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    Music Industry Losing Control Over Album Sales

    by Mark Glaser
    January 22, 2007

    i-55e7bb00080986d6617865d1031cdf52-physical media sprawl.jpg
    Why is the retail price of a new music CD $15.98? Where does this price come from and how is it set? Is it fair? For a long time, I’ve wondered about the high price of music, especially when bought in physical form as a compact disc. As longtime music buyers, we have a certain mindset about the CDs we buy: We have always bought new CDs for around $12 to $15 or more, and that’s the way it is.

    That money goes to music production, music packaging, distribution, marketing, and maybe a little bit to the artist. But the disruption of digital technology couldn’t have come at a more perfect time for the music business, right when it was fat on corporate profits and had even colluded on setting artificially high CD prices in the ’90s.

    “We as an industry have had it too good for too long,” Warner Music exec Alex Zubillaga told the AP recently in a story about the rise of digital music sales. Globally, downloadable digital music sales doubled in 2006 to $2 billion, making up 10% of all music sales, according to the International Federation of the Phonographic Industry (IFPI). However, overall music sales dropped by 3% globally.

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    But an interesting phenomenon is happening in the U.S., according to Nielsen SoundScan: Album sales were down nearly 5% for 2006, but digital downloads helped push up all music sales — online and offline — by 19% for the year. People are not as enamored with the CD (and its high price) and are more interested in paying just for the tracks that they want. Apple’s iTunes has helped set another artificial price for downloaded single music tracks at 99 cents, which has helped bring down the price of physical or downloaded albums to around $10.

    As music lovers, we now have many more choices for how we can get our music fix. We can listen to the radio, to satellite radio, to Internet radio, or hear new music on TV shows like “American Idol” or on commercials. We can download free music from file-sharing networks, though we pay a price in the time it takes to get a good file (and the tiny risk of being prosecuted for it). We can hear music straight from the websites of artists, and even get their tracks from MySpace pages. We can buy physical albums from the dwindling number of retail music stores or Wal-Mart and Target, or buy digital tracks or albums from iTunes or other online outlets.

    More up-and-coming artists realize that they’re going to have to give away their music online to get noticed, and then will make money from live shows or merchandise such as T-shirts and other gear. That brings down the retail and digital cost of music even more. When I spoke to Avi Ehrlich, who runs independent record label Springman Records, he didn’t mince words about how digital disruption was changing the music business.

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    “I think record labels as we know them today will be completely obsolete in two to five years, there’s no question about it,” he said. “I’ve worked in the music industry at various places such as radio, magazines, and record labels and it just can’t sustain itself the way it is right now. I think it’s a good thing as [digital technology] levels the playing field for everyone… It’s making the industry less top heavy.”

    And you can see the parallels between the digital disruption of the music business and other media businesses. Music labels have lost power in the hierarchy of the music business, just as Hollywood studios have lost power with the rise of user-generated video online, and just as newspaper chains have lost power with the rise of Craigslist, Google and Yahoo.

    There is no god-given right to selling a high-priced CD (or DVD or newspaper), and it’s no wonder that so many people turned to file-sharing networks and digital downloads because of those high prices. There is no good reason why the record labels — infamous for ripping off artists for so many years — should remain in control of the price of retail music. We now have the power to shift that business model and decide how we get our music, whether it’s directly from the artist or through new online shops or social networks. And you can bet your bottom dollar we’re not going to pay $15.98 for a CD anymore.

    What do you think? Is digital disruption in the music business a good thing for music lovers? Does it give us access to more genres of music? How do you think artists and music producers should shift their thinking in how they sell music and make money? Share your thoughts in the comments below.

    [Photo of CD pile by Frederik Vandaele.]

    Tagged: business cd music
    • The ongoing digital disruption, not only in the music business, must be embraced and welcomed as a long-overdue wind of change. Certainly, “do-it-yourself media” will continue to throw up dogs-on-skateboards and a wild variety of sophomoric crap but there will, I am convinced, also be blindingly brilliant pieces of creativity from people who wouldn’t have had a chance to be discovered in the ‘old media’ environment.

    • Dead on correct! I live in a music town – Denton, Texas, and the bands I see – the young ones anyway – know the rules have changed. CD’s are secondary to live shows and trinket sales.
      Meanwhile, the big business of CD sales has had to attach DVD’s and free downloads to the normal CD package just to continue to try and keep that price fixed at the old high.

