|State of the Music Industry 2007|
by Alex Cosper
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. Shipments
of CDs to retail, for example, have steadily dipped throughout the 2000s.
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
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.