Tag Archives: Russ Crupnick

BREAKTHROUGH TRENDS IN THE MUSIC INDUSTRY

This past week, I had the pleasure of moderating a panel at New Music Seminar entitled “Breakthrough Trends Of The Music Industry”. The panel was comprised of some of the brightest minds in the music business. These folks also know their statistics and where to get it. Some of them were very helpful in my popular argument this week about downloading.

The presentation had many amazing facts about where the music business is and where it’s heading. For one, 94% of all new releases sold fewer than 1000 copies (singles or albums). Wikipedia traffic is an accurate predictor of future sales. File trading is on the wane. Meanwhile, sales are up overall and more revenue is coming to artists and labels via SoundExchange every quarter. There’s been a lot of requests for the slides, so here is the deck presented at the panel. What’s your take on these figures?


NMS 2012

IS STEALING MUSIC REALLY THE PROBLEM?

Once again, the issue of stealing music and its moral/financial/ethical arguments are dredged up. And once again, most people miss the overall point, causing the collective issue to dig a deeper ditch while those who’ve moved past it (i.e.: major labels) are busy raking in the dough in the new music business.

Yeah, you heard me. It’s 2012, and now the neophytes are actually many indie artists (not all) while the smarter ones tend to be concentrated at major labels, thereby strengthening their power.

What started this was a post on NPR’s website by an intern named Emily White who admitted to buying very little music in her life but owning a lot via various levels of legality. This led to an impassioned response by Camper Van Beethoven/Cracker frontman David Lowery, who eloquently argued for the ethical and moral obligations Emily should have towards these artists and how stealing music has dramatically impacted their financial lives. This post has sprung up impassioned responses by, among others, Bob Lefsetz and a manager who is also, coincidentally, named Emily White. People have dug in their heels and have spilled many hours defending and vilifying both sides.

Yet lost in this discussion is one important element. Facts. Because if you’re going to argue that stealing has impacted your business, you should actually prove that…y’know…a lot of people have actually stolen your music.

Google, as the worldwide leader in search results, is a strong indicator of actual file trade demand. In fact, industry watchdog Moses Avalon argued such this week at New Music Seminar. Yet, when I went to look on Google Insights to see the level of demand for free music by David Lowery’s group Camper Van Beethoven, the message I get is, “Not enough search volume to show graphs.” This basically means, from what I can gather, that less than 50 people per month in the entire world are even showing intent to steal his music. Statisticians basically refer to this as essentially zero. Technically, the same search terms for his band Cracker show some potential thievery intent at work. However, if you actually searched these terms, you’d find most people were actually looking for a program to crack site passwords, and if they were looking for music they were more likely intending to steal the music of Uncle Kracker, who might actually have a legit beef on music stealers.

None of this is to say that I’m naive to think nobody is stealing music. Far from it. I just don’t think they’re stealing the music of the majority of artists bitching about thievery’s impact on their business. The statistics don’t bear it out. At my panel at New Music Seminar, Musicmetric CEO Greg Mead pointed out that file trading is actually decreasing in recent months. This echoes what fellow panelist Russ Crupnick reported in NPD Group’s “Annual Music Study” back in March when they reported that P2P site activity decreased from 19% of the internet population in 2006 to 13% last year.

Respected blogger Cory Doctorow also noted last month that a summary of over 20 different papers on file trading shows very little impact on sales from file trading. Drew Wilson, the author of the summary, got his results from such “fringe” groups as The Wharton School, The Journal of Law And Economics, and The Journal of Business Ethics. The most interesting line in the summary to me is this one:

Judging by the evidence we’ve collected, the evidence does not point in the direction that file-sharing, in and of itself, displace sales, but rather, other factors would also play a role in displacement of sales.

The primary “other factor” is the fact that there are too many artists competing for shrinking dollars, largely due to the shift from albums to singles. Despite the economic number that David Lowery quoted of the number of professional musicians falling by 25%, if you took “album releases” as an indicator, it seems like the number of pros has increased. In a decade, we’ve gone from about 30,000 albums being released to over 77,000 last year. And that’s just albums going thru legit channels. The problem, as noted by Chris Muratore of Nielsen on the previously noted New Music Seminar panel, is that 94% of those releases sold less than 1,000 units. Indicators that I have examined showed those low sales aren’t because of people stealing them. They come from too many releases causing most people to not even realize they are out. For example, 80s rocker Lita Ford has a new album that came out yesterday. As of this writing, it’s the 91st most popular new release on Rdio. How many of you have the patience or time to sift thru the other 90 releases to get to #91? Let alone decide to even put in the effort to steal it? Whether you were going to listen to it or not, I’d be willing to bet that almost everyone reading this found out that Lita Ford had new music from this paragraph. Stealing it is even further down their priority list.

And now that you know Lita Ford has a new record, what are you going to do about it? If you have a remote interest in her music at all, you’re most likely going to listen to it on a perfectly legal source such as YouTube, Spotify, Rdio, Mog, Rhapsody or Slacker. Why? Because I bet you caught yourself subconsciously saying that it would be quicker and easier to stream it and see what it’s about there than finding a site to steal it from, let alone having the downloads clutter your hard drive. Guess what? This is what most people do now. Having a download on a hard drive…single or album, purchased or stolen…this is the 2012 equivalent of “buying a CD with one good song on it”. People are smart and will legally stream something before any sort of ownership decision solely because they don’t want their hard drive cluttered with music they don’t like. And guessing by the demographic of my readership, I would also guess most people just want to check out what Lita is up to and have no intention of any sort of ownership. The music would have to be mind-blowing to shift the decision from “let’s see what she’s up to” to “I need to own this”.

So while all these independent artists argue thievery, do you know who’s winning? Major labels. This week, of the top 100 tracks on Spotify, only 6% are on independent labels. Major labels have figured out that the game is about exposure and awareness, two things that they are actually quite good at. It’s not about royalty rates, thievery, or even quality of music. It’s all about how I get people to know I exist. Major labels aren’t ignoring file traders, but they have moved past how much of their day they concern themselves with it. Instead, they focus on putting energy behind making music that the public wants and marketing the shit out of it so it rises above everyone else. While you’ve spent the last few years claiming the major labels are “dinosaurs” who are going to be “out of business”, they’ve actually become stronger behemoths who are more progressive than you realize.

As for the quality of their music, that’s a subjective opinion. And it’s no more subjective than the independent artists who have figured out how to make a big business out of the new music business. Artists like Tyler Ward, Kina Grannis and Alex Day, amongst others, are making six figures a year in the new paradigm. They struggle to get respect from traditional media because they’re not considered cool, credible musicians. Yet they run rings around the businesses these so-called cool bands deliver. Why? Maybe it’s simply because they deliver the kind of music more people want nowadays. As far as I can tell, they spend not a minute worrying about the money they don’t make and instead spend time making more money from the sources that do pay.

I agree ethically with David Lowery’s assessment. A person who spends extra to protect migrant workers in a third world country but takes money out of musicians’ mouths is a hypocrite. Emily White should stop complaining about wishing for a Spotify-like service and actually…y’know…subscribe to Spotify. But for actually succeeding in 2012, it’s the wrong argument. The biggest problem that David Lowery has to face is exemplified by Zach, the 24 year old New Media indie label guy at the end of Bob Lefsetz’ response post to Lowery’s “screed”. When told by a co-worker that David is the founder of Camper Van Beethoven and Cracker, he replies, “Not sure what either of those are…”

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.