Everything in the music industry is up! (except those plastic discs)

At a speech last week I was asked a question that has come up every day since the Radiohead (and Madonna, NIN, Prince, etc, etc) announcement: What's going to happen to the music industry?

To which I answered "Which music industry?" You don't mean just the one that sells CDs, do you? Because it's a big mistake to equate the major labels and their plastic disc business with the industry as a whole. Indeed, when you stand back and look at all of music, things don't look so bad at all.

Indeed, it appears that every single part of the music industry except the sale of compact discs is up.

• Concerts and merchandise: UP (+4%)
• Digital tracks: UP (+46%)
• Ringtones: UP (+86% last year, but probably just single-digit percent this year)
• Licensing for commercials, TV shows, movies and videogames: UP (Warner Music saw licensing grow by about $20 million over the past year)
• Even vinyl singles (think DJs): UP (more than doubled in the UK)
• And, if you include the iPod in the music industry, as I'd argue a fair-minded analysis would: UP, UP, UP! (+31% this year)

Only CDs are down (-18%). They're around 60% of the industry not including the MP3 players, but just around 25% if you do include them.

So the problem with the music labels is not that music is an industry in decline, but that they have a too-narrow view of what business they're in. Madonna's switch from a label to a concert promoter should be a clue. This quote from an excellent article (it's worth reading it all) in Entertainment Weekly says it all:

''Soon a lot of these companies won't define themselves as record companies,'' says Steve Greenberg, the former head of Columbia Records who now runs the independent record company S-Curve. ''They'll define themselves as artist development companies. If you're involved in an entire career with an artist, then everyone's interests can be aligned."

I think most music will soon be free, as artists give away the product as marketing for their performances and licensing, and as a celebrity accelerant that creates more opportunities to make money than just from the sale of a record.

And for those who say that this avenue is only available to artists at the head of the curve, such as Madonna and Radiohead, I'd point out that the other group poorly served by the labels are those at the bottom of the curve, the many thousands of bands who fall below the radar of the hit-driven majors. I'd argue that they, too, have nothing to lose by letting their music go free, nothing to lose but the prospect of becoming indentured to companies stuck in last century's model of monetizing music,

Comments

[Derek Sivers]

And, for what it's worth, down here in long-tail retailer land at CD Baby, even physical CD sales are up 35% over this same month last year. I suspect that part (not all) of the decline of the top-40 CD sales are people buying more CDs directly from independent musicians and alternative outlets.

[julian.bond]

Then there's the content. I'd bet that # of bands, # of musicians, # of tracks being made and available somewhere, # of venues are all up as well. My gut feel is that there are more people making more music than ever before. Then how about streaming; Last.fm and Pandora up. P2P sharing; Up. Number of shoutcast servers; Up. Digital radio and radio over cable/satellite stations are Up.

It's highly likely that more people are listening to more (and more varied) music than ever before.

It's not really CD sales that are down. It's the Music Major's profits.

[Ryan]

The EW article is extremely interesting, just read it last night. Of particular interest are the "360" deals which include concerts, merchandising, etc. (all forms of revenue, not just CD's). These all-inclusive deals should be the logical progression for the music ologopoly. They clearly need to hedge their bets and diversifying is the answer. These big companies are also much better suited at trafficking in the short head rather than discovering talent in the long tail. Increasingly, technology is facilitating the discovery of longtail artists.

Perhaps this will evolve like the financial markets have. Large labels can start acting like investment banks rather than VC's or seed financiers. They become more transactional in nature and only deal with artists with a lower risk profile (guaranteed revenue stream). Technology will facilitate the viability of smaller unsigned artists getting discovered, and music labels will play less of a role in that process. Perhaps there is still room for labels to take risks and "make" unknown artists into superstars, but maybe it's time they embraced their future in "buying" artists rather than "building" them?

[Josh Patrick]

Sharing music to promote concerts has been going on for over forty years. The Jam Bands, specifically The Grateful Dead starting allowing their concerts to be taped and shared from their beginning. From this grew a fanatical group of concert goers that follows the band in it's various incarnations today.

