Music industry: hope in the Long Tail and a long history of technological turmoil

A thought on an area that I’m going to have to tackle for the book. In 1999, the top 10 albums in the United States generated sales worth over 54.6 $M. By the end of 2008, that figure had fallen to just under $18.7 $M. What is happening?

Update ( 13/06/2010 – with correction): From 1999 to 2009, the global music industry has been in a year on year decline. In the US shipments of music fell 12% to 7.7$B in 2009. When one excludes digital distribution from this number, the decline is greater still: physical distribution, mainly CDs, fell 21% in 2009. Global music revenues fell by 7% in 2009 to 17 billion US$, which is less than the computer game market in the US alone (sales of computer games in the US were 20.2 billion US$ in 2009, despite a decline of over 8%).

Digital distribution is becoming an increasingly important part of the business, rising from just 25% of total US sales in 2007, to 34% in 2008, and 41% in 2009. Globally, digital distribution accounts for 27% of sales. This quarter share of the global market shows the degree of the music industry’s embrace of digital distribution, which stands in contrast to the film industry, for which digital distribution accounts for only 5% of sales. This is perhaps explained by the additional grace period from piracy that movies enjoyed by virtue of their file sizes, and the impracticality of transmitting them in high quality before the advent of broadband. Yet despite the music industry’s dramatic adoption of digital distribution – from a starting position of almost 0% in 2001, this has not offset the decline in physical distribution.

While sales of the top 10 albums, which of necessity cater to the most widely applicable common audience, have plummeted, the new distribution environment has benefitted consumers who prefer to select specific tracks, rather than entire pre packaged albums. Chris Andersen realized in 2004 that unlimited choice will expand demand rather than contract it. The Internet seems to benefit musicians who do not naturally reside in the top 10 albums category.

The record industry, which relies on the medium of recording as much as it does on musicians, has undergone successive upsets since the nineteenth century phonographs. Edison’s first recording was ‘Mary had a little lamb’ in 1877 on a tinfoil cylinder phonograph. Thereafter, the recording industry has undergone successive periods of turmoil arising from technical transition, first from cylinder to disk, and then from acoustic to electric recording, then to magnetic tape, to the cassette, the 5” compact disk in 1982, the standardization of MP3 (MPEG layer 3) in 1992, and the release of the iPod in 2001. In 2008, sales of individual music tracks sold online surpassed 1 $Billion for the first time, having grown 27% over 2007 sales.

What does this mean for openness and what advice would one who is mapping the key characteristics of the Internet give to record labels? Dodge the mainstream, get small and get niche? Or should one perhaps focus on authentic, engaged musicians that can involve and invest the listener in the creative process? This is a question on which I must consult Peter Martland [see also], who has an encyclopedic knowledge of the record industry… more anon..

Table showing decline in sales of top 10 albums
(Figures from Nielsen Soundscan end of year music industry report 1999 and 2008).