Iphone Sales vs Music Sales
by Alex Cosper (9/23/14)

Apple set a record selling 100 million units of its iPhone 6 versions over the weekend ending September 21, 2014, The number one best selling album, by contrast, sold less than 100,000 units. Both economists and pop culture fans should find this comparison amazing. Not only are iPhones radically more expensive than albums, the brand has only been on the market since 2007, whereas albums have been a staple product of the music industry since the late 1940s. So how does Apple do it and why hasn't the music industry learned from the tech giant's business model about how to be super successful at selling pop culture products?

The biggest difference between Apple and the music industry is that Apple is very innovative, whereas the music industry has been stuck on the same old formulas. On top of that, Apple targets a wide diverse market, while the music industry is stuck on products that are supposed to excite teens, an age group that spends less and less money on music. Many people born in the new century never had to pay for music, as YouTube has become the most popular way to consume music. Online piracy has been another factor, although most of the actual buyers of music are much older than teens. The iPhone, by contrast, isn't just marketed to teens, as it is clearly an all ages product.

Another distinction is that Apple products such as iPhones empower consumers. Music at one time empowered consumers by inspiring them with emotion and imagination. But for the past decade there's been a strong argument that pop music lacks the emotional and imaginative power it once had. The music scene of the 1960s through 1990s was very diverse with a lot of new inventive sounds inspiring musicians to be creative. In the new century, the pop music that's dished out by the struggling major labels has been very formula-based with not much creativity or deep messages, so it's hard to defend it as art that empowers people. Most of the creativity is found in independent and local music, which doesn't get played much on the radio, so it doesn't sell well.

The music industry still clings to its image as a teen marketer, even though the top selling music is not necessarily always teen-oriented. Since the 1950s the music industry has relied on the teen market to fuel sales of hit singles, although album sales have always been much more diverse. Hit singles are not directly the payoff for an artist, manager or label. The payoff is usually if the album sells at least one million units or from relentless touring. The music industry has failed to adjust its business model to account for the fact that most people would rather by individual songs rather than albums or they would rather subscribe to a streaming service than buy albums.

While top singles can sell up to 300,000 (or sometimes more) units per week, only the top three are usually big sellers compared with the rest of the chart. When you consider that an artist only gets a small percentage of those sales, it's not the glamorous industry it appears to be on the surface. The artist's manager usually takes a much bigger cut than the artist. On top of that, the cost of recording a single is usually tens of thousands of dollars and sometimes in the six figure range. A video can add an extra strain to expenses, on top of promotion.

One of the reasons consumers moved away from albums and gravitated back toward song downloads was that too often they were disappointed by the content quality of full albums. Many consumers found that they only liked a few songs on an album, which wasn't worth the $9 to $15 price. At one point during the early 2000s the labels had even conspired to fix CD album prices as high as $18 but had to make huge multi-million dollar settlements to the public after losing a price fixing battle in court. Then after the labels tried to sue music fans over illegal downloads, the public seemed to burn out on the music industry.

On top of that, pop music seemed to get more bland and cookie-cutter. Except for Adele's huge success with adult-oriented albums and a short list of other examples, most pop artists in the new century have suffered from album sales not reaching the break-even point of one million units for profitability. Top 40 radio is driven heavily by teen music, which is not by chance or by market demand. It stems from the way radio executives have structured their programming as "top 40" stations target teen and young adult audiences while most other formats target adult audiences. So even if Tom Petty or Garth Brooks puts out an album that sells over 100,000 units the first week, the fact that their music doesn't fit the teen format or their label hasn't released a single to top 40 radio stations, means they won't likely have a big hit on the Billboard Hot 100. Even if their albums outsell teen albums, it doesn't matter.

Top 40 radio potentially can still sell thousands of downloads, but the return on investment for labels and artists is bleak due to the high costs of recording and promotion. Other radio formats can move units, but the songs get less exposure. Top 40 is a high rotation format by design. It's supposed to jam a 20 minute period with wall to wall teen hits, whereas adult stations have bigger and older song libraries with less song repetition. The actual song content of teen hits of the past decade has been less than stellar and usually immature from a baby boomer perspective. By contrast, Bob Dylan and The Beatles had several hits in the sixties that could be considered adult, yet appreciated by the teen market.

An understated problem for the music industry the past decade and a half has been the fact that the three major labels that control about 90 percent of the music on commercial radio haven't put out much innovative product in awhile. Today's hit music falls into molds that are patterned after big selling acts of the past two decades. There has not been an emergence of new genres like there were in previous decades. Part of the problem is labels have focused on music that sells quickly as opposed to music in which sales develop over many years. The three big labels remain deep in debt from too much investment in expensive music videos and soundalike artists that don't sell.

The guitar is still the best selling musical instrument in America, yet you wouldn't know it by listening to top 40 radio. Acoustic guitars have rebounded in recent years, along with ukelele sales, yet this trend has not been reflected on the charts. That's interesting because acoustic music is easier and quicker to record and would cut down on recording expenses, which would help the music industry adjust its revenue model. Digital downloads cut the costs of manufacturing and distribution, yet the music industry still can't figure out how to be profitable. Apple has done its part in offering technological innovation to help the music industry get back on its feet, while the music industry hasn't done its part to diversify its marketing or music.

So why can't the labels understand the more successful and innovative Apple business model? The simple answer is that the CEOs of the music companies don't seem to understand musical innovation. Apple's success has been all about innovation. The music industry even owes its survival in the new century to Apple's invention of the iTunes Music Store. Yet the music industry continues to crumble, especially this past year with low album sales. The formula for success in the new century clearly involves innovation, yet the music industry has fallen short on offering amazing new music or new ways to sell music. It takes visionaries to reinvent businesses, but the lack of visionary leadership seems to be the music industry's actual biggest problem.

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