State of the Music Industry 2007
by Alex Cosper (2007)

How are record sales doing in the 2000s? Note the word "record" is still used by the music industry to not necessarily mean vinyl, but short for recording. Any recording, regardless of its delivery format, is still a record, which is the name of the product sold by the music industry. The answer about how record sales are doing in the 2000s is a continued decline, which has been felt since the early part of the decade.

The music industry pays closer attention to the number of units shipped to retail outlets than it does actual sales. The four major record labels (Universal, Sony BMG, EMI and Warner) account for a majority of all economic activity in the music business. The rest of the pie is divided up among a growing pack of independent labels. The four big labels are represented by the Recording Industry Association of America, which tracks shipment sales of all music formats and helps meet various needs of the labels. According to figures released by Nielsen Soundscan for the first six months of 2007 ending July 1, album sales are down over 15% compared to the previous year's first half, while digital downloads are up over 48%.

The RIAA offers a lot of interesting statistics about music on its website, www.riaa.com. It seems to be the perfect place to find information about the rapid decline of the CD. Shipment of CDs to retail, for example, have steadily dipped throughout the 2000s. While 1999 and 2000 were peak years for CD shipments, topping out at over 942 million units for 2000, demand began falling off in 2002 from about 880 million to 800 million, which was close to a 9% drop. Despite the modest increase in 2004, all other years from 2001 through 2006 marked noticeable declines in CD shipments. Less shipments usually means anticipation of less sales.

The revenue leader by the middle of the decade in the music world was the decade-long champ, Universal Music Group with 31.6 market share for the first half of 2007. Next in line is Sony BMG Entertainment, in which two big players merged a few years earlier to eliminate the concept of the big five, which transformed into the big four. Sony BMG has 25.2% of the market the first half of 2007. The other two players are EMI and WEA (Warner Elektra Atlantic). WEA includes Warner Music Group, who offered to buy EMI for $4.2 billion in March 2007. Instead, EMI accepted a $4.7 billion bid two months later by private equity firm Terra Frima. In the first six months of 2007 WEA had 20% market share and EMI had 10.3%. While many music industry analysts have been blaming illegal downloading as the reason for the the industry's downturn, it is clear that consumers have a lot more choices now than ever before for how they consume music. New media has certainly paved a new way of life for music lovers. It is also true that record labels simply aren't releasing the caliber of talent that once dominated the musical landscape for years. For example, there are no rock bands that command the level of critical acclaim or sales as Led Zeppelin in the 2000s. Earnings for Warner Music Group were in the negative during the first quarter of 2007. The company reported a net loss for the quarter of $27 million. WMG previously had two consecutive up quarters in net income. In June Sony BMG Music Entertainment tightened up its expenses by closing its Sony Studio and selling the property. The RIAA is the group that certifies platinum and gold awards. Platinum awards are given to artists for shipment of one million units and gold awards for half that amount. In the nineties it was very common to look on the Billboard 200 album chart and see several titles that shipped over four million units. Occasionally you would see albums that shipped over ten million units. In 2007 it is rare to see shipments of over two million units even on the biggest artists. While Carrie Underwood and Nickelback each had albums that shipped over 6 million units, the common benchmark for popular albums appears to be one to two million units. Sales of downloadable music, however, are growing quickly. The RIAA's first year for monitoring downloadable music was 2004, with the birth of the iTunes Music Store. Every year since then has marked huge multi-million increases in digital downloads. Even though sales of CD singles have greatly fallen off, the single has been reborn as a digital convenience to those many fans unhappy with costly albums that only feature a few of the songs they are seeking. Sales of downloadable albums have also been surging from 2004 through 2007. With Tower Records closing and iTunes growing, the writing on the wall couldn't be any more clear. We are now in a new age where the digital products eliminate a lot of waste for both the label and the consumer. The challenge for the big four and the rest of the music world is becoming less dependent on unit shipments and more dependent on how to market music online. Even the Beatles finally joined iTunes as one of the last few holdouts in offering musical products for sale as digital downloads. The digital download is here to stay. It reduces or eliminates costs for manufacturing and distribution, two factors that always cut into profits, which always made the record label an unattractive business model until the internet revolution. Now even the big labels have to think like independent labels to compete in the modern digital environment. It seems that whatever happens with the big four at this point is not as important as the fact that the business model for selling music is finally destined to become highly efficient for the first time in its history.