Record industry dinosaurs and their myths
observations after the 2011 Music Tank Remake, Remodel seminar

Most people don’t buy that much music, and they never did

These are my thoughts about Music Tank Remake, Remodel discussions online. I was disappointed by Music Tank’s endorsement of the BPI story (see 3rd comment) when the report was launched. After the seminar, now is a good time to examine the red herrings. I have made some of these points before in a slightly different way.

In BPI mythology there is an unfulfilled demand for recorded music, specifically chart music by megastars (they have no interest in the independent web music economy). They want to get people to pay more for music but their expectations are unrealistic. Their own figures show how many albums people are likely to buy and how much they want to spend.

In 2002/3 the UK record industry sold 228 million albums and 41 million singles, a record number of albums. The average price of an album was £9.79. An economic population of about 50 million people spent £44.64 on 4 and a half albums each—the most recorded music they ever bought in one year. And they bought less than a single each. (All these records were physical and album income for 2002/3 was down 2% on the previous year.)

The record industry seems to be betting on subscription services like Spotify which costs £119.88 a year and delivers:

By 2010 total album sales were down 50%, physical CDs down 60% and overall single sales up 400% to 161.8 million. So now, people are buying singles instead of albums and spending less on recorded music. Nobody would expect to sell the same number of albums when single sales are up 400% and spending on live music is also substantially up.

Will Page and Chris Carey track music market trends in far more detail for the PRS. Their reports show a minority of the adult population are music buyers (40% rather than the 50 million in my illustration) and music “wallet share” has indeed declined over the past decade. Music accounts for only 0.28% of consumer spending (down from 0.38% in 1997, this fall in music spending was almost entirely recorded music, CD sales).

So CD was a cash cow but the public never bought a huge amount of music. People in the music business don’t seem to realise many CD collections consist of The Bodyguard and The Titanic soundtrack. Our 1,000-plus CD collections are not normal. Today people buy half the albums they used to 10 years ago but they buy 4 times as many singles and spend more on live music, computer games and DVDs. Where does the BPI think more money for chart music is going to come from?

Who will develop the new megastars?

The BPI says they created the megastars of past decades and that megastars are necessary for a thriving music industry. They can’t imagine a world where more artists sell less music each, or where recording artists are successful without a Major label.

Facing The Music, Michael Wolff (New Yorker magazine) was written in 2002 and is one of the most accurate comments on the dilemma of recorded music I have seen (you can skip the subscription pop-up for now). I don’t think the public is much concerned about an under-supply of Lady Gagas. Of course, megastars mattered enormously to the old record industry—that’s where they recouped the massive losses made by the rest of their business.

I have written before about the old music business and their fantasy about artist development. Some megastars were the result of investment by the Major labels but not many. The record industry has always signed acts people wanted to hear and helped them make records. That isn’t artist development, that’s the record business. U2, Radiohead, The Police, Coldplay, and almost every other monster act you can think of gigged and sold records from the start. Even the manufactured bands, from The Monkees to Atomic Kitten, were mostly developed by management or production companies not by record labels.

Looking across popular culture the record industry boasts few significant megastars. J K Rowling is worth several hundred Lady Gagas by any measure of popularity. Almost every other entertainment sector is bigger than music audio and that trend is never going into reverse.

The artist development argument is fundamental to the idea of 360º record deals. Artists might wonder how a declining Major label with practically zero Internet common sense can possibly justify taking a percentage of all their earnings. But to the Majors it seems only right—they “developed the artists” so they should share in live revenue and merchandise too. It seems preposterous to me. Most bands are gigging and selling T-shirts long before a Major label becomes interested. Today no Major label would even look at an artist who doesn’t already have a substantial following online, at gigs or from a TV show.

Has music been de-valued?

In the late 1990s high street CD albums were heading for a full retail price of £15.99. This is the BPI target, anything less means (to them) music has been de-valued. The price of an album has never returned to that level.

