music is deeply personal, a way to remember and mark the milestones of life. To a consumer, music is just another disposable accessory. When that accessory becomes unfashionable or over-priced, the consumer finds something else to get excited over. Meanwhile, fans find other ways, including stealing, to reconnect to their passion.

Music became the cash cow it was because it was based upon passion and love, not mere consumerism. Once the huge corps began to use it more and more as a cash center and just another business the passion was squeezed out of the whole thing.

Posted by: Madman in the marketplace on November 5, 2003 09:12 AM

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I worked in music retailing for 15 years, as a manager and a buyer. The implosion of the music business has been building for a long time, and was made possible by stubborn corporate insistance that those pesky music customers keep marching in into stores to buy the discs they were told to buy, at prices designed to maintain large profits and bloated marketing budgets.

They're not customers, they're fans, and music is not like other products. Thanks to the death of singles, vital radio outlets and cookie-cutter bands, music has become just another fashion accessory. To a fan, music is deeply personal, a way to remember and mark the milestones of life. To a consumer, music is just another disposable accessory. When that accessory becomes unfashionable or over-priced, the consumer finds something else to get excited over. Meanwhile, fans find other ways, including stealing, to reconnect to their passion.

Music became the cash cow it was because it was based upon passion and love, not mere consumerism. Once the huge corps began to use it more and more as a cash center and just another business the passion was squeezed out of the whole thing.

Posted by: Madman in the marketplace on November 5, 2003 09:12 AM

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The Economist quotes Moby as saying:
> In the end, says Moby, an influential musician, the record
> industry will have to throw out its current business
> model. It will no longer be able to make huge profit
> margins onCDs that cost next to nothing to manufacture.
> To compensate for lower prices, he says, the industry
> needs to cut its marketing for artists by as much as four-
> fifths...

And I exepct that every economist in the audience is cheering. The inefficiencies of the current music industry in the electronic marketplace are just incredible. The only reason the industry seeks to "create" new acts is because they have a monopoly on the distribution of that act, and in the physical world, it's much easier to distribute 4 million of one thing than 20,000 each of 200 things. I do think the labels could adjust to this, although they will be making less money.

The further problem they face, however, is that in the electronic distribution market, there is less and less of a case to be made for having labels at all. If anybody can get their latest songs out on one or more of the music buying sites and can tour in support, what is the label doing there if we do away with marketing? Amazon (and the iTunes music store to some extent) have shown exactly how powerful the trick of "others who bought X also were interested in Y" really is. There is still money to be made in music, but I really don't see how the labels can continue to make it unless they get back into the business of signing acts whose work can sell themselves.

Posted by: Jonathan King on November 5, 2003 09:13 AM

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I worked in music retailing for 15 years, as a manager and a buyer. The implosion of the music business has been building for a long time, and was made possible by stubborn corporate insistance that those pesky music customers keep marching in into stores to buy the discs they were told to buy, at prices designed to maintain large profits and bloated marketing budgets.

They're not customers, they're fans, and music is not like other products. Thanks to the death of singles, vital radio outlets and cookie-cutter bands, music has become just another fashion accessory. To a fan, music is deeply personal, a way to remember and mark the milestones of life. To a consumer, music is just another disposable accessory. When that accessory becomes unfashionable or over-priced, the consumer finds something else to get excited over. Meanwhile, fans find other ways, including stealing, to reconnect to their passion.

Music became the cash cow it was because it was based upon passion and love, not mere consumerism. Once the huge corps began to use it more and more as a cash center and just another business the passion was squeezed out of the whole thing.

Posted by: Madman in the marketplace on November 5, 2003 09:14 AM

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Of course, singles in US retailers tend to be priced at around 4.99-5.99, so comparing them to a pricepoint of .99 is somewhat absurd.

Posted by: Rob on November 5, 2003 10:21 AM

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"Of course, singles in US retailers tend to be priced at around 4.99-5.99, so comparing them to a pricepoint of .99 is somewhat absurd."

