How the Music Industry Commited Suicide
I discovered this graph over at swivel.com the other day. I figure it reveals exactly where the music industry went wrong between 1999 and the present.
It displays a perfectly logical chronological evolution of technology, where new formats gradually replace the old ones. If we went further back in time, we’d probably see similar results for the shift from 78 records to the 45 single, and then from the 45 to the LP.
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The curves are pretty close to an ideal product life cycle (PLC) curve in economic theory:
As you can see, there are four stages in the life cycle of a product. Take a look at the graph for cd sales around 1999-2000. It marks the introduction of the decline stage for cds. But there’s no graph to mark the rise - the introduction and growth stage - of its successor, digital music files. That’s because the music industry didn’t start reporting digital sales until 2004. iTunes was introduced in 2003.
That’s close to five years without a legal alternative for the technology that people really wanted - and which they found elsewhere - for free. No wonder then that the music industry is having a hard time trying to change people’s bad habits and turning the negative trend of unauthorized downloading today. They brought it on themselves.
In a Rolling Stone article Jeff Kwatinetz, CEO of management company the Firm, claims that the labels killed themselves in 2001 when they decided to sue Napster for “billions and billions of dollars” instead of embracing a golden opportunity. Says Kwatinetz: “The record business had an unbelievable opportunity there. They were all using the same service. It was as if everybody was listening to the same radio station. Then Napster shut down, and all those 30 or 40 million people went to other [file-sharing services].”
After the music industry shut down Napster, they waited almost two years before offering a “user-friendly” alternative to unauthorized downloading - iTunes.
I mean, what did they think would happen? Did they really expect people to sit quietly and wait for two years, as the major label executives sat down in their exclusive leather arm chairs to develop a strategy that may or may not have included digital downloads?
Napster offered a taste of the future back then, and to me it’s absolutely incomprehensible that the music industry didn’t get it at that point (it’s even more incomprehensible to me that they still don’t get a lot of things about digital downloads, but that’s for another entry.)
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One of the interesting things about the graph is that with each new format, the sales numbers climb. When the CD takes off, the number of people purchasing music more than doubles!
Alas, it was around the peak of CD sales that the quality of the music “product” started to decline — which was about the time Napster took off and people started to download song a la carte.
By Py Korry on 07.10.07 11:15 pm
Absolutely. I thought about that when I wrote it, but forgot to mention it. One can only wonder what digital downloads would have done for the music industry had they jumped on the train in 2001. I think it would have been a goldmine - basically because I still believe that people are willing to pay for music if it’s a good product. Then again, maybe I’m too naive.
By schiing on 07.11.07 1:18 am
You’re not naive Schiing. I believe people would have bought the songs a la carte, however they would have continued to download them for free as well…but by not being able to download a particular song for free (that they perhaps couldn’t find) would have pushed them to buying it.
But, I would like to add that it bothers me to no end that you cannot easily convert a file (such as MP4 or M4U or WMA) into MP3 format so that it will work on your MP3 player. It really ticks me off that you purchase a song through iTunes to find out that you have to burn the cd, then change a few settings in Windows Media Player so that it will rip to MP3 format, then actually rip the cd, and finally put the MP3 files on your MP3 player.
One other thing, what would you speculate should be the next media in the graph above (vinyl, cassette, cd, then what)? I’m curious to know what you think. Perhaps the music industry will move into a stage where music is preloaded on USB stick or something. Wouldn’t it be awesome to be able to carry around a HUGE collection of music albums where each album is the size of a stamp? It would immensely cut down on the size of your music case. Now you can throw it in your purse or your shirt pocket!
By Johnjon99 on 07.11.07 4:38 pm
i’ve spent a lot of time thinking about this graph too (http://e-huned.com/2007/01/17/technology-obsolescence-curves-are-cool).
it seems logical that the sales go ever higher because the cost of distribution falls as technology becomes commoditized. mp3 players can be had for cheap and distributors of digital music short circuit expensive transportation costs, which makes it more accessible to the consumer… know any college students without an ipod?
great writeup!
By huned on 07.11.07 5:32 pm
Johnjon99: I’m certainly no authority on the subject, but I don’t really see the future of music sales in terms of physical units - I think most people will buy their music files online, and then load them onto their preferred music player. But for the music industry to beat the pirates, I think they need to add additional value to their products - some sort of customer guidance, volume discounts, extras such as videos, interviews, background stories on the recording process, etc.
In areas where fiber cables in private homes are light years away, so to speak, I guess it’s a possible solution to use local music stores as “docking stations” for customers to fill up their iPods. But - as I said, I’m no expert - I’m just speculating.
huned: Thanks a lot! And to speculate a bit further: as a result of the development you’re describing, and also taking into consideration the widespread practice of illegal downloading in recent years, I guess the value of music has been devalued pretty drastically in most people’s eyes - which of course is a major headache for the music industry.
By schiing on 07.11.07 7:41 pm
One interesting change in the business model of the music industry is the massive evolution of cost in the supply and value chain. In the days of records, tapes and CD’s, the cost of the medium and distribution channel soaked up a huge component of the retail price. It was expensive to “manufacture” (record, print and package) and distribute the physical product, and then even more expensive to sell it through the local record store or regional or national chain. Much of the value of the product was tied up in the medium.
There was a very wide divide between the content (the artist) and the listener (the consumer). All of the middle men, the record labels, the manufacturers, the wholesale distributors and the retailers, were required to connect the artists to the fans.
These days the medium is borderline irrelevant. The distribution is still important, especially for new artists, but the value of the physical product is either irrelevant or borderline inconsequential. And the cost of a professional studio is a fraction of what they used to be. As a result, artists can record their albums on any number of indie labels, or even on their own label if they are big enough.
While fewer albums are being sold these days, including online album sales, you might have noticed that the cost of seeing a live act has skyrocketed. When was the last time you bought big act concert tickets for less than $75 a piece? Some are now $200 or more. So far there is no easy way to experience a live concert without being there so that remains a good, relatively direct revenue source for the artists. The best deal for the consumer is to buy the few singles online you want the most and ignore everything else. And if you really miss the live concert “morning after” affect have a good friend blow a large whistle in each ear five times.
By GB on 07.23.07 6:17 pm
Heheh - with all the new technology, maybe they can start arranging virtual concerts with holograms of the musicians? And electronically induced hangovers the morning after…?
GB, thanks for sharing your thoughts - very interesting read. I guess the recent discussion surrounding Prince’s decision to launch his new album as a free CD with a national newspaper in the U.K. is an interesting apropos to your comment. His decision certainly angered a lot of people in the distribution chain…
I love the fact that so many indie bands and artists outside of the major label system can record and release their music today. I really enjoy sites like eMusic and Amie Street and digging deep into their archives - there’s so much talent out there.
And I guess the fact that people are willing to pay $200 for live concerts proves that people are still willing to pay for music.
By schiing on 07.26.07 10:31 pm
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By counter granite jose san top on 01.29.08 2:57 am
It’s not hard to see why RIAA execs in leather chairs wanted to squelch Napster in those early years of 1999 or whenever. They were being robbed blind by copyright infringing netizens who were doing their thing sharing files over the internet. Interesting observation however that had the Music Industry embraced Napster and perhaps merely enforced a tariff on the mp3 format, sales would not have crunched as they have, leaving the industry blind and not really moving in terms of new content.[!] Maybe they should still institute such a tariff. Maybe this is the reason the entire world is in a major credit crunch lately. I believe there is a connection. Any other thoughts?
MAtt
By SpikerBuck&theVelvet on 07.21.10 6:41 am
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