Current State of the Industry

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Basic rules of economics dictate that once supply and demand for a good are at equilibrium, the price point and supply levels are at the most efficient levels to meet demand.[1] Where supply has grown into abundance and demand remained stagnant the value of goods must be decreased to correct the market back to equilibrium.  The supply and demand for entertainment content behaves in precisely the same fashion.  Today the supply of music is greater than ever before.  Supply has been significantly increased by technological innovation drastically lowering production costs of content, which has caused both professional and amateur content to be in abundance. The modern consumer is inundated with content unlike any other time in history.  Additionally, the very way consumers entertain themselves is shifting due the fact that much of this fresh pool of content is primarily available online.  Scores of teens are turning to the Internet as their primary source of entertainment.[2] In a study conducted by www.cybersentinel.co.uk, researchers found teenagers spend an average of 31 hours online per week.[3] These are consumer entertainment hours that only a few short years ago would have likely been occupied with off-line traditional creative media.  This indicates there is a fundamental and substantial change occurring in young consumers preferred method of entertainment.

As consumer demand is changing the entertainment market from the ground up, businesses are in a constant state of trial and error attempting to recapture consumers’ increasingly diluted and unpredictable interests.  Today’s Darwin-esq digital wild west is undoubtedly powered by demand.  The entrepreneurs at Amiestreet.com are taking this concept quite literally.  They have created a website that prices mp3s on the basis of consumer demand. The site allows artists to upload their material, which is first offered for free and as more people purchase the songs the price goes up, with a maximum of 98 cents per track. This model has attracted the participation of some big name such as Johnny Cash and Sarah McLachlan.[4] Amiestreet.com’s mantra is “we’re committed to giving every artist a shot at being the next big thing, and you the chance to discover them first.”[5] This philosophy is one that describes the sentiment of many tireless music aficionados and musicians alike.

While the long term success of non-traditional models like Amiestreet.com are yet to be seen, recent data confirms the popular assumption that digital sales are up and physical are sales down.[6] The 2008 Nielsen Company Soundscan Report provides a telling view of the trends in the record business.  Music purchases, including digital sales, reached 1.5 billion in 2008, on a steady rise from 1.4 billion in 2007, 1.2 billion in 2006, and 1 billion in 2005.[7] This was largely driven by the sale of singles as indicated by the fact that in 2008 the total number of album sales declined 14% compared to 2007.[8] Surprisingly, during 2008 1.88 million vinyl albums were purchased; more than any other year in history.[9] Further evidence of the tremendous growth in the digital realm was shown as digital track sales broke the 1 billion unit mark for the first time in 2008.[10] This was an increase of 20% over the previous record of 844 million in 2007.[11] Similarly, digital album sales reached an all-time high with more than 65 million sales in 2008.[12] This marked a 32% increase from 50 million in 2007.[13] This data establishes that music consumption as a whole is rising despite the dramatic falls in physical album sales.

While physical record sales continue to plummet the royalties market is thriving.  Broadcast Music, inc. (“BMI”) reported their financial results for fiscal 2008 mark the first time any copyright organization has topped the $900 million mark for music performance revenues.[14] The American Society of Composers and Publishers (“ASCAP”) similarly reported record breaking revenues of just over $863 million in fiscal 2007.[15]

In times of drastic industry-wide change it is often the smaller more agile companies that are able to make the quick and necessary corrections to survive and thrive.   The 2008 Soundscan Report data coupled with the assertions of renowned futurists that more people are listening to more music than ever before[16] would indicate that a record label nimble enough to change its business plan to an entirely digital model could share in the growth of digital music consumption while also benefiting from lower overhead costs due to the abandonment of physical manufacture and distribution. Strangely, there is an apparent disconnect from this logical conclusion and the state of small music labels.

At the 2009 South By Southwest Music Conference dozens of small independent labels attended what was supposed to be an uplifting session entitled “Indie Labels Keep the Faith.”  Tragically, Nan Warshaw, co-owner of Chicago’s Bloodshot Records reported the health of independent labels is probably worse than the majors.[17] He added, “[t]he decline in independent retail has continued in a free-fall.”[18] Howard Greynolds, formerly of veteran Chicago label Touch and Go Records warned that increased digital downloading is not making up for the decline in CD sales.[19] Furthermore, Greynolds said the margins from iTunes were too thin to maintain a staff and that Touch and Go recently cut 21 of its 23 staffers.[20] Unfortunately, small labels seem to have been hit the hardest by the digital transition.

[Photo by x-ray delta one @Flickr]


[1] Patrick Fogarty, Major Record Labels and the RIAA: Dinosaurs in a Digital Age?, 9 Hous. Bus. & Tax L.J. 140 (2008).

[2] LeClaire, supra note 8.

[3] Id.

[4] See http://abcnews.go.com/Technology/story?id=3566548&page=1 (last viewed 9/6/2007).

[5] See http://www.Amiestreet.com/aboutus (last viewed 3/25/2009).

[6] Nielsen Company Soundscan Report for 2008

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Id.

[14] BMI, BMI Bulletin, (December 2008).

[15] ASCAP, ASCAP Annual Report (2007) available at http://www.ascap.com/about/annualReport/annual_2007.pdf

[16] Leonhard, supra note 5.

[17] Todd Martens, Indie labels talk survival at South by Southwest, Los Angeles Times (March 20, 2009).

[18] Id.

[19] Id.

[20] Martens, supra note 35.




*Ian Gibson, Esq. is an attorney licensed to practice in the state of California. This article is for informational purposes only and is not intended to constitute legal advice. Visiting iangibson.com does not create an attorney-client relationship. This material may be considered advertising under applicable state laws. Copyright © 2012-2013 Ian Gibson, Esq.

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