The singles in US retailers tend to not be single tracks, but 3 or 4 songs. Sometimes different songs, sometimes remixes of the same song.

So, yeah, buying a track off of iTunes isn't the same as buying a 'CD single'.

Posted by: Jon H on November 5, 2003 11:39 AM

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I have bought maybe 15 CDs. Ever. I literally go to the dentist more often than I buy a CD.

In Argentina there are several music stations all of which play music. Even MTV in Argentina plays videos. The fare is international, some local, some US, some music from the Middle-East even. There is another station that plays local bands, of which I remember one video in which the drummer's girlfriend was dancing - cheesy effects, missing teeth and all.

So a guy that never listens to music had an absolute blast watching videos in a country that actually played them. I bought music in Argentina, and when I got home in 2000 I immediately got on Napster and downloaded the stuff I couldn't find here.

This article barely mentions the idea that peer-to-peer has assembled the only complete archive of music. This to me is absolutely critical.

So what has the RIAA done?
0. Dominate Old-Economy distribution channel.
1. Destroy single large user base in new medium(Napster).
2. Force users to go anonymous by suing them.

I eagerly await the Post Mortem histories of the music industry 5-20 years from now. For somebody that generally doesn't like music they have actually made me gleeful for their demise.

Posted by: Saam Barrager on November 5, 2003 12:09 PM

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Jeremy Rifkin:"The Age of Access:The New Culture of Hypercapitalism, Where All of Life Is a paid-for Experience"

Posted by: Gnao on November 5, 2003 12:28 PM

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The Economist failed to mention that in order to get the lower prices UMG is offering, you have to be willing to dedicate a larger portion of your stock to UMG titles. This isn't as simple as dropping prices to attract customers.

Posted by: Unseelie on November 5, 2003 12:30 PM

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And then again, P2P networks don't have anywhere close to "every track ever made" or whatever the article claims. Maybe P2P networks have every track in the universe of the relatively close-minded adolescents and adults who use them. But if you enjoy experimental music, little known "classic" rock or hard to find indie, I'm sure you'll be somewhat disapointed by what the net has to offer. I agree that the only real answer is industry reform. When CD's cost $9 or $7, instead of $19 or $17, the "case against file sharers" will be much stronger and much more moral.

Posted by: Chris on November 5, 2003 01:20 PM

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Madman's point, all three times he posted it :-), is a good one.

I'm 43, so I've seen almost all the changes in the rock music biz first-hand. When I was a kid, 45's were the currency because albums were too expensive for a 12-year old obsessed with music. But the US market didn't have that option when the switch to CD happened; CD-singles never caught on here like they have in Europe. So, what is the option? Hear it on corporate-controlled radio or steal.

And the whole "everything is avaible on the net" trope is, as Chris points out, a little less than true. If you like 20th century/modern classical music like I do, you're out of luck. The new Britney/Madonna? No problem!

Being old fashioned like I am, I think of albums as complete packages; the art of album-cover art is dead, for example. And, pet peeve, art directors who approve the microscopic printing in most CD booklets should be forced to read those things until they're visually impaired.

Posted by: Jim on November 5, 2003 02:44 PM

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I have barely changed over to CD's yet. I can play them, but I hardly ever buy them -- I've been waiting for the prices to go down for years.

The influence of Big Music on music quality is negative. A lot of shit gets big play, and a lot of great bands, including one my son was in, get their spirits broken. And it's interlocked monopolies top to bottom -- radio, CD's, live shows. Pearl Jam tried to fight the promoters and couldn't.

The musicians' hunger of Very Big Bucks sucks them into the system, though. If you want to buy a ranch in Colorado and collect classic Porsches, the present system can give you a lottery ticket chance on that, which a less-monopolistic system couldn't. But otherwise, Big Music doesn't support music or musicians at all.

Actually, I should qualify: a significant number of talented studio musicians and techies make good money off the present system. But even they aren't usually playing their best music.

