Stop the Negativity. The Music Industry is Doing Just Fine.

I guess we’ve all heard the arguments by now.  With the digital revolution making it so easy for any artist to put out and distribute their music, the music itself as a physical product was bound to be devalued.

I’ve seen numerous arguments on “the future of free”, meaning that music itself has become so devalued that fans actually feel it’s their right to get it for free.  I guess this is probably natural, considering that most of the kids coming of age now have never experienced life without LimeWire or Bearshare.

All of this is understandable.  But what does this mean in terms of the overall music industry?  Is it headed for a slow death?

Now, before going any further with this post, I would like to go on record as saying that I’m definitely not opposed to BearShare, LimeWire or any other P2P service out there.  I’m all for them!  And I don’t blame them for the supposed “demise” of the music industry like some do.  Quite the opposite.  If anything, P2P has made it easier for people to access music from their favorite artists.  And a lot of people who download tracks from P2P are more likely to make actual purchases.

As for this “demise” we’re hearing so much about…

For one thing, as much as major labels might hate it, the reality is that with free music so easily available, it only makes sense for the industry to look into alternative methods of making money.  Hear that guys?  Stop suing your customers, and put that time and money into R&D to develop other ways of making money, if you’re so worried about losing your shirts!  Besides, the industry is not facing a demise.  It’s just going through an earnings shift.

It’s time to face the fact that CDs no longer dominate the music market.   CD sales declined by 13% in 2007, while sales of downloaded songs and mobile-phone ringtones rose 34 percent.  It’s been reasoned that if this trend continues at the same rate, then in five years, the total revenue from both sources will total around 20.5 billion.  The total right now is 18.8 billion.

So the argument can easily be made that music industry earnings will actually rise, not fall.  And that’s even with P2P.  Add to this the fact that there are still merchandising dollars out there, and money for live shows, as well as tons of other new business models, and the industry is perfectly viable as a whole.

So why all of the negativity in the forecasts for the music industry?

Well, let’s consider the source.  All of this doom and gloom crap was thrust upon us by record execs who couldn’t understand why their market share was shrinking.  The music industry isn’t facing a demise at all.  It’s simply the fact that the major labels don’t enjoy the level of control and monopoly that they used to.

See, when it was all about CD sales, the major labels controlled the lion’s share of the earnings in the industry.  Now that digital sales are on the rise, the major labels can’t control earnings the way they used to.  Independent labels now account for over around 14% of music sales worldwide.  Again, that’s because the digital revolution in music has leveled the playing field, and made it easier for indies to compete with majors for fan dollars.

I’ll say it again: the industry is not dying. It’s just the major labels’ market domination that’s dying.

You want numbers?  I got numbers.   According to Variety, In the first half of 2008, vinyl sales rose by 77%.  Digital album sales rose by 34%.  Digital track sales rose by 30%.  Granted, CD sales are down, but to put that in perspective, overall physical album sales have slowed their decline.  Down 11% this year, compared to 15.1% last year at this point.    Meanwhile, the major label market shares have all either stayed the same, or dropped.

As you might expect, Majors have tried many ways to make up for their loss of income.   Universal’s releasing “deluxe editions” of various titles in an effort to try and boost sales and margins this year. I don’t know, but I seem to remember mixed-mode CDs being a flop before, so i can’t imagine why they think that would work now.  Universal is also giving away free downloads to MasterCard users at priceless.com.  According to Coolfer, this just brings you to one site after the other, where you’re asked to register a million times before you eventually give up.  And probably go back to downloading your favorite tracks on BearShare.

360 models are a great way to capitalize on the earnings shift, but only if they’re done right.  LiveNation is on a roll because they establish true 360 partnerships with the acts they sign.  Not to mention those HUGE signing bonuses.  Indies do 360 deals successfully, too.  That’s probably because both indie labels and their artists benefit more from mutual efforts at making their projects succesful. Major labels could benefit from this as well, if they were willing to relinquish some of the control they seem to thrive on, and actually regard artists as partners, rather than disposable resources.

On this subject, I think Mashable sums it up best: The industry is doing fine; the labels are just whining because they’re greedy.  Well said.

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