Predicting Music Industry Future: FAIL

Pundits and prognosticators have been predicting the future of the music industry for decades, but the last ten years have generated more opinions than there are starving musicians.  The common thread among all these predictions is that they are wrong.

For example, many otherwise reputable people have been suggesting that artists should stop trying to sell music and instead rely on merchandise and touring income.  They assert that people will stop buying recordings all together because they can get it all for free.  As it turns out, there is one group of people that remain unconvinced of this theory: consumers.  Nielsen’s sales figures for 2009 were recently published and, although the numbers were not exactly rosy, they weren’t exactly dismal, either.  This may be disheartening those who have been trying to convince the world that making money off of selling music is a thing of the past.  Check out an admittedly long post I did on the subject two years ago.

With the annual sales results come the studies that take to predicting the future of music sales.  Reading this study will set you back about $700 – just so you can find out how silly some geese can be.  According to Hypebot, senior analyst at eMarketer and author of that study, Paul Verna, believes that subscription services will be the next thing in music consumption.  “US consumers are growing accustomed to accessing digital content on remote servers via Web browsers.  Extending this paradigm to music files is a logical step, and one that content owners are determined to make work.”

Unfortunately for Verna, consumers have repeatedly made clear that they are not interested in subscription models.  Around 2003, I was having the same conversations with a colleague who, at the time, was responsible for indie label relations at Rhapsody.  He was convinced that ownership was a thing of the past – why would anyone pay for a single album when they can have the entire universe of music for roughly the same price?

While the logic was reasonable, it just never panned out that way.  Subscription services make up an infinitesimally small share of revenue from music and the number of subscribers has never grown beyond a niche.  Consider Rhapsody, one of the largest music subscription services.  Its parent company, RealNetworks, recently reported that the number of subscribers actually decreased in the 3rd quarter of 2009, from 700,000 to 650,000, and warned of even weaker 4th quarter results.

To put that into perspective, check out Nielsen’s total number of vinyl albums sold in 2009 – 2.5 million (and note that this was an increase of 33% over 2008, which was an increase of roughly 90% over 2007, which was an increase of 15% over 2006, after the previous 6 year period saw a 43% decline).  Therefore, there were nearly 4 albums purchased last year for every Rhapsody subscription.  Mainstream pundits think that the physical medium is all but dead and portray fans of vinyl as a small, nostalgic bunch of mid-lifers.  If these things are true, what does it say about paid subscription services?

So with that, I will echo my own, likely misguided (but slightly more informed) opinion on the matter.  Recorded music does still have value and always will.  Artists should not and cannot rely solely on other revenue streams to support their livelihoods or else the music will suffer.  Rather, the industry needs to invest some time and resources in developing new, innovative analog, physical formats – digital is for convenience, analog is for sound quality and making a psychological connection.  Perhaps most importantly, by investing in analog, labels will be developing physical products that provide consumers a valuable, tangible thing that is directly connected to the recorded music but cannot be duplicated.

For more on this crazy idea and the logic behind it, check out a piece I wrote in November 2007.  I am not going to suggest that merely because vinyl is making a small resurgence that it is the way of the future, only that you hear very little discussion of investing in physical formats and it is something that should be given serious consideration.  CDs are only disappearing because they are just a delivery mechanism for the same digital file that can be gotten much easier and cheaper online.  The resurgence of vinyl, as modest as it may be, is indicative that despite having the entire world of music at our fingertips, a lot of people still want to be able to hold something in their hands.  While digital is and will remain the medium for convenience, if labels can find an more durable and technologically advanced successor to vinyl, they may be surprised by the new markets they can create.