Three Reasons Why Digital Music Sales are Slipping (…if, in fact, that’s what’s happening)

Discussion
Jun 27, 2006
Rick Moss

By Rick Moss


As reported by the Union-Tribune of San Diego, the first whiff of a slowdown in the growth of digital music sales may be in the air. Reports from both the Diffusion Group of Plano, Texas and New York-based Pali Research indicate a first quarter growth trend that is declining slightly vs. the same period last year.


In the first 16 weeks of 2006, the average volume of U.S. downloads more than doubled vs. the same period in 2005, however instead of trending upward through the period as it did last year, it ramped down by nearly 2 million downloads during the quarter.


Marc Freedman of Diffusion characterizes the trend reversal as the end of the “hyper-growth period,” while Nielsen SoundScan analyst Anna Loynes prefers the industry write it off as a “seasonal fluctuation.”


While digital eCommerce supporters will point out that annual sales of iPods and other portable players are expected to take another 40 percent leap in 2006, the space occupied by legitimately paid-for songs on such devices is tiny compared with that of tunes ripped from CDs or copied illegally in one way or another. So, it’s hard to draw a direct corollary between the two trends.


Although there’s almost certainly not yet enough history to demonstrate a bona fide trend, there are plenty of industry watchers ready to announce that paid downloads are about to plateau. And they’re ready with the reasons why. Prominent theories include:


#1: A la carte downloading “is not a compelling experience for consumers.” That quote comes from Dana Harris, spokesperson for Napster. Granted, Napster is a company busily promoting its $9.95/month unlimited subscription service, but most people do feel in their gut that the act of paying for each tune individually will only be charming for so long.


#2: The “I’ve pretty much bought all the basic stuff I need,” theory, as expressed by consumer Jim Hervey who paid for about 100 songs last year and only about 10 this year, now that he’s got his Southern Rock canon iPodded.


#3: “People are cheap and will keep cheating and stealing until they get caught and publicly humiliated.” OK, I made that one up. But let’s come clean: at the moment, it’s still slightly easier and far, far cheaper to use peer-to-peer copying vs. paying for downloads, and there is simply not a tangible enough threat of getting nabbed for it to be a deterrent. The elephant in the room…the music industry is only going to take paid downloading so far when people have more motivation to find creative ways to steal than to play it straight.


Moderator’s Comment: At this juncture, with the digital download boom losing momentum and moving into a more mature phase, has the music industry learned
anything about serving the customer?


With all the amazing, empowering technology now in the hands of music producers and listeners, so many possibilities exist for the future of commercial
music that the head reels. And yet, here we are still trying to sell a digital version of the 45s we used to buy at Korvettes.


It’s been suggested to Apple (that’s the Beatles, not Steve Jobs) that they should release some of the band’s isolated studio music tracks for free download
on the internet and let fans remix them to whatever creative ends they desire. Can you imagine the excitement that would cause? (“You say you want a revolution!?”) It sounds anti-commercial,
but that’s the kind of kick in the butt the industry needs. This model is broken; let the music lovers decide where it should go and they’ll lead you to the money.

Rick Moss – Moderator

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7 Comments on "Three Reasons Why Digital Music Sales are Slipping (…if, in fact, that’s what’s happening)"


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Greg Cohen
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Greg Cohen
14 years 8 months ago
As a student, I have become inundated with Apple’s products, most notably the iPod and iTunes. However, it wasn’t until I started work at my most recent job that I realized how unilateral Apple’s product base is. I have now started to work closely with a new music downloading company called BurnLounge. The defining characteristic? Let the people open their own music stores. I currently have my own music downloading store from which my friends purchase music. For every track that I sell, I make a commission: I’m getting paid, not Steve Jobs. Additionally, I have signed up many of my friends on the site as well, so we are all working as a retailing team. Our goal is to amass a large enough retail team so that, once all of our pieces are in place, we could potentially sell enough online albums to make the first ever digitally-platinum recording artist. The company is brand new (the 1.0 software launch was early June with the much-improved 2.0 coming out in November or so) and getting… Read more »
Camille P. Schuster, PhD.
Guest
14 years 8 months ago