They have now spawned a new genre which is instant high quality sound board mixes of the concerts that they do. At $10.00 for an MP3 it makes it worth while to purchase directly from the band online. I expect you'll see more of this as the "real" music companies catch on.....even if it only took them forty years.

[Josh Patrick]

Sharing music to promote concerts has been going on for over forty years. The Jam Bands, specifically The Grateful Dead starting allowing their concerts to be taped and shared from their beginning. From this grew a fanatical group of concert goers that follows the band in it's various incarnations today.

They have now spawned a new genre which is instant high quality sound board mixes of the concerts that they do. At $10.00 for an MP3 it makes it worth while to purchase directly from the band online. I expect you'll see more of this as the "real" music companies catch on.....even if it only took them forty years.

[Douglas Karr]

I'm still in shock that the RIAA is running such a gangster outfit... and the government is standing by them as well as the justice system. When more money is spent on lobbying than on marketing, you should take a hint that you're in a dying industry.

[michael jones]

Very good site! I completely agree with you! I am a part of some music membership and i know what you mean! Music has to have its own script!

[Zhaul - NuRev]

Hi Chris,
as I told on Gerd Leonhard's blog I've found your post really interesting! I just have a question for you... don't you think that these data you reported exactly mean that record labels as we know them will disappear in the near future? I ask you because we're trying to realize a totally new conception of record label, completely 2.0 and since we trust in this project we want to know what's your opinion about something like that. If you wanna share your bigger experience with all of us that believe in a new way of make and distribute music we're sure our dream could come true for real.
Bye
Z.

[Fergal Kavanagh]

My Big concern is that the qyality of recordings will decreasae, that musicians will not spend as much time in studios with the appropriate level of production for a quality recording. Yes the many many recordings within the longtail are breakthrough but they reverse the curve where quality is concerned if you were to grade them (in my opinion). If a band or record company (or what ever buusiness model takes over) or producing recorded music without the chance of making a buck from it then ......

[Kaleberg]

ryan: 'Perhaps there is still room for labels to take risks and "make" unknown artists into superstars, but maybe it's time they embraced their future in "buying" artists rather than "building" them?'

That's a good analysis. Hollywood went through this 40 years ago when the old studio system of owning and building stars was replaced with the more modern policy of buying and leasing stars.

On another note, how can CD sales be down? I can't walk by a street musician without a hat with stack of CDs beside it. Is anyone tracking these sales and tips? They wouldn't all be selling CDs if no one were buying them.

[Maltbyman]

Derek from CD Baby (whose store I have purchased from!) echoes my sentiment about music. Creative music, from almost any genre, is not easily found in the traditional channels. Many artists are marketing themselves through their MySpace pages. Don Tapscott (of Wikipedia et al) plays in a band called "Men in Suits" and is on MySpace.

[ms]

I share Fergal's concern about quality. I also wonder about quantity. I'm not sure how a music industry driven by live performance and licensing really fits the optimistic vision of the long tail. Live performance is limited to a particular time and place. Licensing (in the form of movie and advertising synchronization rights) is also very limited and episodic in nature. Neither are really long tail type businesses. If you have to rely on indirect appropriation from such activities to make your money, you're not necessarily looking to the long run--to creating and keeping available an enduring body of work. I see the long tail working for paid digital downloads, digital streaming and the like, but I think free music tied to old-economy activities is something different entirely.

[David Fishman]

Great post! I just published an article today that looks at the changing media indusry as well. Check it out!

[blooflame]

I agree that musicians and bands will want to give the music away as promotional tools for licensing and the like, but it does open a nagging (possibly legal) question in my mind?

If you give away the music online, how do you combat someone downloading it for free and then using it in their TV show? After all, in legal terms "the value of a thing is what that thing will bring" - so if zero is set as the value for the music in one place, how can charging for it in another be enforced?

I'm sure someone may have a legal answer, but I sure don't.

[David Palmer]

The music industry doesn't seem to me to be dying, just changing, and I think for the better.