    • Right on. CDs have been overpriced since their arrival on the marketplace, but until now consumers didn’t have a real way to circumvent the big labels to get good music. It’s sad that in either scenario, whether at the hands of the labels or a marketplace used to downloading things for free, the artists still don’t get their fair piece of the pie. But at least a 3d party will soon cease to profit from their hard work, creativity, and talent.

    • Yes, the digital evolution is great for music lovers. eMusic is wonderful. The recent Merlin announcement at Midem in Canne may shock the majors, for a while anyway. Music producers are dead in the water based on their current deal structures. Artists can now exert greater control over their career, particularly if they integrate CRM practices into their business, and I hope they can make a lot more money.

      One other thing, if a CD is overpriced, how much should it be, and why? I dont understand why you are suggesting that artists should give away their recordings without being paid, particularly if THEY OWN them (rather than a record label). Is that fair? I want a Lexus but dont want to pay for it because I think its overpriced. Should I go and steal one just because my perception of value is not in alignment with Toyota’s? I dont take sides on the record labels are bad argument, but please, how about some sensible commentary that may lead to people understanding that artists should be compensated for their work. If you want to bash major labels, go for it, but dont take down the artists while youre at it!

      Nice blog BTW.

    • Robert,
      I never said that artists should not be compensated for their work. I do believe that the portion of the $15.98 going to record companies and the music industry infrastructure — not the artists — should be much less. It should be up to the artist and the free marketplace as to what they should charge for a CD. If they want to give away free downloads of tracks online for promotional purposes, that’s up to them. If they want to produce their own CDs and charge $10 each, that’s fine.

      My point was that there has been a shift from the $15.98 suggested retail model set by the record companies — and that’s a good thing for listeners and for artists. If distribution costs are less with digital, packaging costs are nil, then why not charge less online?

    • It is exciting to see all of the independent music coming out on podcasts. The “enhanced” podcasts should be a boon for the indie artist as well.

      Norah Jones podcast released a few weeks prior to the debut of her album definitely helped increase her initial sales. I see much more of this in the future. Acoustic versions, live concert footage in video podcasts, outakes, interviews, etc. They will become an essential indie musician pre-sale marketing vehicle to “grease the skids” on new releases.

    • Finally, a probable end to the most corrupt and uncreative business in existence. Now if radio would do the same and destroy ITSELF (and why not television as well!). Imagine a world in which there are more readily available intelligent, creative music and movie choices via a universal medium (the Internet, of course)…I mean honestly, does EVERYONE really need to hear the same 40 songs created by so-called artists chosen by money-hungry thieves with no musical talent themselves. Here’s another clue for you all: put your marketing dollars behind artists instead of models who sing karaoke and you will all see a dramatic change in the quality of music available to the masses, thus creating the revenue you so greedily desire!

    • Haygar Horrible

      I have worked at a large music and mutimedia manufacturing facility for over 20 years. ten years ago I bought a Diamong Rio pmp300 mp3 player, filled it with music, brought it to the plant and showed everyone I could, expecially the plant president and warned them all that this was the beginning of the end. Nobody Listened. Now that it is too late they are all wondering what to do and the few permanent employees left are wondering how long we will be employed. What about the thousands of music industry employees that have or will be un-employed soon? How will the economy sustain itself with 60% of the workers making minimum wage or un-employed because their are no more industies left in the country?
      Obviously the Information age has Fu*$#%cked us.

    • Haygar Horrible

      I have worked at a large music and mutimedia manufacturing facility for over 20 years. ten years ago I bought a Diamong Rio pmp300 mp3 player, filled it with music, brought it to the plant and showed everyone I could, expecially the plant president and warned them all that this was the beginning of the end. Nobody Listened. Now that it is too late they are all wondering what to do and the few permanent employees left are wondering how long we will be employed. What about the thousands of music industry employees that have or will be un-employed soon? How will the economy sustain itself with 60% of the workers making minimum wage or un-employed because their are no more industies left in the country?
      Obviously the Information age has Screwed us.

    • These comments have more information than the post. I like your active participation. Good work guys. But its a sad thing that music industry is losing sales.

    • Now the albums are having to compete with youtube. Now kids can download songs from there without worrying about buying a download. Things have definitely changed.

    • With You Tube, kids aren’t pressured to steal music as much as they were back in the day. Now they can just watch it legally. Things are changing.

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