Sobering Statistics, Innovation, and the Future of the Music Industry

The rise of digital technology and uninhibited downloading has put the music industry in a precarious situation as conventional revenue streams have dwindled over the last decade. A study by the International Federation of the Phonographic Industry (IFPI), in conjunction with Digital Music News, has confirmed this sobering reality. Recorded music sales have dropped 7.2% in 2009, radio advertising dropped 12%, and sales of musical instruments and music-related video games have dropped as well (15.4% and 47%, respectively). Reforming the record industry, as we know it, to conform to these relatively new realities might be a pipe dream (probably because the idea of a record industry is outdated in and of itself). The “record industry” is an antiquated term, in part because of its deference to the record as a main source of income. With the rapid improvement of digital technology, in terms of increased bandwidth, cheaper equipment, and the influx of social media tools, the music industry now must decide on monetization schemes that benefit both the artist and the consumer. Consumers now believe that we are living in the era of “free”—the question for the music industry is how to adapt.

Although the statistics listed above provide a grim look at the state of the music industry, there is still a glimmer of hope in the uncertainty of the digital age. The concert business has gained 4% in 2009 and publishing and performance rights increased a slight amount as well. It seems logical that downloading music cannot replace the live performance—the conventional rock concert experience will not disappear along with the record sales. At the same time, digital technology does allow for live video streaming of concert events with increasingly superior sound and picture quality. Back in October 2009, U2 played to 96,000 people at the Rose Bowl Arena in Pasadena, California, but many more were watching at home and sharing part of the experience in real-time. Youtube streamed the concert live to nearly 10 million people, making it the largest streaming event ever broadcast over the video-sharing site. With millions of eyeballs on this one event, the music industry will surely see the potential for cashing in by replicating such events in the future. Although it would be very hard for sites like Youtube to convince users to commit to a pay-per-view model, at the very least, advertising to such large groups of people will provide alternate revenue streams for the music industry. The music industry, rather than pursuing the losing battle of preserving intellectual property rights, should embrace change by monetizing it. Recognizing the lure of high quality video streaming and other innovative digital technology will help shed the baggage associated with the industry’s fight against illegal downloading and refocus its mission on new revenue models.

Unfortunately for artists, we live in a time of what Chris Anderson calls the Long Tail, where “the future of business is selling less of more.” Music streaming sites like Spotify and Rhapsody obtain revenue by earning fractions of a cent from online streams. The idea is that a large number of streams convert to substantial revenue, but the artist, on the other hand, only sees a small profit even for a considerable number of streams. The artist, just like the suits of the industry, needs to find its own path. Take the Long Tail in your own hands by grabbing as many eyeballs from the many (and free) social media tools available on the web. Extract value from those resources and convert that into real profit that’s for you, the artist. Whether it’s merch sales, exclusive content for select fans, raising money to record an album (e.g. Sellaband), or any other monetary possibilities, the web brings transaction costs down to zero (or close to it). Now there’s no excuse! Maybe some of the bigger bands are not making the same kind of crazy money they used to, but at least with digital technology, many more of the smaller ones have a fighting chance for a modest income if the right tools are employed. Use the technology that took away the profits to create them in a completely new way.