It used to be that record companies and radio stations were the channels through which artists released, and listeners discovered, new music. That hasn't been the case for awhile. Since record labels went from being companies run by people who cared about music (not all, but some) to being divisions of huge publicly traded companies whose main business is selling liquor, and since radio stations with actual human DJs who played music they believed in were replaced by personality jocks who push a button to start some Clear Channel playlist, those old distribution channels have simply become roadblocks. They've served no useful purpose for artists or listeners for years. I'm glad that people like Radiohead and Madonna are experimenting with new ways of doing business.

[David Palmer]

If you give away the music online, how do you combat someone downloading it for free and then using it in their TV show?

blooflame, I believe the copyright laws cover that. There's a big difference between someone listening to music for free and someone making it part of their own commercial product.

[Tony van Veen]

While CD sales overall are down, independent CDs are up. This is not conjecture. My company, Disc Makers, is the market leader in replicating CDs for indie artists, and our CD revenues and orders are up double digits each year for the past several years, including year to date. This will continue for several more years, for several reasons:
1) Many independent acts have trouble getting airplay distribution, and make most of their revenues from product sales at their performances. That includes merch and - prominently - CDs.
2) Independents who are still building their b(r)ands therefore are less likely to have their music pilfered online, and more likely to embrace free online music as the great promotional vehicle it is.
3) There's some really interesting music being made by indies.

I'd argue that "music" is more vibrant than ever. More than ever before, our music is always with us, in our cars, on our PCs, and on the road in our phones and iPods. And if you add in the many millions of free downloads (legal or not) being grabbed every month, it's easy to see that there's more music being consumed than ever before. Unfortunately for the majors, they're just not getting paid for part of it.

[Bill Aicher]

Here at Musicnotes.com the sales of our downloadable sheet music have been up 30-40% all year as well. You're correct in saying that there's a lot more going on the music industry than just CD sales - it's a changing environment and things are up across all the newer channels.

[Cameron Mizell]

To echo the comments of Tony at Discmakers and Derek at CD Baby, two services I've used to release my own music, music sales in the longtail are definitely up. Independent artists may be behind the curve from a sales or awareness perspective, but we can stay ahead of the curve when it comes to adapting to new opportunities. I'd argue with Chris about giving away all my music for free, because there is enough demand for it to create a profit. I create demand and interest by giving a little away here and there, playing shows with no cover, and constantly look for new ways to increase awareness at the lowest possible cost to me. The day a more lucrative income stream comes along that can be bolstered by giving away all my music, I'll be the first to change gears!

[Paul A' Barge]

The only thing up is the size of the ego of the celebrity musicians with respect to their actual talent.

Has anyone been listening lately? The music channels are full of crap and the information channels are full of crappy celebrities giving us their uninformed and ignorant take on their unpatriotic politics (yes, you Bruce Springsteen and Bonnie Raitt).

Bugger off, the lot of you.

[Hucbald]

I'm a solo guitarist, and I absolutely love the current climate in music. Demand for live entertainment is way up (I suffered through the Disco era, when many venues vanished overnight), and today's technology allows me to record my own CD's in my livingroom. Once done, I have a photographer friend do the artwork, I write the liner notes, and then I have a CD mastering company make me the CD's, which I can sell at my performances. Record company? What's a record company? Sure, I'd get better production values with a professional engineer and a producer, but 1,000 CD's cost me about $2.50 each to produce. I can then sell them for just ten bucks, and after taxes I'm still making plenty of profit. Much more per disk than if I was on a label. I mean, I don't even WANT a recording contract.

I also post MP3's at some sites on the web, and yes, I do allow for free downloads. It DOES WORK to spread my stuff, and since I compose al ot of things for solo classical guitar, that's what I want. Just last week I got an email from a guy in Argentina looking for scores to some preludes I wrote. I gave him free PDF's of all twelve of them, naturally.

Today is a great time to be a musician. It's just not a great time to be a record company executive. I can't say I'm all that broken up about the situation.

