The Real Problem For The Music Industry Is... Interest Rates?

from the say-what? dept

Cybeardjm points us to a story from Billboard about a claim from the head of PRS in the UK, noting that the real problem with the music industry today is low interest rates. You see, the way collections societies work is they collect money and hang onto it for a while before actually giving it out (if they give it out at all). During that time that they hold it, they hope to earn money on the interest, but with interest rates so low, apparently revenue is expected to be way down. The article points out:

But while overall revenues are being hit by falling CD sales and lower income from music in advertising, Porter said 80% of the decline can be blamed on interest rate cuts.

I'm assuming they just mean on the publishing side of the business, but it's worth noting this stat the next time you hear people complaining about how much songwriters are "hurt" by file sharing. If the impact of fluctuations in interest rates are a much bigger revenue concern, than the impact of file sharing really isn't that big. On top of that, any organization that bases expected revenue on something as variable and out of their direct control as interest rates is going to run into serious trouble pretty quickly.

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Widening Credit Crunch Slowly Hitting Tech Vendors

from the bad-credit dept

By most accounts the tech industry continues to do well, but the rest of the economy is growing increasingly jittery about the long-term impact of the mortgage fallout. Of course, it's silly to assume that tech is an island, unaffected by the storms around it. Already, a number of firms have felt the effects of a tighter credit market, as it has affected their ability to do stock buybacks and M&A. And, of course, a company is only as strong as its customers, so if buyers of tech get nervous, this will start to affect corporate capital spending. That was the concern among analysts on yesterday's quarterly earnings call with Cisco. Although the company reported strong earnings, it did acknowledge weakness in the automotive and financial sectors, which makes sense given the turmoil in both of those industries. If things continue to spread to other sectors, and there's evidence that they will, more tech firms are likely to suffer from customer weakness.

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Tech Industry Forced To Care About Interest Rates

from the where-credit-is-due dept

Historically, major tech firms have shunned debt financing, but in recent years, this has changed somewhat. Highly acquisitive companies like Cisco and Oracle have started to use some debt to finance their purchases. As with the increasing presence of private equity in the tech industry, low interest rates have helped fuel this trend. But the low interest rate environment appears to be coming to an end, and its effects are already being felt in the industry. Yesterday, online travel site Expedia announced that it would suspend a planned share buyback program because it couldn't acquire the necessary capital to finance the purchases. Meanwhile, a few non-tech private equity deals are hitting the skids for similar reasons. In the past, industry, might have ignored these economic developments, but it's likely that a number of companies, particularly mature ones, are going to feel a pinch.

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