HOW WE CAN SAVE MUSIC RETAIL

Here is a reprint of my blog entry for MIDEM that can be found here:

There is only one thing that sells music. That’s music retail. File trading is an easy scapegoat for industry ills, but the lack of legal outlets that are in front of casual music fans is clearly the primary culprit.

Looking at digital statistics in the US, only 5% of internet users visit a music retail site monthly according to Comscore. Surprisingly, while the number is higher, about 9% of US internet users visit illegal music sites monthly according to Big Champagne.

If you think this number is wrong, consider that Businessweek recently profiled China’s Baidu search engine where, despite a history of piracy, they are currently seeing only 5% of their traffic going to illegal music searches. The true problem emerges with these stats.

If 5% of internet users download legally and 9% of internet users download illegally:

Over 85% of US internet users do not download music legally or otherwise.

The figure of approximately 15% market penetration for downloaders is significant. In the book Perfecting Sound Forever, Greg Milner points out that in 1949, during another famed record sales downturn, the number of people actively purchasing records shrunk to…15%.

Despite many claims to recent success of music in the overall marketplace, the data actually points to low ownership engagement concurrent with previous industry declines.

Accepting that the issue is actually to engage in encouraging overall downloading behaviour, there’s three relatively simple tactics the industry must embrace that actually have overlapping philosophies.

- ENCOURAGE MORE RETAIL OUTLETS – iTunes may own the market, but the way to grow the market is just like it used to be: foster independent retail. The success of niche sites like Beatport shows that these sites can be profitable. But as long as label groups demand onerous terms of startups, these indie outlets will never see the light of day. Ask for reasonable terms and watch sales increase with volume.

- ENCOURAGE MORE STREAMING OUTLETS – While only 15% of the internet is currently downloading, at least 40% are streaming music regularly and legally. The music business still appears to be in the CD to download transition while the consumer is clearly in the download to streaming transition. Streaming may be low dollars, but there’s massive potential in high volume. Spotify’s difficulty in launching in the US highlights the same problem as above. Onerous terms are preventing new revenue streams. Ask for reasonable terms and watch royalties increase with volume.

- MARKET MUSIC AGAIN – The music biz got out of the 1949 funk by marketing “High-fidelity”. Rallying behind a legal marketing concept and properly funding it should pay dividends. Marketing clearly drives sales. As an example, while download sales have flattened this year, the sales slowdown has more to do with the diversification of products in iTunes than anything else. Space devoted to music is now focused on apps, movies and TV shows. Less marketing equals less sales. Marketing does drive sales and can’t be left in the dust.

2 Responses to “HOW WE CAN SAVE MUSIC RETAIL”

  1. jisquith@gmail.com January 18, 2011 at 10:01 am # Reply

    Insightful post Jay. It got me thinking about how the whole retail ecosystem around music is broken, and about the possibilities for the next generation of companies. More here: http://www.digitalmusicinsider.com/can-music-retail-be-saved-jay-franks-perscription/2011/01/18/

  2. Travis Storch January 19, 2011 at 6:29 pm # Reply

    Great comments and insight, Jay. You nailed the core problem which is the major label antagonism to ‘disruptive’ (new) technologies. I have felt this pain personally over the years with start-ups like iLike, ZooZBeat, and Overlay.tv

    Your points on streaming are well noted. (Live365 i.e. has remained viable near a decade now)

    I think there is also room for hybrid models like Guvera and our company Dympol.com who allow for brands or other parties to help subsidize the legitimate download of music at a major discount… but again, we fight for the same marginal % of total market.

    At least there are still companies trying to forge the ‘new path’. And thankfully the labels are starting to throw $$’s in the direction of relevant technologies. (that for good or for bad).

    Keep up the good fight, Jay! We need more diplomacy!

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