How To Kill The Music Industry

Written by Jens Roland

During The Pirate Bay trial, the music industry placed the blame for the decline in their revenues squarely on the shoulders of file-sharers. Their logic is clearly flawed, but it could sway the verdict if no alternative explanation is presented. So, if piracy isn’t to blame, then what is *actually* killing the music industry?

According to Per Sundin, CEO of Universal Music, the decline in music revenues in the past 8 years can be fully attributed to illegal file sharing. If this were actually true, many of us might even respect his decision to go after pirates as fiercely as the music industry is doing right now. However, the past 8 years have seen a lot more changes in the landscape of home entertainment than Per Sundin would like to admit, and some of those changes have had a massive impact on music profitability – much more so than any amount of piracy.

Let us refresh our memories and take a look at what actually happened during and just before the past 8 years:

1. First, the explosive rise of computer and console gaming. This competitive ‘third element’ has appeared in the entertainment landscape, beaten both music and movies to the curb and taken a huge cut out of the music industry’s revenues. Consumers don’t have infinitely-deep pockets, and billions of ‘recreation dollars’ that used to go almost exclusively to music, are now going into gaming.

2. International trade agreements have allowed consumers to buy their music across borders, rather than accepting local prices on music based on the ‘relative wealth’ of nations, rather than the actual value of the product.

3. New forms of distributable media, most notably MP3s but also CDs, have become mainstream. These new media don’t degrade over time and rarely break at all, making music rebuys a thing of the past, and allowing the second-hand market for music to thrive and expand – both of which take a cut out of the music industry’s former revenues.

4. Radical technological innovation has taken place in the field of music creation, processing, mixing, and mastering. Recording hardware, CD burners, music software, and media encoders have evolved to the point where most artists can actually afford decent-quality equipment to do their own recording and producing. Furthermore, this has fostered literally thousands of smaller, specialized studios that are challenging the ‘Big 4? with lower prices, better terms for artists, genre-specific expertise, etc. Successful artists can now leave the big labels and start their own recording outfits on relatively modest budgets. Naturally, super stars like The Beatles or Frank Sinatra have always had this option, but the recent technological advances have lowered the bar drastically. This development is depriving the ‘Big 4? of many of their former cash cows, who now use the major labels for their advertising and distribution infrastructure alone.

5. The World Wide Web has become an omnipresent force in the world, allowing cheap, end-to-end distribution of digital music, increasingly cutting out the corporate music distributors, who deal in trucks and CD covers, rather than bytes and bandwidth. With iTunes leading the way (very successfully ‘competing with free’, I might add), billions of songs are now purchased digitally rather than physically, no longer necessitating the big labels’ distribution networks.

6. The total number of radio stations, music television networks and other ‘streaming’ sources of music has grown exponentially, giving music fans a huge selection of free (and legal) music options. Satellite radio, DAB, and internet radio broadcasts have made it trivial for consumers to simply tune into a channel broadcasting the exact sub-genre of music that they feel like listening to (they can even have a stream created for them dynamically, e.g. on Pandora), making the *purchase* of music entirely optional for the casual listener.

7. A massive selection of entertainment alternatives (home computing, console gaming, mobile devices, etc.) have appeared in the home, effectively marginalizing music as an activity. 15-20 years ago, youths would regularly visit each other just to listen to music together; today, that is virtually unthinkable without some form of activity involved, such as playing Guitar Hero or Rock Band, or dancing at a concert.

8. And finally, the music industry itself has embraced the opportunities of digital media, at last letting consumers buy *single* tracks at a time rather than forcing entire albums full of ‘fillers’ on them. Looking at the RIAA’s own sales figures for the past 10 years, there is a *direct* correlation between the break-off in album sales and the introduction and increase in single track digital sales. Looking at the actual numbers, it is abundantly clear that the vast majority of consumers never wanted to buy full albums in the first place, but were merely forced to by the lack of affordable single-track media. Now that the digital revolution has arrived, countless millions of 16-track album sales are being turned into 1- or 2-track sales, *decimating* the former revenues on music. THIS is the real reason why the music industry is hurting.

In other words: The “it’s common sense” argument that the music industry is peddling in their attempt to tie the declining revenues to piracy, simply doesn’t hold. It is not as clear-cut as the industry believes; the true reason for the decline is something they are still unwilling to face, but will have to face sooner or later:

The fact is that the music industry’s revenues have been artificially inflated for decades because of limited consumer options. The last 15 years of innovation have lifted those limitations, effectively leaving the music industry with an obsolete, defective business model of monopolized production technology, forced album bundling, and almost nonexistent competition in the realm of home entertainment. What is happening now – the decline of music profits and the piracy witch hunt by the music industry – is merely the panicked struggle of a dying business model, a complacent industry’s refusal to accept its diminishing role in a digital world. The pirates are not the reason, and the decline is the not the disease. It is the cure.

This is a guest post by Jens Roland. Jens is a computer scientist by training, but a technology forecaster by trade. He has worked at international think tanks as a consultant and researcher in emerging technologies and has written more than 300 articles and a book on the subject.

