The Decline of Legal Music Downloads

Nielsen is reporting trouble for the music industry, which has been losing CD sales almost exponentially for a decade and now faces a significant decline in legal digital downloads.

Revenue is flat at the halfway point of this year (+0.3%).

Ringtones are down 24% since they peaked in 2007 according to Business Week.

There are arguments being tossed about that consumers have completed building their digital libraries for iPods and other mobile devices, but how does an active music buyer ever complete adding new music?

The uncertain economy is a factor.

But I’m not sure you can blame this on the economy.

All this and news that total music sales – estimated to be down to $7 billion in 2012 for all kinds of recorded music speaks to a much greater problem.

There are several considerations that come to mind:

1. Pandora and sites like Pandora allow consumers to have their music and eat it too for no fee or a voluntary fee (to exclude commercial interruptions). Keep an eye on this. Apple is. I think Steve Jobs will offer a streaming music service (among other things) using the Lala technology that it recently acquired to do what may constitute as Apple’s version of Pandora (minus the genome) tied into iTunes.

2. YouTube and other sites allow consumers to satisfy their passion for music at no cost – and remember, the recession is a factor not an excuse. Proof? Lady Gaga gives more music away for free than John Scherer's Video Professor gives free learning CDs for computer programs. Yet, Gaga sells more music and more entire albums than any other artist.

3. Apps are competing for the time consumers used to spend on just iPod-delivered music. Even several years ago my college students told me they were bored with their iPods but didn’t want to give them up. I said, “what about radio?” They laughed. But today's apps compete for time. Not the entire answer, but a nuance that is worth factoring in. Keep in mind the one thing that never declines – text messaging – and you have another.

4. Filesharing is alive and well and will go on. In spite of what record labels have tried to stop it, illegal filesharing proliferates. Listening to music you don’t own or that nobody ever paid for is still as easy and relatively safe from wrath of the RIAA than ever. I don’t think this explains the decline in legal downloads, but peer-to-peer filesharing certainly has not declined to create a demand for paid music.

5. Record industry solutions like Rhapsody, Vevo, Rdio and other emerging platforms in which the labels make more money are not popular with consumers. Translated that means: no growth factor there.

The labels have cooperated by supplying their music to initiatives with which they feel comfortable and that is a problem. What record execs are comfortable with is a wrongheaded solution. Their solution should pay greater attention to that which the consumer is comfortable. This disconnect has never been patched in the entire 10 plus years that the music industry has been in decline.

The Big Four record labels – or as I like to call them The Last Four Standing – are, believe it or not, still calling for negotiating a voluntary deal with ISPs so that they can charge their customers each month for any use of music.

A recent letter circulated by Universal’s Jim Urie seeking support expressed outrage that “Governments outside the U.S. are legislating, regulating and playing a prominent role in discussions with ISPs (Internet Service Providers)”.

It isn’t going to happen here and the labels seem to be betting the ranch on their call for action that is destined to fail.

The Bloomberg Business Week article said the bottom line is “As digital downloads slow, the music industry is scrambling for a strategy to keep revenues rolling in".

And therein lies the problem.

The labels don’t know.

Haven’t known.

And have no clue what the consumer is telling them.

To young consumers, filesharing and free plays are their generations replacement for music radio.

Peers have more credibility to Gen Y than corporate radio which has virtually eliminated music experts and music loving live, local djs.

Apple devices and cool cell phones are not a radio – not a “CD” player but a gateway to on-demand entertainment.

A Ford Sync or an iPad should be the template from which to salvage the record industry from its doldrums and yet there is no major game plan in the music industry to understand how powerful these new portals are. And yet the labels are reportedly resisting Apple's bid to use its Lala technology to offer a music stream available anywhere. They just don't get it. The labels don't get to decide. Times have changed.

And, I’ve saved the best for last.

Forgive me if you think it’s na├»ve but if the labels spent more time, money and effort to discover new artists and genres, they might be helping themselves a whole lot more than trying to cram a relative handful of existing artists into the devices of their choosing on their terms rather than the consumers.

Just sayin’.

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