Digital music: Digital downloading nearly killed the record business. A whole generation of youthful customers simply got used to the idea that music should be free. Compact disc sales fell around 15 per cent annually year after year. Yet the peak of this trend now appears to have passed, leaving an unusually clear landscape for growth in digital music sales.
Indeed, these now account for 35 per cent of all US songs sold according a study by market research firm NPD Group released Tuesday. What’s more they are growing around at up to 20 per cent per annum, while CD sales are shrinking at about the same rate. Do the math, and the number of digital songs sold should surpass traditionally-recorded songs by the end of next year. Of course, since digital songs are somewhat cheaper, it will take a few years before revenues will follow if current trends hold.
Moreover, digital music sales shouldn’t be any less profitable. A CD costs $6.40 to manufacture, distribute and sell in a store according to research firm Almighty Institute of Music Retail. Since these costs disappear when music is distributed online, an album that costs $16 in a store is about as profitable as one sold for $10 digitally. And these prices are pretty close to what you pay in Wal-Mart vs Apple’s iTunes.
Unfortunately, this doesn’t mean happy days are around the corner for firms like EMI and Warner Music. The industry may once again think about growth, but the spoils will have to be shared quite widely, if not with the big retailers and mom-and-pop record stores of old.
About 70 per cent of all digital sales occur on Apple’s iTunes. The tech company demands a cut of the proceeds, of course. And its dominant position means it has sway over music producers. Apple has been largely able to resist pressure by record labels to increase the price at which it sells music because it wants to maximize the sale of its gadgets like iPhones and iPods instead.
Musicians also have increased bargaining power. Because digital music is easier to distribute, bands can more easily do it themselves – or threaten to and demand more favourable terms from labels. And the big retailers aren’t going down without a fight. To wit, geriatric glam-rockers KISS just signed an agreement with Wal-Mart that gives the retailer an exclusive album to sell while the band gets a bigger share of profits.
Music sales may once again grow, but that doesn’t mean the big music firms will return their prosperous heydays.