Music is not a tin of beans. Let’s consider the "value of music". Pat Boone's Greatest Hits or Led Zeppelin II… can we nail the value of music? Lady Gaga’s Born This Way launched for 99 cents on Amazon while a $160 9 picture-disc box was on sale. The MP3 album is now $7.99 and the deluxe CD $15.99, does that help? And it is free elsewhere. The Beatles In Mono box sells for $193, mostly to people who already own those albums (and anyone can download them). Can you see evidence of music being devalued? Some people do nick stuff (hold the front page!) but others buy. That’s life.

Those 2002/3 numbers tell us exactly what the problem is. From 1895 to 2000 the recorded music business grew every decade and from 1970 to 2000 the Major labels got bigger and made more money. After 2000 they had to work harder—they had to sell more records for less and still they lost money. They had to cut rosters, cut head office staff, expenses and budgets. This is what they see as the “devaluation of music”, the loss of their birthright. It is an adjustment every technology business eventually has to make when their time runs out.

File-sharing was always free, whether swapping vinyl singles, taping the Top Forty on cassette or using LimeWire. But music still sells and has value as any indie band with CDs at their gigs will tell you. Big Music is losing money because CDs no longer sell in quantity but that doesn't mean music has lost value. Live revenues are up over the past decade… that’s music too. The massive discounting of Born This Way was Amazon promotion for its cloud product. When Major labels talk about the devaluation of music they are simply pleading for a return to the £15.99 CD.

From another angle: Topspin, ReverbNation, Nimbit and a hundred other big startups are investing a lot of money in the future of the music industry (about a billion dollars a year). We don’t hear them bemoaning the dearth of new megastars or the devaluation of music. Their businesses feature support for the thriving independent “cottage industry” music sector.

Will subscriptions and streaming save the record industry?

The record industry pioneered audio technology and expects to control it. This was their plan for digital music online. Rather than deal with the world as it is they yearn for the easy money of the 1990s. Perhaps there are other ways to install pay-walls on the web (the thing they can’t control)?

If Spotify hits their 50 Million USA target in Year One: 15 million will drop out and just 5 million will pay (based on European experience: 10 million accounts, 7 million active, 1 million paid). Music industry net income (even assuming customers don’t reduce spending on Rhapsody or iTunes) can’t be what they hope. There are two rates: $4.99 or $9.99/month (unlike iTunes, Spotify prices are cheaper in the USA). The most 5 million subscribers can pay is $600 million a year. Maybe half gets back to publishers and labels and a fraction of that to artists. This can’t be the answer. It’s not even close and yet the media, industry and pundits have spoken about little else for the past year. Any form of music sales (CDs or iTunes) is better than subscriptions.

In the UK, to earn the amount of money from Spotify that the record industry earned in 2002/3 more than 16 million people would need to buy top rate subscriptions (£9.99/month). That’s more than double the total Spotify users in Europe, or 16 times the current paying audience.

Nobody will pay $120 a year for music and buy iTunes tracks too—the more Spotify succeeds the less music will sell. But the Premium Spotify demographic is precisely the music big-spender. This is the consumer who will find big holes in a catalogue of only 20 million tracks, so their target simply looks over-optimistic. If the music industry moves from sales to subscriptions the CD slump will appear trivial in comparison. A subscription world would kill Big Music stone dead.

(Right now the same 18 million tracks form the backbone of Spotify, Rhapsody and iTunes. They call this “anything everywhere” but there is a lot missing. When Apple Music Match was announced I checked my favourite artists and found gaps in the Bill Nelson, The Bevis Frond and Andy Partridge catalogue among others. These aren’t exotic rareties from the 1950s, standard CD releases are still not available to download. This is a long way from “anything everywhere”.)

A popular pay-wall alternative in the streaming subscription debate is taxing ISPs. Of course, you can’t have both—nobody would pay for free downloading on top of music subscriptions. But those PRS numbers show music buyers are just 40% of the adult population—60% of the population are going to want to opt out. And mathematically any ISP tax would come up short in the same way as the Spotify numbers. (An ISP tax would also kill Spotify—once you’ve paid your ISP for music why would you pay anyone else?)

So, most people are not music customers, megastars are unnecessary, music retains its value and subscriptions won’t reboot the old industry. Music Tank and BPI think the record industry dinosaurs have had bad press. Now, the record business wants to be the face of the music business but the music business is growing by doing other things—it has moved on. Meanwhile the BPI will be smaller again next year.

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