Download Where Have All the CDs Gone?

Where Have All the CDs
Gone?
The record industry blames piracy and downloading
for sagging sales — here's the whole story.
James K. Willcox
June 2003
New Kids in Town
The RIAA could be ignoring other factors that are having a
negative effect on CD sales. Bernoff argues that growing
competition from other forms of entertainment, such as DVD
players and videogames, and the consolidation of radio-station
ownership are having a much more deleterious effect on sales
than downloads. For example, people in the U.S. spent almost $7
billion on video and computer games in 2002, and more than
one-third of all U.S. homes now have a DVD player. Given that
the price difference between many top-selling CDs and DVDs is
just a few dollars, it’s not hard to imagine many people opting for
a sexier, newer format that offers not just music, but a movie in
multiple formats that can include directors’ cuts, commentaries,
and other bonuses.
Perhaps even more significant, the consolidation in radio has
resulted in Clear Channel Communications controlling 60% of the
rock radio stations in the U.S. That means listeners are exposed
to more homogenized playlists, so fewer artists get exposure,
and listeners hear a narrower selection of songs. Also, radio
promotion — where labels pay promoters to get stations to play
certain songs — has become too expensive for all but the major
labels. As a result, mainstream radio rarely plays music from
emerging artists signed to small or midsize labels. Even MTV
plays fewer and fewer music videos. So people are turning to the
Internet as the primary medium through which they can discover
— and perhaps buy — new music.
Also, consolidation in the music industry, where four of the five
major labels are owned by large public corporations, has
increased the pressure on music divisions to make “hit” records
to meet quarterly earnings expectations. This has resulted in the
labels signing fewer bands, paring rosters and staffs, and taking
fewer marketing risks. If a new artist’s album doesn’t generate
excitement quickly, the label will shift its resources to another
project. While many of these artists eventually move to smaller
independent labels, these labels tend to lack the money and
marketing muscle to generate huge sales numbers and often lack
top-shelf distribution and international sales. The result is lower
sales for many artists. Consolidation has also contributed to the
majors releasing fewer CD titles over the past few years.
Click for "The Big Picture" graphic sidebar.
Too Little, Too Late?
The RIAA also claims that downloads take money out of
musicians’ pockets. But thanks to high-profile suits filed by
artists like the Dixie Chicks and Incubus against their labels, fans
are becoming aware of record-industry contracts and accounting
policies that result in few artists ever making much money from
the sale of their music. This might lead to fans feeling less guilty
about “stealing” music.
The record industry acknowledges that less than 10% of its
artists will “recoup,” or make back, the advances they’re given
when they sign a recording contract. In fact, rather than worrying
about lost sales, many artists view the Internet as their lifeline to
attracting new fans. In a recent opinion piece for the Los Angeles
Times, Janis Ian, an outspoken proponent of downloading, said
that in the six months she’s been offering free downloads of her
songs on her Web site, “Thousands of people have downloaded
my music . . . and they’re not trying to steal. They’re just looking
for music they can no longer find on the tight playlists of their
local radio stations. That’s how new artists gain listeners these
days — through the Internet.”
That the labels have been painfully slow to adapt to the Internet
and the new ways people want to receive music could also be
hurting sales. If they want people to migrate from free
downloads to paid services, they have to offer subscription
services that can not only compete, but add incremental value.
There are plenty of examples — from cable TV to bottled water
— of people paying for services or items they can get for free.
But the labels still seem mired in control issues, which has
resulted in lawsuits, draconian legislative initiatives that trample
on people’s fair-use rights, and threats of invasive actions against
the very people who buy their product.
All of this chest-beating and bullying by the labels has generated
lots of ill will. Until recently, hardly anyone even knew what the
RIAA was — today, its Web site is hacked and shut down about
once a month. When the labels finally launched online ventures,
they completely missed the mark with limited catalogs and
restrictive digital rights-management schemes that impeded or
prevented the things people want to do most: make CD
compilations and transfer music to portable MP3 players. More
recent online services such as MusicNet and Pressplay are steps
in the right direction, but they have to go farther — with things
like more attractive pricing and deeper catalogs — to compete
with free services.
For instance, the average price of a download is 99¢ a track, so
downloading an 18-track CD song by song comes to about $18.
While this is only slightly more than the average price of a CD,
you’re getting compressed audio and no packaging, and you have
to devote time and effort to downloading the music.
That’s not to say that free downloads and file-sharing networks
aren’t having an impact on the music business. In fact, given the
usage statistics, it’s surprising they aren’t having a bigger impact.
But they’re probably not the sole — or even major — cause of the
industry’s woes. The irony is that, like other technological
advances bitterly fought by the music industry — from playerpiano rolls to the audio cassette — the Internet is probably its
salvation. Forrester Research predicts that by 2007, 17% of the
industry’s revenues, or $2.1 billion, will come from downloads.
Jupiter Research’s projections are even rosier.
Recently, it appeared that the music industry might abandon its
confrontational approach in favor of more diplomatic solutions. In
a keynote speech in March before the National Association of
Recording Merchandisers (NARM), retiring RIAA chairwoman
Hilary Rosen said the industry needed to focus on buyers: “It’s
time to come together. Now is our opportunity to put
[consumers’] interests first.” Among the ways the industry could
do this, she said, was to meet the demand for music in multiple
formats, offer a deeper catalog, and enable people to make
compilations “without feeling guilty or like criminals. Fighting
piracy is a waste of time if the customer is not served in the
legitimate marketplace.”
Such hope, however, turned out to be short-lived. That same
week, the RIAA sent letters to 300 U.S. companies complaining
about copyrighted materials on their corporate networks, warning,
“These acts of infringement could expose your employees and
your company to significant legal damages.” Rosen’s yet-to-benamed successor has a tall order to fill: find a way to stop the
RIAA from shooting itself in the foot and get the record labels
back in the business of effectively distributing their music.