Even as legitimate music downloading is
increasing, the music industry is still searching for business models to
reverse its declining revenues. This is making things more complex both for
consumers, who need to stay current on which music formats and players work
together, and for musicians, who have to consider far more revenue streams than
just CD sales.
It was not supposed to be like this. The industry had staked its future on
the hope that the legitimate download business would make up for falling CD
sales. From the standpoint of audience engagement, this scenario has played out
favorably.
More people than ever before are buying music, and the balance is
shifting decidedly toward downloads and away from physical formats.
Despite the audience in the downloading sector, the revenue math has not added
up for the music industry. Per-capita music spending in the US is trending
downward, offsetting the increases in the number of music buyers, according to
eMarketer calculations based on data from Bridge Ratings and the US Census Bureau.
Estimates of per-capita music spending are not yet available for 2007, but there is little reason to expect a reversal of the downward trend that has continued
since 1995.
eMarketer senior analyst Paul Verna contrasted digital music with photos, and
said the array of music formats, players and vendors has hindered sales growth.
"One of the things that's driven photo
sharing is its simplicity: There are only a handful of widely used file
formats, and they are compatible with virtually every editing and sharing
program," Mr. Verna said. "On the other hand, you have the music
industry, which has been a rat's nest of restrictions and
incompatibilities." He added that Apple had been a double-edged sword for
the industry, with a closed loop that works fantastically for iPod users but
leaves many frustrated consumers outside of that system.
Additionally, most of the content on the fledgling, ad-supported
"free" music services is protected (or hamstrung, depending on one's point
of view) by digital rights management—yet another roadblock consumers must negotiate
when choosing music formats and vendors.
Because of shrinking recorded music revenues, people in the music content
loop now consider every possible source of income: exclusive retail deals with
companies like Wal-Mart and Starbucks; licensing music for commercials, movies,
TV shows and video games; complex brand sponsorships; ringtones; and anything else
that might make up for flagging CD sales.
"There's a wide range of distribution channels and many formats,"
Mr. Verna said, "but very few deliver good bang for the buck, so you have
to get many going at the same time. The concept of 'selling out' doesn't even
exist anymore."
He added that, in the current industry climate, fewer musical artists make much money
from recordings—except for top-tier hit-makers and those who write their own
material and get it licensed broadly.
These trends are reflected in the increasingly fractious relationships
between artists and labels. Big music deals have become a rare breed, and the
ones getting attention, like Live Nation's signing of Madonna, have less to do
with selling recorded music than with leveraging a brand. Concerts,
merchandise and other music-related sales used to bring ancillary revenues, but
now they are the core product, at least among upper-echelon artists.
As the music industry adapts to this new landscape, it will find itself with
consumers who are tough to impress. "Music still moves people, but people
expect it—it's just there," Mr. Verna said. "The days of die-hard fans
hunting down rare imports are long gone. Despite format, player and vendor
restrictions, consumers can now get anything they want if they know where to
look."