Growth Of Music Digital Sales Is Slowing Down

from the false-hope dept

In the presentation I did last year at the NARM event, one of the things I noted was that people who were pinning their hopes on the music industry making a revival through digital sales of songs were betting on a false hope. They were betting on the idea that they could just take the old world (Tower Records) and move it to the new world (iTunes) with a digital facelift. Doing so ignored the reality of what the internet does and allows. The internet doesn't just let you take a store and move it online. It changes nearly every aspect of the creation, promotion, distribution and business models around music. Yet, this was a point that I got a lot of pushback on. People still insisted that selling music files was going to be "the thing" that worked. They might want to check that assumption. Reports are coming out, noting that while digital music sales are still growing, the pace at which they're growing is slowing down, in some cases drastically.

Now, you can't expect massive growth forever. At some point, every growth market begins to mature and saturate and the growth rate slows down. But, digital music sales are still a relatively small market. It seems much wiser to focus on the markets that actually have much more potential than the one that tries to just recreate the old world by applying artificial scarcities.


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  1.  
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    Haywood (profile), Jan 12th, 2010 @ 3:40am

    Let the market decide.

    If the music industry didn't want such total control, and would let the market set the price, the sales of digital music would go through the roof. $1 per song doesn't seem unreasonable for one song, but start building albums or filling a 10 gig player, and it is an unreasonably high price.

     

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  2.  
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    Dav, Jan 12th, 2010 @ 3:53am

    Lower cost = More buyers

    I don't buy a lot of digital music. One of the main reasons is a quick product search frequently reveals that ordering the CD from an online retailer frquently costs less then the digital download. How can the music industry think this makes any sense? The digital download has no physical media that needs to be produced, no printing of album art, no distribution to retails and no p&p. Am I supposed to pay more because CDs are "so last century"?

    Until things change ill take the £5 CD rather then the £8 download.

     

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  3.  
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    Griff (profile), Jan 12th, 2010 @ 4:49am

    Re: Lower cost = More buyers

    Strange, I've generally found that the Amazon MP3 for £5 undercuts all physical CD equivalent.

    It also saves me time, as it will end up on a Sonos or MP3 player anyway.

    If someone showed me a pie chart of where the money goes for a CD, (showing manufacture and distribution) then a dowbnloaded album on MP3, for comparison, I could soon see whether pricing for MP3's was blatantly silly. I suspect that the truth is that the actual plastic is shockingly cheap and I'd simply end up being offended by how little teh artist gets.

    You'd think the industry would be over the moon about singles sales. Selling a single on physical medium must cost as much as selling an album but the price can't be as high.

    If it was me I would
    - watermark each MP3 to the buyer at download time
    - drop the price to about £2 per album
    - use internet search to go after the massive illegal uploaders (by tracing it through to the original buyer)
    - treat anything smaller as "fair use" and just get over it.
    - come up with reasonable (ie very cheap) licensing for anyone who runs a business model that actually boosts their sales, and ask how we can work together.
    - let the artist choose the the terms for each work, rather than impose a label-wide set of rules.

     

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  4.  
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    PaulT (profile), Jan 12th, 2010 @ 5:13am

    Re: Re: Lower cost = More buyers

    "Strange, I've generally found that the Amazon MP3 for £5 undercuts all physical CD equivalent."

    If you're lucky enough to be allowed to buy from them (I'm not, though they'll happily sell me a CD since they're allowed to do that). (I'm a UK ex-pat living in Spain)

    It also depends where you look. Check Play.com - they regularly have albums for less than £5 including postage. Random examples (off the top of my head, not great ones as it turns out, but you get the picture): at the time I write this message, Play's top selling CD is Lungs by Florence & The Machine for £5.99. Amazon's current UK MP3 price is £5.98. Play's featured new release is Acolyte by Delphic, for £7.99. Amazon's MP3 is £7.98. Not more expensive, but I suspect Amazon are taking the most profit here, and the customer loses all sorts of rights, such as the right to resell the album when they tire of it.

    "I suspect that the truth is that the actual plastic is shockingly cheap"

    Cost of manufacturing the plastic itself? Maybe. Cost of overstock + shipping + larger retailer overheads + cost of damaged returns, etc? Not insignificant.

    It does not take a genius to see that the overhead costs for storing & shipping a CD are massively more than the 10Mb of hard drive space & bandwidth required for most MP3s.

