Music Industry Comparison: Part #8967 (sorry)

 

Yes, I know, I know, but let’s not worry about all the “is/isn’t the record industry a good comparison for books” stuff. None of it matters if a comparison is interesting, and whichever side of that interminable, pointless debate you fall it certainly is interesting.

The headlines from the latest music industry news suggest 40% growth in streaming services, which now generate £696m worldwide, while download growth has slowed to 8.5% year on year. In total physical sales comprise 61% of the total revenues of record companies, although this figure masks the almost total collapse of the CD singles market and reflects residual strength in CD album sales. Other reports I have read suggest revenues from digital are more like 50%, having only recently crossed that milestone, but we can now assume they are at least 40% of record company earnings, a figure far below the digi-hyperbole usually surrounding discussions of the industry.

By far the most important figure though is the continued decline in overall revenues. Earlier this year I had heard the long bleed in revenue was beginning to stanch, with a plateau developing in earnings – certainly preferable to the annual falls we had become used to. However the latest numbers show this isn’t the case. Firstly, as expected, physical sales are dropping everywhere, 12% globally and 16% in the UK. Worse, the growth in digital still isn’t enough to offset this, with overall revenues dipping 2.6% globally and a whopping 16% in the UK.

What can we make of this?

The key lesson is that less is less. Once sales start sliding they will continue to slide, and no amount of innovation, new services, new pricing models, devices and delivery systems can ever inject sufficient cash to replace lost physical sales. A combination of lower prices, less remunerative models, retailer consolidation and piracy – working together - have an inexorable and irreversible downward effect on earnings. Furthermore, I would suggest this is a feature of what happens to cultural products in general when they enter digital environments rather than being a specific feature of the music industry. When the value starts seeping it out, it seems that it is not so much a matter of putting it back as simply trying to slow the flow. What value remains tends to accrue as much to the platform as the content owner, although consolidation in the record industry has handed an inordinate amount of power to the majors, notably Universal, to dictate terms.

If you have an answer to this problematic let me know*. So far the book industry is only at the beginning of the curve. Top line growth is just starting to flatten or dip for many publishers. In addition the industry as a whole appears buoyed by some recent mega smashes, with The Hunger Games and E.L. James springing to mind. In contrast the record industry is having a fairly tepid time in 2012 because the line-up of new releases is so weak, especially in contrast to the Adeles et al of last year. However the warning signs are there. Absent the super-bestsellers and there aren’t too many growth stories, although at least there has never been the noxious combination we saw emerging in the early 2000s for the music industry.

The second lesson is that subscription access models and services are the future. Digital downloads are an anomaly, an interregnum, a hangover from the analogue world clumsily imposed on the digital. Someday, probably not too far off, the idea of paying for a single download of media content will seem bizarre and anachronistic. While that assertion isn’t totally supported by the data, they do suggest a tendency towards that conclusion. We should expect on-demand book subscription services from Amazon Prime to 24 Symbols and Safari Books Online to grow, just as Spotify, Rdio and Pandora have done. From a user perspective it makes more sense, although quite how to price, build and market these services is still a challenge.

We’ve all heard it before of course. Nonetheless, it’s good to get a solid sense of how digital continues to play out in fellow content industries. If we find ourselves on a regressive income path like the music industry, as I suspect may about to be the case, then for once that most over-used appellation in publishing – “crisis” – might not be an exaggeration. 

*PS – if I had to suggest a solution to the ‘negative growth conundrum’ it would be a combination of renewed focus on internationalisation, further diversification of product in digital, investment in brand(s), movement towards services and new physical only productions. And luck. 

 

Comments

Music Industry Comparisons

Understandably the world of digital books is undergoing a massive change. The advent of devices has pushed this market into the mainstream. Whereas I can see some validity in the points raised by NeilP99, I cannot agree with the idea that "we will always need well-funded publishing houses to edit and market new works."

Publishing houses do have a part to play, but it simply may not be that they are going to be able to continue to dominate the digital area. Given the amount of anti-trust surounding both publishers and ebook readers, change is needed to address this balance, before we can commit to a strategy that is fair for all.

 

Music industry comparisons

   Having worked in the music industry during the 80's and 90's when CD sales were at their height and downloads were just starting to appear, I do see one big difference with the book business. Whereas the record companies were in complete denial until it was too late to stem the flow of piracy, and stop the subsequent change in mindset of the average music buyer (the right to something for nothing), the book industry seems to have paid heed to all these lessons and is now working toward a usable model. I do think however that to try to impose the music model onto the book industry 'as is' would be a mistake. Certainly much of the model may work, but books are a very different product to music. Just because books are moving from analogue to digital doesn't neccessarily mean the same delivery systems and revenue streams will be the best fit. What I think will be similar is the continued need for large well-funded publishing houses to edit and market new works, and to act as a filter for the army of authors out there.

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