When first engaged in downloading music there is a huge backlog of songs that an individual wants to have. After that they look for new things or add items as they hear new things. However, the demand, while steady, is lower. As the pace of new users decreases so will that huge demand. If the devices for downloading music are still selling there will continue to be a steady demand. However, if the sales of the devices are leveling off or declining, then it would be easier to predict the end of hypergrowth.

Peter Fader
Guest
14 years 8 months ago

With all due respect to Mark Lilien, I can’t tolerate that last line (“you can’t compete with free”). To the contrary, you certainly CAN compete with free, and can do so very successfully. The subscription services do an excellent job of giving customers a much better experience than the free (unauthorized) ones. I was an active user of many of those services, but I’ll never go back to them since it’s such a nuisance to use them. Ditto for the iTunes music store, which (from a user perspective) has more in common with the unauthorized services than the subscription ones.

So I think that counting downloads is a highly misleading metric of the industry’s performance. This ignores the growing (but still small) number of customers who are enjoying the “all you can eat” feast that the subscription services provide.

Both literally and figuratively, the music industry should move more towards a “customer retention” mindset, rather than a purely transactional one.

Laura Davis-Taylor
Guest
Laura Davis-Taylor
14 years 8 months ago

I agree with Rick’s observations. Being married to an “Amateur DJ,” I’m constantly listening to new ideas for how this industry should be evolving to meet the aficionado’s needs. Yet, there’s still very little innovation.

One of the more interesting plays I’ve seen is http://www.pandora.com. Here, a user types in a song that they like and a complex back-end engine generates a list of groups/songs that they can listen to, rate and purchase that has similar beats, tone and feel. It’s usually dead on and is a lot of fun…while bringing the user “Personal DJ” services for free. Great example of tapping into the things that drive people’s love in music and giving them quality services in response. I’m looking forward to seeing what else emerges!

Peter Fader
Guest
14 years 8 months ago

Here’s a report from a focus group of N=1: just last week my 13-year-old daughter dumped her iPod in favor of a Creative Zen device and the Rhapsody “To Go” service. It’s really amazing, and she’ll never go back to iTunes (or unauthorized downloading) again. Within a couple of hours she joyfully loaded a couple of thousand songs. She’s never been more engaged with the process of discovering new songs and artists.

It’s a great experience and a real shame that so few customers are doing the same thing (or are even aware of this terrific option).

Mark Lilien
Guest
14 years 8 months ago

Years ago, Kodak came out with a new camera every few years because they knew that people take the majority of pictures in the camera’s first year. When an iPod is new, many downloads are needed. As the device loses its freshness, the number of downloads declines. At this point, iPods still sell well, but the sales growth curve is not as steep as it once was. Movie sales jumped when DVDs started to replace VCR tapes. When an exciting new format or appliance is released, music sales will jump again. Of course, if the music industry solves its pirating problems, legit sales would soar. In the meantime, it’s hard to compete with free.

Mark Lilien
Guest
14 years 8 months ago

I was careful wording the last line of my comments. I didn’t write “you can’t compete with free.” I wrote “it’s hard to compete with free.” For example, most internet-supplied financial news sites are “free” but the Wall Street Journal site requires payment from its readers. The “free” sites aren’t really free, since they’re generally supported by advertisers. Broadcast TV isn’t “free” since it’s supported by advertisers. Subscriber-paid cable TV channels aren’t “free” but they have no ads. I agree with Peter Fader that subsciber-paid services have a market, but “free” (even if there’s a non-monetary cost of “nuisance”) always has enormous appeal. Would it be worthwhile for the music industry to allow “free” downloads that include ads?

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