Posted by: Zizka on November 5, 2003 04:41 PM

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The RIAA hasn't been the first group to turn to lawyers when they have been unable to compete on the merits of their business.

I am reminded of this whenever I take my horseless carriage into town, where my mechanic has to get out and walk in front, carrying a red flag.

Posted by: Dave Long on November 5, 2003 05:48 PM

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"Of course, singles in US retailers tend to be priced at around 4.99-5.99, so comparing them to a pricepoint of .99 is somewhat absurd."


The singles in US retailers tend to not be single tracks, but 3 or 4 songs. Sometimes different songs, sometimes remixes of the same song.


So, yeah, buying a track off of iTunes isn't the same as buying a 'CD single'

...................................

It is if all you care about is one song, not the rest of the crud. Which is, of course, pretty much the point --- that there's a whole class of people want the one or two good songs on an album and not the rest.
(And don't give me your holier than thou "album is an integated whole" crap. I have maybe 3 CDs of over 200 where I think almost every song is magnificent. The vast bulk of my CDs have perhaps 3 worthwhile tracks on them. If you don't view music that way, fine, but that's the way I DO view music.)

Posted by: Maynard Handley on November 5, 2003 06:01 PM

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Maynard has a point; most albums have a couple or three good tracks and the rest is drek, unless you're buying "Greatest Hits" compilations. I'm about to commit heresy here, but even the Beatles' White Album had a few unlistenable songs on it, as far as I'm concerned.

Posted by: Linkmeister on November 5, 2003 10:37 PM

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The business model will change and I'm very excited about it--because the present system, particularly the monocultures of radio formats are just death to musical culture.

I actually hope it will function almost like blogs. Small bands link to eachother and form user networks vi aword of mouth. When micropayments are truly worked out the way phonecards have been, then it is going to be amazing to see the US music industry and culture de-corporatize and regenerate.

Almost anything would be better than what exists now. Monopolistic programmed radio, and CDs that are too expensive. I rarely buy new CDs because they are just to f-ing expensive. A better structure is coming and I'm really excited about it.

Posted by: Musico on November 6, 2003 12:42 AM

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The business model will change and I'm very excited about it--because the present system, particularly the monocultures of radio formats are just death to musical culture.

I actually hope it will function almost like blogs. Small bands link to eachother and form user networks vi aword of mouth. When micropayments are truly worked out the way phonecards have been, then it is going to be amazing to see the US music industry and culture de-corporatize and regenerate.

Almost anything would be better than what exists now. Monopolistic programmed radio, and CDs that are too expensive. I rarely buy new CDs because they are just to f-ing expensive. A better structure is coming and I'm really excited about it.

Posted by: Musico on November 6, 2003 12:47 AM

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I third the notion that almost all CD's are mostly filler. If there were four good songs on a CD (out of 15), I would be pleasantly surprised.

Posted by: Barry on November 6, 2003 03:52 AM

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Well say people want only 1 or 2 songs per album. Following this line of thought,those compilation cds like "best of x" or "greatest hits of y" should outsell normal cds, since the percentage of "good songs" should be higher. Good here to be measured by some measure,ie billboard rankings or airplay time.
Yet I dont think this happends. Strange.
Anybody ideas why?

Posted by: chiu on November 6, 2003 07:32 AM

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Are the Billboard rankings reliable? Every now and then some music industry rocks get turned over and all sorts of nasty scuttling stories scurry out about kickbacks and cronyism between the major labels and music retailers/music stations.

Posted by: Steven Rogers on November 6, 2003 08:04 AM

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Maynard should listen to better, less-produced, less-marketed musicians. The marketing schtick nowadays does seem to be to produce 2-3 dynamite songs and then fill up the album, but my favorite stuff (gathered over 35 years) isn't like that. The big record companies have cut their own throat that way.

Posted by: Zizka on November 6, 2003 08:11 AM

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