DIGITAL DOWNLOAD’S DEATH IS EXAGGERATED

Have you ever moved 12.5 million units of anything? Music? Dollars? Grains of rice? Almost certainly not. Would you agree that this is a lot? If you were to move this many units in music, it would be a good success, right?

Well, apparently, if you’re the music business, moving an extra 12.5 million units is a sign that the business is all but over. Huh? Say whut? The reason is because that 12.5 million units was in digital downloads and was representative of a 1% increase from 2009 to 2010. Everyone from Forrester Research to Reuters to local PBS stations has been sounding the death knell for the format. When looked at against 13% and 28% increases the previous years, there is indeed reason to be concerned about growth opportunities in the format. But let’s be honest, when you get to 1.1 BILLION transactions of anything (including downloads), the curve for large percentage increases becomes very difficult.

But something funny happened on the way to the download’s death bed. It grew. So far this year, digital downloads have increased 4% and added nearly 5 million downloads to last year’s total over 5 weeks. Adding a million units a week in a notoriously slow sales period isn’t easy. So what is actually going on?

Quite simply, there are more hits and those hits are getting bigger. The Top 20 digital downloads have an average sales increase of 11%, nearly triple the overall rate. By this point last year, there were 10 songs that had sold “gold”, but this year there are 14. As hits keep getting bigger, this also means the “middle class” will keep getting squeezed. Even with an overall 4% increase, the #200 selling song of 2011 is down 7% from the #200 selling song of 2010.

I would contend that the Paradox Of Choice is likely coming into play. With so many more releases to choose from, people are relying more on guidance to choose what to listen to and buy. In iTunes case, this means focusing on the Top 10 charts and the promoted items. Since the featured content for music has diminished in favor of highlighting movies, TV shows and apps, more focus and sales will be given to fewer hits resulting in higher concentration at the top. Oddly, featuring fewer choices is quite probably driving bigger sales.

This will create an interesting problem for the music business in the years ahead. If hits sell more and become more profitable, then spending money to make them hits makes more sense. On the other hand, that increased competition will inevitably result in some “surefire hits” failing because of the added titles. The movie business is going to be facing that exact problem with their blockbusters this summer.

All is not lost for the middle class of artists, though. While they may have struggles making as much from digital download sales, the revenue will be more than made up by diversifying amongst the multiple potential revenue streams in the years ahead. I’ve made some great new charts that focus on this that I will be debuting in Movement #1 next Tuesday at the New Music Seminar in Los Angeles. Make sure to get there early. If you haven’t registered, there’s still time!

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