    "- let the artist choose the the terms for each work, rather than impose a label-wide set of rules."

    Then the label's role becomes...what, exactly?

     

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  5.  
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    Anonymous Coward, Jan 12th, 2010 @ 5:23am

    It's no wonder

    Cookie cutter bands suck

    btw, why do they call them bands when none of the members are capable of playing an instrument?

     

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  6.  
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    Mike C. (profile), Jan 12th, 2010 @ 5:23am

    Music libraries completed...

    I believe part of the decline is because people have finished rounding out their digital library.

    For example, when my family started using MP3's more than CD's, we ripped what we could from our physical CD's. We then filled in some gaps where we wanted particular songs but not the rest of the album that came with it. For the first 6 months or so, you could almost say we were on a spending spree. However, now that our collection of older music is as complete as we want it, we're not finding anything new that we want and thus are spending far less. I'd say our spending for the last year is less than a quater of what we spent in the first 2-3 months after making the decision to switch to digital.

    Ultimately, unless the music producers start to come out with more "good" music, there is no way digital sales can do anything BUT follow the same path as CD sales. Once people are satisfied with their digital libraries, they will slow down or stop buying music.

     

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  7.  
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    dwind (profile), Jan 12th, 2010 @ 5:24am

    I've never seen an IT project that wasn't at risk.

     

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    The Anti-Mike (profile), Jan 12th, 2010 @ 5:36am

    It seems much wiser to focus on the markets that actually have much more potential than the one that tries to just recreate the old world by applying artificial scarcities.

    There are very few true scarcities in the music world. Certainly not t-shirts or the like, those are artificially scarce because you only create a certain number, yet they can easily be duplicated and made for much less than your scarce price, example.

    Concert tickets are rare in theory, but only if the artist is playing the biggest venue possible, otherwise the scarcity is artificial (picking too small of a venue to artificially create a shortage). Heck, during the summer or warm season, the artist could perform outdoors, with the potential of an unlimited or infinite number of tickets.

    In the end, pretty much all scarcities are created by choice and not by actually being scarce. Limited editions are limited by choice, not by any great cosmic restriction.

    So perhaps Mike you would prefer to chance the idea of pushing those scarcities, as most of them are artificially scarce as well?

     

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  9.  
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    The Anti-Mike (profile), Jan 12th, 2010 @ 5:48am

    Oh yeah, the pace of internet growth has slowed too! Oh Noes, the interwebnets thing is dying!

     

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  10.  
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    :), Jan 12th, 2010 @ 5:51am

    Its not the music stupid.

    It is the artists the real product. But some don't like that idea it would mean they would have nothing to exploit and would survive beyond the natural life of someone :)

     

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  11.  
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    Anonymous Coward, Jan 12th, 2010 @ 6:30am

    Re: Re: Lower cost = More buyers

    "use internet search to go after the massive illegal uploaders (by tracing it through to the original buyer)"

    Unfortunately what will happen is that the watermarks will be erased by people averaging a few files together.

     

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  12.  
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    Frosty840, Jan 12th, 2010 @ 6:35am

    Re: Re: Re: Lower cost = More buyers

    Then the label's role becomes...what, exactly?


    Exactly.

     

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  13.  
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    Mike Masnick (profile), Jan 12th, 2010 @ 6:51am

    Re:

    There are very few true scarcities in the music world. Certainly not t-shirts or the like, those are artificially scarce because you only create a certain number, yet they can easily be duplicated and made for much less than your scarce price, example.


    This has been explained to you before so I'm not sure why you repeat this false statement other than that you are not here for serious discussion. The definition of scarce good vs. infinite good is not in debate, but you still seem to not understand it.

    A scarce good is something that is rivalrous and excludable -- which is true of a t-shirt. That is not true of a music file.

     

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  14.  
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    The Anti-Mike (profile), Jan 12th, 2010 @ 7:18am

    Re: Re:

    Mike, it isn't a false statement. By it's very nature, a "limited run" of something that could be widely reproduced is an artificial scarcity. It isn't scarce because you couldn't make more, it isn't scarce because you used up all the cotton in the world, it's because you arbitrarily said "only 200 will be made". That is the very essence of an artificial construct.

    There is nothing that stops someone else from producing and endless number of copies of that t-shirt, using the same shirts and the same design, in a manner that would make it impossible to know the real ones from the copies. There is nothing that stops the company printing the t-shirts to just keep printing them, giving you only the 200 to sell, but actually flooding the market behind you with tens of thousands more.

