The same Warner Music group then turned around and posted lower revenue for its fiscal fourth quarter -- to quote The Wall Street Journal -- "as consumers continued to shift toward digital music at the expense of compact-disc sales".
Wait a minute.
Digital sales are up -- profit is down.
Are you drinking their Kool-Aid yet? I'm not.
Atlantic is counting all kinds of revenue from digital sources -- and that includes earnings from satellite radio fees and just about anything else that isn't a CD.
This is dangerous because the real increase in music sales should have been the ones that were never made -- transferred free from peer-to-peer without even a hint of fear that the big bad RIAA will get them. You don't have to condone stealing, but you can't ignore it, either.
The headline should be: Stealing Music Surpasses CD Sales (again).
And don't delete it because you're going to be running that headline for a long time to come.
The record industry, which I'm sure you know, barely makes a headline these days -- even for boneheaded moves -- is slipping into the terminal stages of the disease it suffers from -- Noninnovationitus.
Here are the stages:
Stage 1:
No impairment
You make music, you sell it for a nice profit.
Stage 2:
Very mild decline
You make plenty but Napster (the old Napster) rears its ugly head.
Stage 3:
Mild decline
Napster use among young people begins to impact record sales.
Stage 4:
Moderate decline (mild or early stage)
iTunes is born and filesharing grows.
Stage 5:
Moderately severe decline (moderate or mid-stage)
CD sales take a dramatic decline while digital revenue sources fail to make up the lost revenue. Cost cutting impacts discovery of new bands and singers.
Stage 6:
Severe decline (moderately severe or mid-stage)
CD sales slip to 40% of what they were at their peak. Digital sales languish by comparison and the labels scurry to downsize their business further. Labels make a hard push to get the radio performance exemption repealed and in essence become a paper business built on publishing revenues and taxing airplay.
Stage 7:
Very severe decline (severe or late stage)
One more try at consolidation. Surviving labels continue to cut staff. One or two labels remain as "caretakers" of traditional distribution of music.
I'd say we're between stages 5 and 6 right now, what do you think?
Of course, it doesn't have to be that way.
You can jump start the record business tomorrow -- tomorrow -- with strategies like these:
1. Innovate.
Take chances. Make headlines by dropping RIAA lawsuits and making all music available for discovery at no charge -- DRM-free. (Still have a problem with that? Consumers increasingly do not. Take a chance here, you're losing under your current strategy).
2. Replace radio by being the "new radio".
Offer midnight podcast deliveries in all genres of music for free. Monetize it with ads, deals and ancillary forms of income. The djs are experts in the genre and personable people. Look to build personalities that connect with fans in each genre.
3. Accept that selling physical product is yesterday's business model.
Free music on the Internet today is simply free promotion -- like allowing radio stations to play your songs. And legal downloads are no CDs -- when you think of sales revenue.
4. Reinvent the musical experience.
(I'm going to talk about an innovative way to bring radio and record execs together to think out of the box in the near future). Young people will pay for things. They can't steal merchandise -- and most wouldn't even try. But they can steal music. Like it or not, you can't do anything about it. They can't steal concert tickets. In fact, many think Ticketmaster is stealing from them!
5. Sell music on a memory stick.
Memory sticks that look like a musical instrument (they exist, of course), or the likeness or logo of the band and price them reasonably. When this is done, consumers love it. They're telling you something.
6. Sign lots of new acts and invest in promoting them.
Music fans are loyal. They spend. Even with Radiohead's noble experiment the group wound up with one of the top albums (in sales) of 2008 in spite of allowing fans to steal the cuts for free online. The Internet allows labels to go out and take chances on groups that would have never been considered back in the day.
7. Fall out of love with Wal-Mart and Best Buy.
Exclusive deals to sell CDs at one of these big box stores is no answer for the industry's ills. It's all one-sided -- in favor of Wal-Mart and Best Buy. The CD deals are loss leaders to get consumers into their stores so that customers will buy other items sold at a profit. Why not make free digital downloads available to consumers as your "loss leaders" so that you can sell them something else at a profit?
I'm sick to my stomach when I see Atlantic bragging about digital sales surpassing CD sales. Sick because someone at The New York Times is actually buying their bull and because an industry that is saying its long farewell has to remember only two words that could lead to recovery.
New music.
Lots of it.
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