FUTUREHIT 2012 MIDYEAR REPORT – INDUSTRY OBSERVATIONS

After looking at what’s happening on the songwriting side of things yesterday, I wanted to examine the state of the industry overall. The numbers point to some signs of weakness in sales. We only have one million selling album for the first time in 21 years of Soundscan. Gold albums declined from 16 to 11. Even on the track sales side, we’ve declined from 52 million selling songs to 47, despite a 6% overall uptick. This suggests that there’s a marked increase in “medium-selling” tracks, which could be good news, especially for independents.

Overall, the decline in album sales continues to be a concern, or as Paul Resnikoff states, Kiss Your Album Sales Recovery Goodbye. Album sales are down 3.2% overall, despite a 13.8% increase in digital album sales. Yet dig deeper and there are more interesting trends. Catalog sales had another up year, increasing 5.4%. So the decline came at the expense of new music. I would say there are several factors contributing to this.

First, take a look at our top 3 sellers of the year. They are all new acts on their first hit. And one of those acts (important fact) doesn’t have an album. Given the YTD sales of Gotye and Fun, if Carly Rae Jepsen had released a full length album, it’s likely she would have made up as much as 10% of the differential gap between this year’s sales and last. Maroon 5 has 2 of the top selling tracks of the year, but their album was only out for one week of this comparison. Had it come out 3 weeks earlier, it too might have covered another 5% of the gap. But either way, traditional buying habits show many people purchase an album after they know more than one song. So having the top songs come from new acts would suggest a slightly down market for album sales in any case.

Now let’s take a look at those catalog sales. Those numbers have been going up for the last 2 years largely due to the return of the bins in the front of Wal-Mart and Best Buy stores selling older titles for $4.99. The prominent positioning at retail is now going to cheap, older titles thereby driving up their sales. Both Wal-Mart and Best Buy have increasingly placed their new music releases in harder to find places. My local Best Buy has the top sellers positioned down a regular aisle facing the rear of the store blocked by an aisle of hair dryers. Wal-Mart has been moving their CD racks to the mid-point of the media sections. You’d be hard pressed to get sales if it’s not in a visible place by which to sell the product.

Then, once you get to the sales racks, most of the CDs are going for $11.99. Gone are the days of discounting in order to drive people into the store. There are also many deluxe editions going for $16.99 and up. In some ways, I think this is good to drive revenues into the business. Especially to get the die hard fans to pay more for first-in-market deluxe editions. On the other hand, once the fans have the record and the album has been out a month, $11.99 is hardly an impulse price. Not having enough titles priced under $10 on a regular basis is going to harm overall sales figures. One just needs to look at the economy (and the bins in the front of the store) to know price is a contributing factor to sales declines.

I wouldn’t bank on albums for the business as a whole. Why would I start singles label if I did? But I wouldn’t give up hope on the album overall. I would just look to better pricing and release strategies to boost the numbers overall.

Billboard also noted that Pop and Rock are ruling the mid-year charts. But I guess that this is all how you determine what is rock. The two artists propelling rock to a top category are Gotye and Fun. Yet the defining element to their “rock” definition seems to be airplay on rock radio. I hear these songs and I hear well-written left-of-center pop songs. I know each act would do great at a rock festival like Coachella, but Snoop Dogg plays there as well. Overall, I think we’re in an era where many songs and artists are tough to place in a genre box. So when Billboard states Rock tracks outsold Pop tracks, this is largely because of how these acts are categorized.

Rock, in particular, has a tough identity crisis which leads me to be skeptical of any stats involving this genre. One can hear Carly Rae Jepsen and clearly say “Pop”. One can hear David Guetta and clearly say “Electronic” or “Dance”. One can hear Kanye West and say “Hip-hop” and Eric Church is clearly “Country”. Yet say Gotye, Maroon 5 or Train to different people and you’ll get different genre answers.

It’s also fair to say that Hip-Hop is headed in this direction as well. Is Nicki Minaj’s “Starships” an Electronic song, a Pop Song, or a Hip-Hop song? Or for that matter Flo Rida’s “Wild Ones”? The answer is all of the above making genre classifications that much harder to rely on. If anything, those songs and even the fungible rock songs are examples of multiple genres influencing songs, which I predicted would continue to be a common element of hit songs.

What does this all mean? It means we’re an industry in flux. The ground is shifting on what the prevailing sound will become. The strategies are consistently evolving on how to market and release albums and track. We haven’t even begun to discuss the ever growing percentage of revenue coming from items not here, including streaming and sync income. We have clearly not arrived on a definitive model for the business’ future, nor will we in the short term. What we do have is a business still in flux and still being redefined. Yet knowing tomorrow will not be like today just means taking risks. If people in the industry continually take those risks and find new elements to make it, we will find plenty more growth in music in the years ahead.

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