The real value of digital music is risk-free grazing.”
Cory Doctorow, Canadian journalist and co-editor of the offbeat blog Boing Boing, is an activist for liberalizing copyright laws and a supporter of the nonprofit Creative Commons, dedicated to expanding of the range of creative works legally available and their sharing. Doctorow and others continue to write extensively about the apocalyptic changes facing intellectual property in general, and the music industry in particular.
In this article, we will explore the catastrophe affecting the American industry through the example of the music industry, a simple industry compared to those of the automobile or energy. However, in the simplicity of this example, we might discover lessons that apply to all industries.
In his web article, “Recorded Music’s Inevitable March to Free,” Michael Arrington tells us that music CD sales continue to fall alarmingly. “Artists like Prince and Nine Inch Nails are defying their labels and giving away their music for free or telling their fans to steal it… Radiohead, no longer controlled by their label, Capitol Records, has released their new album for sale digital on the Internet for whatever price people want to pay.” As many others have reiterated in recent years, Arrington reminds us that unless legal, technical, or artificial barriers to production can be created, “simple economic theory dictates that the price of music [must] fall to zero as more ‘competitors’ (in this case, copying listeners) enter the market.”
Unless sovereign governments adhering to the Universal Copyright Convention take drastic measures, such as the proposed mandatory music tax to support the industry, there are virtually no economic or legal barriers to preventing the price of recorded music to fall towards zero. In response, artists and labels will likely focus on other revenue streams that can, and will, be exploited. In particular, this includes live music, merchandise and limited edition physical copies of their music.
According to author Stephen J. Dubner, “The smartest thing about the Rolling Stones under Jagger’s leadership is the band’s industrial, methodical approach to touring. The economics of pop music include two revenue streams The main ones: album sales and touring profits. Album sales are a) unpredictable; and b) spread across many parties. If you learn to tour efficiently, however, profits, including not just tour sales tickets, but also corporate sponsorships, t-shirt sales, etc., can be staggering. You can basically control how much you make by adding more dates, while it’s hard to control how many albums you sell.” (“Mick Jagger, Profit Maximizer”, Freakonomics Blog, July 26, 2007).
To understand the problems caused by digital media in the music industry, we turn to the industry’s most authoritative data. This data comes from Neilsen SoundScan, which operates an information collection and sales tracking system. Most relevant to the subject of this column, SoundScan provides the official method of tracking sales of music and music video products in the United States and Canada. The company collects data weekly and makes it available every Wednesday to subscribers across all sectors of the music industry. This includes record label executives, publishing companies, music retailers, independent promoters, producers and distributors of motion picture entertainment, and talent management companies. As SoundScan provides the sales data used by Billboard, the leading trade magazine, to create its music charts, this role effectively makes SoundScan the authoritative source of sales records in the music industry.
What is going on? According to Neilsen Soundscan, “In a fragmented media world where technology is reshaping consumer habits, music continues to be the soundtrack to our daily lives. According to Music 360 2014, Nielsen’s third annual in-depth study of tastes, habits and preferences of American music listeners, 93% of the country’s population listens to music, spending more than 25 hours per week listening to their favorite tracks.
For most Americans, music is the primary form of entertainment. In a 2014 survey, 75% of respondents said they actively choose to listen to music over other media entertainment. Music is part of our lives at all times of the day. A quarter of music listening is done while driving or traveling in a car. Another 15% of our weekly musical time takes place at work or during household chores.
Not surprisingly, over the past five years, CD sales have declined while listening and download sales have increased. Bob Runett of Poynter Online comments, “Start waving the lighters and swinging from side to side – the romance between music fans and their cell phones is heating up. Phones with music capabilities will account for 54% of handset sales worldwide within five years, according to a report from consultancy Strategy Analytics Inc. The report suggests we continue to monitor the growth of cellular music decks (CMDs), devices that deliver excellent sound quality and focus more on the music than the images.” (“Some Notes on Music and Convergence”, November 25, 2014)
Stephen J. Dubner summed up the chaos well almost a decade ago. “It seems ironic to me that a new technology (digital music) may have accidentally forced record companies to abandon the status quo (releasing albums) and return to the past (selling singles). sometimes think that the biggest mistake the recording industry ever made was abandoning the pop single in the first place. Customers were forced to buy albums to get the one or two tracks they liked; how much of albums can you say that you really like, or even that you like even 50% of the tracks – 10? 20? But now the people have spoken: they want one track at a time, digital you like, maybe even free.” (“What is the future of the music industry? A quorum Freakonomics,” September 20, 2007).
Like many of us, I (Dr. Sase) have also worked as a musician/producer/engineer/owner of an independent label releasing esoteric works since the 1960s. Although I have occasionally making a decent living with my music, I also developed my talents as an economist, obtaining a doctorate in this field. Therefore, I comment from this dual perspective of economist/musician.
The post-future, as many music commentators call it, doesn’t really differ that much from the past. How people obtain their music continues to reflect at least three related decision factors. We can summarize them as follows: 1) Content, 2) Sustainability, and 3) Time Cost. Let’s explore this in more detail.
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Content
When I started recording music in the early 1960s, the market was full of “one-hit wonders”. It was the era of AM (amplitude modulation) radio, of the DJ. This was also the era of the 45 rpm record with the hit on side A and usually a companion song on side B. It was not uncommon for anyone with a two-track tape recorder to “download” the desired hit from their station favorite radio station. There were few bands that offered entire twelve-inch albums with mostly excellent songs. The first of these albums I bought was “Meet the Beatles” by these four guys from Liverpool.
During the late 1960s, the industry shifted its focus more toward collections of “Greatest Hits” by groups that had previously had a string of hits on AM radio and toward “concept” albums. During this golden era of album sales, the Beatles, the Stones, the Grateful Dead, Yes, King Crimson, and many other bands released albums filled with quality content. In summary: consumers do not hesitate to pay for a product if they believe they are receiving value from it.
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Sustainability
Why would anyone buy a twelve-inch album when they could borrow a copy and record the songs on a reel-to-reel tape recorder or, later, a compact cassette? The answers at that time were simple. First of all, it was “cool” to have a great collection of albums, especially one that someone of the opposite sex could flip through in their college dorm room. Let’s just say that one person’s album collection could inform another party about their tastes and possibly their subculture and personality. Therefore, an attractive collection provided some form of social currency. Could this explain the resurgence of vinyl in recent years?
