The music industry outlook: still grim

How low can the music industry go? Analysts speaking at Digital Music Forum West in Hollywood this afternoon suggested that there's more pain ahead for the industry -- much more. On the other hand, they said it's not necessarily a bad time for artists, and things couldn't be better for fans.

Here are a few of the data points thrown out by NPD Group's Russ Crupnick, BigChampagne's Eric Garland and Topspin's James Lamberti:

Fewer consumers are buying music, and the ones who do buy are spending less per year, Crupnick said. The number of buyers fell from about 153 million in 2006 to about 132 million in 2008, with per capita spending dropping from $44 a year to $35. And despite the rapid growth of digital downlads, almost two-thirds of music consumers purchase CDs only. About a quarter buy both CDs and downloads, and 10% are download only, Crupnick said.

He then offered an even gloomier statistic. Although the number of people buying downloadable music is growing, the amount they're spending on average is flattening. And the amount spent each year by repeat buyers dropped from $50 in 2007 to $46 in 2009. Why? One factor is the proliferation of free, advertiser-supported music services, which Crupnick said are cannibalizing digital sales.

Garland said that the optimistic assumption underlying the industry's digital strategies proved not to be true -- as buyers have shifted from full albums to singles, the lower prices per unit haven't prompted them to spend more on music. As a result, total U.S. music revenues have fallen over the last decade from more than $14 billion to just above $8 billion, the lowest level since 1991.

Like Crupnick, Garland noted how much more popular free streams are than paid downloads. Chart-topping songs sell a few hundred thousand downloads weekly, which is less than 10% of the number of times those songs are streamed -- and that's just on legal services. And the industry isn't having much success converting those free listeners into paying customers, Garland added.

Lamberti's outlook was more optimistic, but not necessarily about music sales. Topspin is a music marketing firm that specializes in helping artists promote and sell their products online. The Internet presents a tremendous opportunity for artists and labels to identify and serve a band's biggest fans, offering bundles of goods and premium-priced packages with high profit margins. Topspin artists are seeing average revenue of $18 per transaction, he said -- significantly higher than what a digital download or even a full album would command.

But Lamberti also said that it's important for artists to give music away. Not all of it, necessarily, but real MP3s, not 30-second samples or free streams. Those who do have significantly more success converting listeners into paying customers, he said. The right course is to spend time investing in the relationship between artists and fans, so that relationship can be monetized later.

Another essential, Lamberti said, is to cut costs. In dozens of tests, Topspin found that the money spent on marketing had a negative return on the investment. In other words, it was dollars wasted.

Oddly enough, the panelists' comments didn't deflate the mood in the room. Rather, the underlying message was that there are promising paths for artists and labels to take. They just can't rely on the masses to spend a lot of money building their music collections.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Comments

[Jake]

Interesting article, but it makes the mistake of conflating recorded music with the entire music industry. The old middleman (record labels) are getting squeezed, but production costs for independent bands have gone down substantially, and live performance revenue is increasing.

The game has change, but the pie as a whole is getting bigger, not smaller. The record companies are getting a much smaller piece.

[Tom]

For me the price increase the record industry made for downloads, from $.99 to $1.29 was insane.

I literally have bought 80% less music since the price increase. Music I would buy for $.99 to have ion the library and would listen to or have on hand - I just would never drop $1.29 for.

I buy 100% of my music online. iTunes. I do not buy cd's now for years.

99.9% of music now a days is NOT worth $1.29 for a current single.

[J Woodburn]

When I buy music now, it's usually a DVD, with big screen hi def TVs and surround sound it's almost like being there. I'd like to see more musical artist produce DVDs and I think with todays home entertainment technology, it's a neglected market.

[ryanve]

I never pay for mp3's. I think the bands that are giving their mp3's away today will be the ones that fill the venues tomorrow. They definitely do need to be smart about how they give it away though. I wrote about it more at http://virtualmusic.tv/2009/09/who-pays-for-music-downloads-seriously/ . I agree with the cost cutting too, and giving away mp3's is free marketing.