The current state of our country’s economy is frightening. With the recent $85 billion federal bailout of AIG, the unstableness of the stock market, and the rapid decline of the housing market, one wonders where the entertainment industry stands amid the financial uncertainty. How are the four major record labels fairing? How can people afford to buy music? What must the industry do to adjust, when people are struggling to come up with the money for necessities? I’ve done some research and come up with some facts, and also some opinions of my own, as to what the future may hold for the music industry.
Sony, WMG, UMG, and EMI, are having a very tough time coping and changing with the economy. In Q2 of 2008 every one of the labels experienced a loss in profits. While WMG saw revenues actually grow in the past year, their expenses overshadowed their potential growth. UMG and Sony’s revenues declined by 5.8% and 4.0%, respectively, and EMI was down £300 million during 2007, even after Terra Firma’s acquisition of the recorded music sector of the label. So long as the drop in physical CD sales continues to outweigh the rise in digital music sales, everything the record companies do will be viewed as a failure, regardless of whether revenues are up or down.
So where does the consumer come in? A recent NPD survey showed that money spent on music per capita dropped from $44 to $38 among Internet users. People just don’t have the disposable income to be spending $10 on a CD, when all they really want to hear is one or two songs off the entire disc. The survey also showed that 48% of teens, the demographic the survey was aimed at, did not buy even one CD throughout all of 2007. Not ONE CD! For the record labels to think that millions of people buying one or two songs for $.99 each can counteract the huge loss suffered by the amount of people not buying the physical product is farfetched.
The lack of physical music sales has to do as well with the behavior of older consumers with a disposable income. That demographic is getting ready to retire, and cannot risk spending money on music products due to the shaky condition of the economy. While they would normally be keen on spending the money and buying music, they now have to worry about their pension drying up or being let go from their jobs. It is, however, a good platform for digital music to begin gaining some financial ground to make up for the constant decline of physical music. With Baby Boomer getting into their late 40’s to early 50’s, they are perfect candidates to be purchasing music through new digital avenues. These are the people that will want to update their catalog through a new digital medium, and can still comfortably afford to spend the money.
The live music sector of the industry is doing great, despite the economy. They were able to counteract the slight drop in ticket sales, 5.6%, with a 5.9% boost in ticket prices. There is nothing a consumer can purchase to replicate going to a live concert. The people that were going to buy tickets before the price jump will still buy them anyway. The same fact goes for the people who weren’t going to buy tickets. It doesn’t make a huge different whether or not there is a small price increase. Kevin Lyman, the man responsible for the Vans’ Warped Tour, Taste of Chaos, and Rock Star Mayhem Tour, mentioned at CMJ this year that he saw a dip in ticket sales during the spring months when gas prices were at an all-time high, but as soon as prices started stabilizing ticket sales were rejuvenated almost immediately.
Another problem for recorded music sales is that there are just too many other forms of media out there to compete with. People are now spending more money on mobile devices, which takes away the amount of money that would normally be set aside for music or other entertainment. Ringtones are a huge draw away from physical CD sales as they are immediately satisfying, cheaper, and more accessible than a physical product. With people having to allot only a certain amount of money to spend on entertainment, it is no wonder that they spend it on other forms of media, especially when music is so easy to acquire for free.
In the past year consumers have spent less money on music than usual, but they have been listening to more music than ever. Since times are tight in reference to disposable income, many young consumers have been using peer-to-peer engines more aggressively, and downloading more music than ever. The number of users nationwide seems to have peaked and stayed consistent over the past year, but the amount of music being downloaded has increased greatly. Due to the economy, less and less people can afford to dole out money on a physical product, and would much rather access it on the internet or download it for a fraction the cost.
Since record companies have been posting losses all across the board it is imperative for the record companies to begin putting money towards an extremely worthwhile cause. It has become clear that CDs on are their way out, and the record labels need to find a new alternative or replacement soon. They still have some years to go, but the amount of media available is becoming greater and infinitely cluttered and everything is moving away from the physical world of music and edging closer to the digital realm. The record labels need to develop something fresh and new to break through the rest of the noise and ensure their longevity, which at this point is questionable. There will always be a need for record labels in some shape or form, but if they cannot begin to monetize business in the new environment, they will get left behind. If the economy turns around and consumers begin spending money on music again, a new model will be needed.
By Brian Zarlenga