    The limited edition of t-shirts is artificial. There is no shortage of t-shirts, there is no shortage of printer ink, and the silk screen machines are all still working. The limit is only created by your desire to make something more or less scarce.

    I didn't debate the idea of digital music being "infinite", rather than many of the things that you point out as scarce are that way only by artificial construct, not by any true scarcity.

     

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  15.  
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    Mike C. (profile), Jan 12th, 2010 @ 7:25am

    Re: Or....

    Ok... I'll bite.

    Maybe Mike is trying to point out that market saturation has an impact on future growth.

    The "internet" can only "grow" so much before everybody has as much of a connection as they want. For example, I have 6Mb service but my provider offers speeds up to 3 times as fast. I don't feel that the higher speeds are worth the extra cost so I don't upgrade and thus provide zero growth.

    The same is true for digital music, but Mike was predicting it would happen at a much faster pace. Once the MP3 player became ubiquitous enough that most people have one (either standalone or part of another device like a cell phone), they would obviously be filling it with music. Once they have a sufficiently sized collection, there's no need to keep spending money on digital files unless there is a reason to buy - e.g. favorite artist creates new music or they find a new artist they like. Accordingly, growth will slow with that consumer. Once enough consumers have reached that saturation point, growth would have to slow across the industry.

    The only way I can currently see to keep digital music sales growing year after year would be:

    1) Allowing new technological hardware advances to come out that induce consumers to use more digital music. For example, imagine a video camera with the ability to load digital music so that a soundtrack could be applied more easily to a home video. (I know - totally infringing so it'll get sued into nonexistence if anyone even tries).

    2) Produce more QUALITY media that people want to buy instead of more "cookie-cutter" pop drivel that nobody remembers in a year's time.

    Eventually, though, everyone who uses digital music will have more music than they can listen to in a lifetime. At that point, what reason is there to buy any more?

     

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  16.  
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    vyvyan, Jan 12th, 2010 @ 7:27am

    what goes up must come down

     

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  17.  
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    Anonymous Coward, Jan 12th, 2010 @ 8:17am

    Re: Re: Re:

    Wow. Just wow. Please tell me you aren't really this argumentative and outright stupid? Please? The more you argue in this manner, the further removed from reality you become, putting you more and more in line with your **AA Overlords. Please, just give it up and bow out gracefully.

     

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  18.  
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    Mike, Jan 12th, 2010 @ 8:35am

    affordable digital music can be found

    Like most things in the marketplace, good deals can be found on mp3s. You just need to look around and also be patient. If you must have a new release and need it now, then you will probably pay alot for it. But look for deals, like amazon's daily mp3 deal. you can get great mp3 albums for around $3. You just need to make sure you always check the deal, so you don't miss one. there are tools, like the following google gadget that lets you easily track the daily deal and even preview/listen to it:

    amazon mp3 daily deal gadget


    or directly from their site:
    MP3 Daily Deal Site

     

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  19.  
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    The Groove Tiger (profile), Jan 12th, 2010 @ 10:16am

    Re: Re: Re:

    Hello? Anybody home?

    A t-shirt is a scarce good. You can have one of it. Then you can sell it, and you have none. If someone makes 100,000 t-shirts, they spend raw materials needed for 1 t-shirt times 100,000. It doesn't matter if it costs 50 cents or $50. You also spend the time to make each t-shirt, times 100,000. I think people learn that in grade school.

    You never learned it? Ok, let's try again:

    Let's say you have 5 apples. You give me one apple. How many apples you have left?

    Is there a shortage of apples? Of course not! There are hundreds of apples in the supermarket. And cheap! That doesn't mean you have an unlimited supply of apples. YOU have 4 apples left.

     

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  20.  
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    The Anti-Mike (profile), Jan 12th, 2010 @ 11:02am

    Re: Re: Re: Re:

    I can take that design of the t-shirt, and go have a million more made and sell them into the market, effectively making it so they are about as scarce as republicans at a bible college. The true scarcity is artificial, a decision by someone to produce a limited number.

    Yes, I know the "technical" difference between infinite and scarce, but my point is that most of the scarcities are artificial. heck, Mike's CwF experiment is a perfect example, artificially limited the number of shirts made to create scarcity where there is no need to have one. He could have printed 1000 more shirts (probably for not much more money either!) and sold them endlessly. But his plan doesn't work without creating artificial scarcity, otherwise he wouldn't be able to sell $10 t-shirts for $40 or whatever it was.

