KIDS BUYING MUSIC AGAIN? IS THAT POSSIBLE?

Believe it or not, young adults may actually be on a path towards ever increasing purchases of recorded music. Instinct might suggest otherwise. Yet I realized this week that some music business history combined with general business practices can show us that we are headed towards years of sales increases that have nothing to do with piracy or even the quality of music.

Several things this week sparked this notion. First was respected industry analyst Russ Crupnick’s report that music sales were heading up and piracy traffic was decreasing. These figures were then debated with Sandy Pearlman, a great producer and now Professor at McGill University where I spoke this week. Sandy contended that the piracy figure is much higher, and cites his anecdotal evidence of most students he teaches being active pirates who use difficult-to-track “darknets”. This was reiterated in Steve Meyer’s Disc and DAT newsletter today.

Then, I went to an A2IM (American Association of Independent Music) event in Nashville where my friend Tom Silverman, the founder of Tommy Boy Records, spoke. In his speech about the state of the industry, he reminded the audience that most casual music purchasers do not think like us music fans. This was part of my argument to Sandy. Piracy may indeed be in darker corners, but sales figures are undeniably growing. Adele might have had an outsize impact, but other tracks and albums are selling in sizable numbers. But I wondered: are we asking the right question?

Freakonomics was a successful book a few years ago where Steven Levitt and Stephen Dubner proved that certain events and statistics were actually the result of heretofore unrealized events. One chapter that got a lot of attention was dissecting how the legalization of abortion may actually be responsible for the drop in crime two decades later. Many children who would’ve grown up neglected and then become criminals were suddenly not being born. 18 years later, when they would’ve been “of age” to commit crimes, they existed in fewer numbers.

So maybe we can ask ourselves where the music business is headed “freakonomically”. Is there an additional factor contributing to music sales that we aren’t looking at? For example, why do Happy Meals exist? McDonald’s barely makes a profit on them, but they sell them to bring the parents in. Parents buy the more profitable meal, and the kid gets trained to think of McDonald’s as a place to get a comforting meal. So over a decade after getting Happy Meals, when kids have independence, they regularly show up to eat at McDonald’s with their friends eating more profitable items.

So what does the record business use as a Happy Meal? For years, it was the 45 RPM single. They made very little profit from these sales, but it established kids to become album buyers years later. If they needed to buy a single with their pocket change every month at 10 years old, then they’d have a desire to buy an album with their real money at 20 years old.

Music business consolidation in the nineties resulted in maximizing profitability as the main focus. Since CDs were more profitable, labels drove more people to buy them. If they eliminated singles, or the ability to just buy the hit, people would buy more CDs. Somewhere in the mid-nineties (around 1994 or 1995), record companies adopted various policies to stop making singles. First, they used singles to get to a peak Billboard chart position and then they stopped pressing that song. Then, they just stopped making singles altogether. This did lead to more CD sales, but at what cost?

So imagine yourself as a 10 year old new record consumer in 1994. You have 2 dollars in your pocket and want to buy your favorite pop hit, but it’s not available unless you spent 15 bucks on a CD. If you spent several years going into a store and constantly finding you didn’t have enough money to buy your favorite tune, you’d just stop going into the store. Why bother, right?

Well, cut to 2000 and that 10 year old kid is now 16 years old. He has grown up with the expectation that he can’t afford music. Then, you put Napster in front of this kid. It becomes the dominant method for his music consumption not just because it was free. It’s also because he never had a buying habit going into it. If someone is never taught to buy at a young age, how are they ever going to see the value in purchasing?

Now let’s look at the start of iTunes. Not really the “start” start. When iTunes was introduced, it was Mac-only and had a limited audience. It was when iTunes was introduced to the PC that sales really started to take off. That occurred in October 2003, which led to a lot of kids finally getting an iPod for Christmas that year.

So let’s follow the pattern. The 10 year old kid who gets the iPod for Christmas in 2003 now enters 2004 a few days later where he looks at iTunes all the time. Which has a store. Which mom & dad helped foster by buying iTunes gift cards for them. Which meant they would go and actually make purchases of singles. And they could easily throw in a couple of their own dollars towards it as well, since the kid could afford 99 cents. Thereby starting a habit of music purchasing.

So cut to 2011 and that 10 year old kid is now 17 years old with a habit of buying tracks. Do they steal tracks too? Do they burn and swap tracks with their friends too? Yes, let’s not be naive here. When I was that age, I probably copied 4 albums for every one that I bought. So did all my friends. But I still bought because I had that habit. So does the 17 year old of today.

I don’t have hard evidence to back this up. I’m just theorizing here. If this is true, though, then the uptick in sales from 2011 and so far in 2012 aren’t flukes. Piracy hasn’t stopped, because as Sandy rightfully argued, “darknets” are easily found. Adele might be an outlier release, but there are a lot of singles selling 4 & 5 million copies right behind her.

However, there is a real possibility that we just missed training kids to buy our product. We shouldn’t be blinded to the passionate music fans we talk to daily. Talk to those young adults for whom music is not their life focus, and they are buying music regularly. If iTunes got them back in this habit, we should look forward to them as buyers for many years to come.

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5 Responses to “KIDS BUYING MUSIC AGAIN? IS THAT POSSIBLE?”

  1. Karen Allen March 9, 2012 at 11:30 am # Reply

    Interesting theory, Jay. Let’s hope you’re right. The music business needs more paying customers for all the various iterations of retail.

  2. patrick harrell March 9, 2012 at 11:11 pm # Reply

    its very rare i take the time to read a full story, but this one was very interesting and i agree with your point of view,

  3. Ariel Hyatt (@cyberpr) March 10, 2012 at 2:55 pm # Reply

    Jay,

    I just saw Russ speak yesterday and I was really encouraged by what he had to say but your take on this is absolutely brilliant. I will be sending my artist community to read this post ASAP.

    Love, Ariel

  4. Meghan Gohil March 11, 2012 at 2:08 pm # Reply

    This article totally makes sense . . . there was a corollary to this in the concert business years ago as well.

    Essentially, concert goers were trained to wait for the free tickets. When I started working in concerts in 1995, one of the veteran promoters said the hardest thing about some markets was that the audiences in those markets were trained to wait for free tickets. (Wichita KS, where I grew up, was infamous for this).

    Concertgoers would expect free tickets because if they waited and the show hadn’t sold out, the promoter would give away tickets at the last minute. This increased the likelihood that the concert wouldn’t sell out because everyone would wait for the freebies.

    Another side effect of the fans buying music again is this: when those fans (music purchasers) grow older (meaning have more disposable income), they could be more predisposed to buy other packages that the artist puts out in the future, in whatever formats become popular in the future. Compilations of video, audio, and other content can be re-sold to those same consumers later via different packaging (wrapping) because they’re already in the habit of buying.

    • Alvin April 30, 2012 at 5:40 am # Reply

      I always buy the oigrinal CD’s The Cranberries.In our country there is no CD’s The Cranberries team !!!! Please produce a CD !!!! ..iTunes etc.This is only good for those who have Internet accounts.Most of the world does not even have internet at home !!!! By this we are doomed to copies of pirated !!!! (Africa,Eastern Europe,Southern Europe,Shouth America etc ).:(

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