Every now and then I see a commentary on the music industry that notes reduced CD sales (especially to young people), and then goes on to blame the RIAA’s attacks on Napster (NAPS), lawsuits against down loaders, etc, as the cause. The basic idea is that young people are so angry with the record companies that they’re refusing to buy CDs, and that the music industry dug its own grave by not embracing file sharing, suing people, etc. While I respect many of these commentators greatly, I think they’re missing the boat as they’re not considering how young people actually listen to music these days.
The problem with the above argument is that it basically assumes that CD/DVD players are the preferred music listening device amongst young people, or that the preferred method of acquiring music is via a CD. In truth: iPods/MP3 players, followed by personal computers, are the most popular listening devices. A lot of people my age don’t even own stand-alone stereo systems, as they listen to all of their music on their iPods or on their computers. Even if they own CDs, the bulk of them are burned from their digital music collections, as opposed to being pre-recorded.
My age group (early 30s and younger) prefers digital music formats over CDs, so much so that even if the music industry had been the one to launch Napster, had never sued anyone, shut down a file sharing network, etc, CD sales would still be declining. In my opinion, the focus on CD sales is a remnant from a time when only physical formats were available, and the primary listening device was a CD or tape player. The real issue is a change in the media consumption pattern that has shifted from CDs being the only choice, to a situation where the consumer has multiple choices and has a preference for digital formats.
CDs can no longer be used as a proxy for determining the public’s interest in purchasing music; instead, you have to aggregate digital downloads (paid and free), file sharing between friends and CD purchases. Additionally, you have to account for the fact that being able to download individual songs frees people from having to purchase a CD for only a couple of songs, thus depressing album sales be they digital or physical.
An additional “X-Factor” in the digital music world are services like Real Network’s (RNWK) Rhapsody, which provide the consumer with access to tens of thousands of albums (that can be synched to a portable device) for a small subscription fee. Just think about it: for $9.99/month, many customers can have access to nearly all of the music they want to listen to, both on their home computer and portable devices. If you can subscribe to most of your favorite albums for $9.99/month, why would you buy a digital download, let alone a CD? Digital subscription services have the ability to not only depress CD sales, but they can also depress digital download sales.
Considering all of the above, it would be quite easy for an individual consumer to dramatically reduce their CD purchases, but actually acquire significantly more new music and spend less money at the same time. As a result, you can’t use CD purchases and/or money spent on music as an effective gauge of the public’s interest in purchasing music, as neither one can accurately measure demand across all of the options consumers have to buy music.
Digital music is such a game changer that it’s difficult to make a direct comparison to the days when only CDs were available. Over the past ten years, the way music is bought and listened to has changed dramatically; as a result, you can no longer use the same old metrics to gauge the public’s interest. The only way to effectively gauge the public’s interest in buying music is to compare sales over the options of the past 3-6 years, and then look at total purchases across all formats. In other words, are aggregate music purchases across all options/formats increasing in the post “iTunes world”?
According to Nielsen’s Sound Scan:
CD purchases declined 15% in 2007 compared to 2006, however digital downloads increased by 45% and total music purchases including CDs, Singles, Digital Downloads and Music Videos rose 14% from ’06.
Simply put: demand is increasing and consumers are spending more across all of the options available.
While there are undoubtedly angry music fans that are refusing to buy CDs on principle, they’re undoubtedly a small minority, as demand for music still remains strong.
What’s happening to the music industry (companies and artists) is that selling CDs is more profitable than selling digital formats, and as demand for music shifts from CDs to the digital domain, they suffer financially. Moving forward, the big question is whether or not the music industry will find a way to monetize the digital world as well as they did the physical one.
Sources:
The NY Times (Via the AP) – U.S. Album Sales Fell 9.5% IN 2007, January 4, 2008.