    Artificial scarcity is just you being mislead into thinking something has more value than it really does.

     

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  21.  
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    nasch (profile), Jan 12th, 2010 @ 11:50am

    Re: Re: Re: Re: Re:

    Just in case anyone is fooled by this "reasoning": scarce in economics does not mean "not very many of them". It also does not mean "couldn't possibly make more if we tried".

    More information on scarcity: http://en.wikipedia.org/wiki/Scarcity

     

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  22.  
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    Mike Masnick (profile), Jan 12th, 2010 @ 12:40pm

    Re: Re: Re: Re: Re:

    I can take that design of the t-shirt, and go have a million more made and sell them into the market, effectively making it so they are about as scarce as republicans at a bible college.

    But each copy costs you money and uses up resources. That's why it's a scarce good.

    Mike's CwF experiment is a perfect example, artificially limited the number of shirts made to create scarcity where there is no need to have one

    Not true at all. Actually someone copied it and was selling knockoffs. And that was cool. But people wanted to buy it from us. There was no "artificial" scarcity. There was real scarcity. There were only so many shirts and it would have cost us more to create more. That's the definition of scarcity.

     

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  23.  
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    Suzanne Lainson (profile), Jan 12th, 2010 @ 1:08pm

    Re: Re: Or....

    The same is true for digital music, but Mike was predicting it would happen at a much faster pace. Once the MP3 player became ubiquitous enough that most people have one (either standalone or part of another device like a cell phone), they would obviously be filling it with music. Once they have a sufficiently sized collection, there's no need to keep spending money on digital files unless there is a reason to buy - e.g. favorite artist creates new music or they find a new artist they like. Accordingly, growth will slow with that consumer. Once enough consumers have reached that saturation point, growth would have to slow across the industry.

    The same thing has or will happen with free music files as well, which makes it hard for up-and-coming artists to get any attention. Although people advocate giving away music to sell something else, it's not necessarily an effective promotional tool because people max out on how much music they want to listen to.

     

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  24.  
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    Anonymous Coward, Jan 12th, 2010 @ 4:35pm

    Re: affordable digital music can be found

    I get an email once a day letting me know about the Amazon MP3 album sale of the day. Sometimes a whole album is 99 cents but usually the price is $3-5. It's a great bargain.

     

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  25.  
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    The Groove Tiger (profile), Jan 13th, 2010 @ 8:06am

    Re: Re: Re: Re: Re:

    Oh NOW I know what you're saying! It's because t-shirts are artificial, the scarcity is artificial!
    So, apples have natural scarcity!

    ...

    Yeah, that doesn't make sense at all.

     

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  26.  
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    Hephaestus (profile), Jan 13th, 2010 @ 8:52am

    Re: Re: Re: Re:

    This guy reminds me of the whole anger, denial, and rationalization thing every record exec and media type is doing. Its totally expected from a clinical perspective. Its the 5 stages of grieving. Just let him rant, he will eventually come to realize that like Warner Music all the labels are doomed by their own contracts, failure to adapt, lobbying, and past actions.

     

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  27.  
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    Mihae S Mukaida, Jan 29th, 2010 @ 11:20pm

    No Longer Empty's Panel Discussion from "Discs to Downloads"

    A follow up piece discussing the January 26th panel discussion Discs to Downloads: New Directions in Music Industry” (which includes: Elliot Groffman, Music Industry Attorney for Dave Matthews Band and Jay-Z; Kevin Patrick, Artist Manager for Matt & Kim, Lord Warddd, Vivian Green; David Weiss, Co-Founder/Co-Editor SonicScoop.com; Ted Riederer, Featured Artist, “Never Can Say Goodbye”; Oli Stephenson, CTO, CBS Interactive Music Group). http://designtoandfro.com/nevercansaygoodbye/

     

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  28.  
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    Groovenuts, Feb 16th, 2010 @ 11:58pm

    Re: Re: Or.... Setbacks

    Interesting point if your lucky enough to live in a country that's not ruled by a single telecomunications superpower.

    Ladies and gentlemen Australia gives you Tesltra!
    "Officially holding the entire country back from decent internet speeds"

    As for Quality Media i couldn't agree more, as here in OZ we more often than not wear America's shoes

    Touching on your last point the reason is simple, it's called a love of music

    woop woop

    Groovenutz

     

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