[Chris Castle]

I must confess that it is a happy day for me when I get through 24 hours without hearing anyone say "the long tail", reading yet another lionization of copyright pirates in Wired Magazine, hearing the words China, India and advertising used in the same sentence as "save our industry", or better yet not reading the words long tail, China, India, advertising and save [their] industry used in the same sentence in a lionization of copyright pirates in Wired Magazine.

I have to confess I laughed out loud more loudly than usual when I read this:

"...I'd point out that the other group poorly served by the labels are those at the bottom of the curve, the many thousands of bands who fall below the radar of the hit-driven majors. I'd argue that they, too, have nothing to lose by letting their music go free, nothing to lose but the prospect of becoming indentured to companies stuck in last century's model of monetizing music."

Now dust off the ring ding crumbs and listen up, geekboy: Only someone who knew absolutely nothing whatsoever about the economics of my businss would say such a thing about independent artists. The only thing separating independent artists from bankruptcy is usually selling merch and--yes--CDs off the stage. Artists who are good at this, and I'm fortunate to work with a few, add anywhere from 50% to 150% of the nightly receipts through "merch". So that means that some artists sell between $1000 and $2000 on average per show--on top of show guarantees--that is mostly made up of that stuff you want them to give away for free.

It's not that these artists are "poorly served" by the major labels, Mr. Econobabblist. They DON'T WANT to be served by the major labels. In fact, PLEASE DON'T SERVE ME. It is that very ability to sell CDs, thousands of CDs, that make them able to get to the point where if they ever did want to take the king's shilling, they wouldn't get the hillbilly deal that these labels are foisting onto new artists, the so-called "360" deal.

Here's a tip about the hillbilly deal: Take a poll of business managers for big artists and they will tell you that the average take home after paying mangagment and booking agency commissions, sound, lights, truckers, roadies, band, opening acts, taxes, hotels, food and per diems on the road is something like 15-20% of gross. Guess what share of gross the typcial 360 deal requires as a passive participation--if you ever get your paws on any profit at all?

May I suggest that you appear to be a smart guy, I have to think you are a smart guy or you wouldn't be where you are, so I'm prepared to accept that you are at least not stupid. But before you start waffeling about a business you do not understand, try to learn a little about it.

And if you want to learn about the independent music business, give me a call. I have a few trap cases that need to get hauled up a few flights of stairs and you can start with that.

[Michael Fremer]

First of all "think DJs" attached to the increase in vinyl singles is WRONG. It's "think kids are playing tunes at home on vinyl again," because that's the truth of the matter if you'd bother looking into it. In fact vinyl singles sales and album sales are way up around the world. It will never be as big as it once was of course, but it is the only format to show real sales growth. Goodbye CD! A spinning digital disc? A STUPID idea from the getgo and a bad sounding one too packed in a "jewel box" that was hilariously misnamed. Files make more sense and since most people don't care about sound anymore, which is pathetic of course, let them eat MP3s! Meanwhile for people who dig vinyl (people who like great sound), these are great time! There's an enormous number of new releases on high quality vinyl from mainstream and alternative rock and hip-hop/rap. The reissue market is exploding with great titles. So this is a great time for people who want to download crappy sounding files to play on their crappy plastic computer speakers and for people who want to play vinyl on real audio systems! IT'S A GREAT TIME and it will be better when they bury CDs for good.

[Mark Buehner]

Record companies have been rearranging their deckchairs for years, mainly because they flatly refuse to ceed their position as king makers and loan sharks of the industry. Theyve gotten far too used to the level of profit they can turn off a successful artist, and far too used to their slimy relationships with radio stations and music distributors that gave them all the cards in the deck. Couldnt happen to a nicer group. What do you really need a record company for these days? It doesnt take half a million dollars to cut a record (unless you want it to, in which case you can probably afford it yourself). They still have their claws in radio airplay but satellite and the internet are whittling away at that.

[DensityDuck]

Michael: You're one of those people who pays $450 for a three-foot cable, aren't you?