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DATA: Net value of shipped music, in billion dollars

1991 7.83
1992 9.02
1993 10.0
1994 12.1
1995 12.3
1996 12.5
1997 12.2
1998 13.7
1999 14.6
2000 14.3
2001 13.7
2002 12.6
2003 11.9
2004 12.3
2005 12.3
2006 11.8
2007 10.4

(source: RIAA’s annual reports)

27 thoughts on “How To Kill The Music Industry

  1. MT

    Good article. I know people have been on you guys for some poor article choices lately, that being said we should also thank you for good posts. Kudos, good work.

  2. bill stewart

    Quite agree. Great article. Especially for musicians, who are now at last able to “do it themselves” and take a much greater share of the profit for their own music. And yes, all that garbage of having to buy the album to get the two tracks you actually wanted? Good riddance!

  3. Ruben Erazo

    Well written and very well documented. But the artists still need the industry for promotion if they want to really make it. A good thing is that “playing” live is back on track and that’s good news.

  4. El Commentatore

    The article is dealing with side-effects only. Those side-effects arise in other industries also (e.g. the auto-industrie at the moment).

    BUT: Whether the described changes take place or not. Stealing someones work simply because you don’t want to pay was and will be a crime. That’s it.

    So the article does not foil the music industrie’s arguments, but underlines them. Since whatever medium is used to distribute music and whether it is a big label or a small band, that wants to sell their music – piracy is something that is not tolerable.

    It simply is against the nature of music. The right to decide who can have access to their music must remain at the right-holders. Otherwise it is merely a dispossession/disseizin of the musician/composer/lyricist.

  5. Matt Thorne

    The consumer is missing one key element the record companies provided.
    They were a filter, not always the best but the consumer does need to be led.

  6. KSE

    Here in Texas the music concert/touring business is doing better than ever. Why??? Because, according to a recent poll, Texas is #1 state that supports Independent Music & Musicians.

    WE BELIEVE THAT LIVE MUSIC IS ALIVE AND DOING BETTER THAN EVER! WE BELIEVE THE RIP OFF DAYS OF LABELS CONTROLLING EVERYTHING ARE OVER.

  7. KSE

    I could not disagree more.

    Consumers do not need to be led…if that were true, we wouldn’t have all the ‘so-called’ illegal down loads….who’s leading all those folks?

    Consumers are extremely smart and no one knows what is better for consumers than consumers. Parents should be leaders and filters for their kids, not villages.

    Most people I have met in the last 20 years want to be free to make their own decisions & not because someone was leading them around like a pig. Most leaders are only as good as their advisers….and, Lord, do we have some terrible adviser’s feeding many of our leaders the wrong data.

    Most of the under 18 kids I talk today, are very smart. Anyone that doesn’t listen to them will be shut down. Just because someone is an adult carries very little weight with them. As a matter of fact, they may agree with an adult to their face, but, then when they are out of eyesight they do what they want to do. They enjoy their Independence and they make a lot of mistakes, but, I’ll assure you, they get over them quickly. Their social network is tremendous & they do know how to use it. All have some sort of electronic device and the most important thing to them is ‘text’ messaging. Most make very few phone calls but they do make a tremendous amount of Text Messages. There was a father with his daughter on one of the morning shows and everyone that it was amazing this kid had sent/received 12,000 text messages in one month. I mentioned that to some Jr. High & High School kids I know and they just laughed and said that is nothing. These kids, all of them, send/receive 500-1,000 text message per day. This blue me away. This is why Twitter is becoming so popular. As I mentioned these kids know what is going on and they are connected. And they do very little phone calling….Text Messaging is IN and Calling is OUT! Instead of ringing doorbells, they send a text message asking their friends to come unlock the front door and let them in, etc.

    Sorry for digressing, but, I believe is the music industry can become connected with their fans, the way kids are connected to their friends, it would generate a lot of revenue & larger turn – outs to their shows.

    Like Nike says: JUST DO IT!

    Just something to think about.

    —end

  8. KSE

    If we wanted to clean up this mess and make all music legal, why not impose an annual license on every household to be paid on/or before January 1 of each year. Ever household would pay the same fee and have access to as much music as they wanted & it would all be legal.

  9. AllenDS

    It is an insult to intelligent people everywhere to characterize efforts to prosecute illegal downloaders as a “witch hunt”. It is mindless and hopelessly romantic to elevate those who engage in illegal activity to the status of heroes. Perhaps it is entertaining to romanticize music thieves as modern day Robin Hoods – taking from the rich and giving to the poor – but it is morally backward to proclaim the innocence of those who steel music while vilify the recording industry exercising its legal rights.

    I am not blind to the existence of greed in this and other industries, and I appreciate those who see a certain poetic justice in the current predicament faced by the major labels. Furthermore, I recognize the urgent necessity to revise the business model for the profitable distribution of copyrighted materials in the digital age. My objection boils down to this: to blur the important distinctions that define each of these important issues is to engage in blatant yellow journalism.

