The music industry has undergone many changes over the years. It is quite arguable that right now it is changing more than it ever has. With record sales steadily going down and digital sales rising, it brings up the question of where is the industry going in the future? Also, the record labels themselves are doing quite poorly and need to re-evaluate how they are approaching the industry much like Live Nation has done with great success live music. In addition, it is arguable that the overall quality of music has been declining and truthfully, the whole industry needs to make a lot of changes and adapt to become successful again.
Album sales have been continually dropping for quite a few years now. According to Soundscan’s most recent data there was a 9.5% decrease in the sale of physical albums, meaning that things do not look good for the sale physical records. The classic record stores that you used to be able to find everywhere are becoming extinct. So now, with stores like Tower Records going out of business, the only brick-and-mortar outlets to find a CD anymore are at the “all-encompassing” stores like Best Buy or Wal-Mart—and these stores do not only sell CDs but a variety of other products. It is quite sad that Wal-Mart currently sells more physical CDs than any other retailer. This is because of Wal-Marts huge size. They can afford to buy more and sell CDs much cheaper than a local record store can.
Another thing that is affecting the amount of record sales is the economy. According to most economists, we are entering a recession. There are many different factors that have caused this, one of the main ones being that people received mortgages that they could not realistically afford to pay back. Regardless of the different reasons that have brought us to the current state of the economy, the fact remains that people just do not have money to spend on residual goods, in our case, records. You have to pay your rent and feed your family before you buy a CD.
Most people’s music library consists of either a “download” folder from Limewire or, if they are purchasing the music, a “purchased” folder in their iTunes library. Digital music, compared to the sale of physical CDs, is booming. As of April 3rd, iTunes has become the largest retailer of recorded music, finally surpassing Wal-Mart. The iTunes music store has only been around approximately five years but it has managed to completely take over the market in the overall sale of recorded music. Apple Inc.’s new way of distributing music was genial. That kind of innovative thinking is sadly missing among record labels.
Another quite obvious factor that is affecting both physical and digital sales of recorded music is illegal downloading. Anyone can download almost any song off of the internet for free, causing quite a dilemma for record companies because there is not much they can do about it. Some people argue that this is a good promotional tool but no matter how you look at it, illegal downloading has had a devastating effect on the sale of records. In some cases even the government is getting involved by threatening to impose legislation against ISPs if they do not work together with labels to prevent illegal downloading. The British government is trying to impose this and it will be interesting to see if this is at all successful and if any other countries try and follow
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An aspect of digital sales that has been growing immensely in Eastern Asia, more specifically Japan, has been digital sales on mobile phones. In Japan the majority of music is purchased directly on a mobile phone. This seems to be where the industry is headed and a good example for the United States. Right now, most cell phones in the US are not very easy to use for mobile downloads and they also tend to be very expensive. The only really affordable and efficient way to download music on a mobile phone right now is on the Apple iPhone through the iTunes store. Again, this continues to puts the computer company at the forefront of the music industry.

Record labels seem to be coming less and less successful and arguably less useful. The industry is undoubtedly changing but record labels aren’t and that is why they are doing so poorly. Having a good, successful, business model is very important and when you are in an industry that is always changing, that model should be constantly updated. Instead, the labels are using the same business models they have used for years and are slowly becoming irrelevant. If records companies want to survive they need to innovate and develop better solutions for today’s industry.
A good example of the uselessness of record labels is Radiohead’s recent release “In Rainbows”. The album was completely independently recorded and produced with no label involved. Radiohead had previously been signed to major label EMI but when Terra Firma Capitalist Partners purchased the label Radiohead left. After the record had been completed they announced 10 days ahead of time that they had a record coming out for digital download, and that you could name your own price for it. You could also opt to purchase a special edition 2 LP, 2 CD set for approximately $80. Without doing any promotion the album was a very big success. Unfortunately the band refused to release any numbers on the profits they made from the album, but it is speculated that it was very successful. This arguably shows a diminishing need for record labels, especially when the artist is as well known as Radiohead.
In addition to a label’s lack of success, we are also seeing a decline in the real value of music. The prices of records have pretty much stayed the same and even went down over the years as inflation has been increasing. This means that the value of music has been decreasing—which means even less money for the labels who are mainly relying on revenue from albums to make a profit. It also does not help that iTunes, the largest retailer of recorded music, is selling all their individual songs and albums at one set price. It is arguable that, even though this is not ideal, iTunes is at least being very successful in selling the music and getting it out there, despite the very low cost of songs. We can see this represented in the supply and demand curve for physical records above. Since the demand for physical records is going down due to digital sales, and lack of spending on residual goods we have a left-shift in the demand curve. This results in the quantity sold decreasing in addition to the price decreasing or P↓Q↓ which is what is happening in the market.
Companies like Live Nation on the other hand are doing extremely well. They evaluated where the most money in the business was, live concerts, and decided to do their best to take over that market. Because of their good business model and smart innovative ideas, they have been very successful. By buying up many venues, booking their own shows at said venues, and now selling their own tickets they are beginning to monopolize the market. Since that is their main focus rather than record sales, they are doing extraordinarily well.
With the capital Live Nation has developed from their ventures into live music, they are now investing in big name artists to sign the all encompassing “360” deals. So far they have signed multimillion dollar deals with Madonna and U2 where they deal with everything from booking tours, to albums, to merchandising. There is also a lot of talk that they will be signing Jay-Z in the very near future with a similar deal. By acquiring these huge artists for 10+ year deals, they are pretty much guaranteed a profit by controlling basically all aspects of the artist’s possible income. Also, it makes sense from the artist standpoint because they are consolidating everything they do into one place.
One thing that is also lacking in the industry today is the quality of music. The standard of pop music has declined dramatically from the amazing talent of the Beatles in the past, to today’s pop stars like Britney Spears or Justin Timberlake. I believe that because the standards of pop music have declined, so has the trained ear of the public. They no longer want to hear something musically talented because it is too complicated; the public seems to want simple beats and predictable melodies. This lack of quality has also produced a dearth in true superstars. Music used to bring people together like nothing else. Bands would have immense followings and play enormous concerts for hundreds of thousands of people. The reason that this has become much more rare is that people have become less connected with the music. In order for music to be very successful artists need to raise the standards of what is out there.
After evaluating the current state of the music industry we can see that it is in need of much ingenuity and change. The people that are being successful in the industry are the ones with the new ideas, trying to change things like Apple Inc. and Live Nation. In order for the music industry to survive, it needs to catch up by paying attention to what is working today. I think the real future of music sales will probably be on mobile phones. Once the technology increases and faster wireless networks (3G) are more widespread. I believe we will see an increase in this and hopefully a spark in the sales of recorded music. At this point, the labels’ job is to try and get ahead for once instead of being left in the dust. Overall I would say that the music industry is in quite a poor state but with hope for the future. As long as more people start innovating and taking advantage of new resources, we may see improvement.