    History teaches us that witches were victims of unfounded accusations by overzealous persecutors. Is it intellectually honest to equate today’s admitted criminals with the innocent victims of yesterday?

  10. Kurt Bestor

    While reading the article I found myself shaking my head up and down many times as well as side to side. As a composer/performer, I have many times thanked Sean Fanning for introducing P2P file sharing of music to the world while cursing him as well. Going from $15 to zero is a hell of a business model. It also set in motion some fallacious ideas about copyright and the digital sharing of music.

    That said – I wouldn’t change a thing as it spawned many new and creative ways of distributing music (as the article indicated.) The trick is, is to protect the recording artist (and publishers and record companies if they are involved) to benefit from those who are benefitting from LISTENING and SHARING their music. Money IS being made – but primarily from increased concert ticket prices and – believe it or not – RINGTONES!

    If we want to encourage the recording of great music by those who may not concertize or who write music longer than 15 seconds, we need to protect the digital copyright. It may be a pennies per download or some type of subscription service, but some type of remuneration must be in place UNLESS the artist chooses to allow free downloading. I often hear the rationalization “the artist gets more publicity from free music downloading.” or “When I hear one song I like, I go pay for the whole CD.” The first argument may indeed work for the concert artist who makes up his money from touring. The second argument has just not proven to be true.

    Most of us who record music are choosing NOT to sign with record labels, but instead are setting up websites, offering our own downloads, and using social networking to sell our wares. As the article indicates, these new technologies and money streams are potentially exciting and potentially exciting, but we’re still suffering tremendously from the “growing pains.”

  11. BSL

    I disagree that piracy shares no blame. Of the 8 reasons listed, P2P does not show up on your list. Although the 8 listed may be legitimate reasons, P2P also belongs on the list.

  12. mariposaman

    Whether the music is produced by capitalist conglomerates or by fair trade individuals with their own studios, the bottom line is nobody is paying for music because they can get it for free. The music industry has not died because there is still a trickle of money being generated. Bands are forced to go on tour and live exhibition because this cannot be stolen and still is a lucrative way of making money.

    All the excuses I hear why stealing music is ok I hear from shoplifters as to why they steal merchandise. It is easy, they make lots of money anyways, it is overpriced, it is not that good anyways, corporate greed, etc. Bottom line is it does not belong to you and you should not be using it without paying for it.

  13. Esol Esek

    I agree that stealing music is juvenile and greedy, and putting guys that etorrent entire catalogues and laugh about it should be spanked hard, but we’ve seen certain (famous) artists put together packages with DVDs and posters etc, like Trent Reznor that have been very lucrative. Of course, you need dedicated fans for this to work, but its a real possibility and takes us back to the days when vinyl was beautifully packaged and a work of art on its own that you were happy to own, unlike a crappy little cd. Heartening that I’m seeing vinyl again at Fred Meyer of all places, thanks to USB turntables.

    It’s sad that concerts have to be so ridiculously expensive, it really makes me not bother in many cases, but I’d rather see a local show for $10-20 dollars anyway, and any band worth its salt can make some good money off a sold out show.

    The main problem I see is that true ‘gatekeepers’ or A&R people who spot and develop the truly worthy are nonexistent, and this makes it hard for bands to get the traction but also security they need to continue to better themselves. it also allows for the continuing pofusoin of the rap/crap r&b disposable bs that still seems to trickle out. Then again, another major problem was noone was playing instruments for a long time, and now anyone who picks up a guitar thinks they are a genius.

    Oh well, eventually someone young will figure out that you have to not just be ok or good, but GREAT (from drummer to guitarist to vocalist)
    to really break through that membrane. That part of things hasnt changed. There are only so many truly GREAT bands. I think the problem now is that a GREAT band may get to that first level, but unlike in the past, there is noone to bring them under their wing, and nurture them through that early stage of fame and its pressures. You were a slave, but a protected slave, and a promoted slave. You have to pay for your own promotion, and its very hard on a large scale. That’s why the old names of yesteryear seem to never stop.

  14. onevoiceamongmany

    I ask the writers of these articles and consumers to also consider the rights independent artist that creates the music .The music industry has long ripped off those said artists which need your support. Due to corporate greed once again the music industry is still winning the battle and the artists are losing because people are not paying for things that hey can get for free and they also devalue the worth of the artists creations .yes, technology has made it more affordable but there are still equipment costs, manufacturing costs, mastering costs etc that still has to be accounted for to create the music and marketing and maintaining website presences are not free either. It is not unreasonable to ask to be paid for the work a musician provides or his or her creations ,It is not unreasonable to ask for such applicable fees .I am not against offering clips of songs for free but let’s face it .Musicians are going to stop creating music and selling t-shirts because that’s a bigger profit than creating music which is ultimately being stolen. DIY musicians which decide to take their music to their fans directly no longer needed the big labels to rip them off.They do all the work anyway.they prepare the masters of their work , they promote and generate sales long before a major label will accept them . People de-value services that they can get for free. If musicians can ‘t make a living form their art the art suffers.There should be more support for artists not necessarily for the big labels.So pay the artists please. Keep music alive by paying for it.

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