George Kahn CD Store

Sunday, January 6, 2008

2008: The Death of Digital Rights Management

Welcome to 2008! I thought I would celebrate my birthday (Jan. 7th) with a BLOG for the new year, a couple or resolutions and predictions.

Here are some statistics from the NY Times.
The bad news is that music sales of albums fell 15% from 2006, continuing the pattern of double-digit decreases from the last few years.
The good news is that RAP music sales fell 30%! Amazing - people will soon once again have to SING for it to be called music!

The good news is that DIGITAL sales increased by 45%!
The bad news is that this increase only brought the TOTAL decrease in sales down to 9.5% (The decline in album sales drops to 9.5 percent when sales of digital singles are counted as 10-track equivalent albums, per the NY Times article).

In the niche market of jazz, album sales were off 10.6%. That drop pretty much parallels the industry, so Jazz still only reflects about 3% of the total sales in the USA. The Ghetto has not gotten any bigger, it just continues to shrink with the industry as a whole.

Three of the top 6 albums for 2007 were Josh Groban, High School Musical 2 and Hannah Montana - showing that the music industry has already given up on what was it's core age group (16 - 30 year olds). Instead the focus is on music for 'tweeners too young to know how to download, or on parents too lazy to learn how. The #3 album in sales for the year was The Eagles, who totally bypassed the record industry, releasing the album themselves with an exclusive agreement to Wal-Mart. That turned into 2.6 million album sales, so I guess the $10,000,000 advance the Eagles got was a good bet by Wal-Mart, and a brilliant marketing move by the Eagles.

So, a couple of predictions for 2008 - 2010:
- The few remaining stand-alone music stores (Virgin, FYE, etc.) will close in the next 24 months. The few left standing will mainly sell fashion and "lifestyle" products, or become like Amoeba records, catering to used CDs and collectors.
- As attention spans grow shorter over the next 5 years, the concept of an "album" will gradually vanish, except for compilations, greatest hits packages and TV or movie soundtracks. These will succeed by pricing themselves low enough for people to see the value of the purchase, vs. 99 cent single-downloads.
- By 2010 all the major labels will throw in the towel re: DRM (digital rights management). Ease of purchasing music online and competitve pricing (i.e., cheaper, but not totally "free") will offset the losing battle to stop people from copying digital music.
- By 2010 the major entertainment companies will view music as an "ancillary product" that is there to promote a movie or a line of clothing. Even major artists will start to view albums as little more than advertisements for more-lucrative goods like concert tickets and T-shirts.
- Barring a couple of break-out artists, Jazz music will continue to be a niche market, but album sales will increase, as it becomes one of the few music forms that still holds up in an album format.

AS for New Year's resolutions, I resolve to continue to share my music with the world, as that really is my primary purpose.
I resolve to release my Best Jazz Album Ever in 2008.
I resolve to continue to use the internet - "the great leveler" - in creative ways to bring more attention to jazz and improvisational music.


Anonymous said...

I'm confused about the comment (and it's not only from you, George) that music per se will soon be simply a marketing tool for concert ticket sales, shirts, etc.

Seems to me that in the '70's, I often read that labels had to cough up a lot of dough to support tours for even no-brainer sellout shows like the Stones, and they did so because the tours enhanced record sales, the real money maker for the label.

Artists, then as now, apparently didn't receive huge royalties per disc sold, but mostly "lived off of their signing bonuses", so to speak. Was I terribly misinformed?

I know that ticket prices for big shows are now outrageously priced compared to my college days (I paid no more than $10 in 1975 for a main floor ticket for Jethro Tull on a Big Ten campus, for instance.) But can artists really make money on touring, even with sales of $40 shirts, etc.? I know that record sales ain't cutting it, profit-wise, for the big now I wonder where they will fit in for the long haul!

There was an interesting article in Stereophile about Naxos, the classical label, in which founder Klaus Heymann makes the comment about moving away from physical CD's to downloading online, full-resolution files:

"And it's not going to be a very good business, because while people are not willing to pay more for a WAV file than for a physical CD, the cost of making the WAV file of a Mahler symphony available is probably greater than the cost of manufacturing an actual CD. There are benefits of selling a WAV file over a physical CD—we don't have to carry inventory, we get paid right away, there are no returns—but it's not good business."

Seems odd to me that bandwidth would be that expensive, but using FLAC or other lossless compression algorithms, the bandwidth can be cut by probably long as you're not a competitor in the "loudness war", which is a whole 'nother topic! ;-)!!!

But for folks like me who won't buy mp3's due to quality considerations, the only way to get around the physical CD is to make the full-resolution versions available at a price that keeps the artist and label happy!

If you don't mind sharing, George...I'm curious as to what you think the best business model will be for someone such as yourself over the next few years.

GKahn said...

Wow, a lot of thoughts here.
The business model is very different than in 1970. I was just talking with my 14 year old about all the bands I saw "back in the day", and I have vivid memories of seeing the Who and The Kinks and many others for only $10 -15 dollars at clubs in Boston.
Record companies have followed that old model that they were basically "The Bank", and the artist would get an advance and then be owned by the record company, supported on tour, but never see any money past the initial advance until the next record, etc.
The people who win in the new model are the established artists who can charge $150 a ticket and $40 a T-shirt. The people who lose are the new artists trying to get a start, because the A+R departments no longer have the mandate to nurture new talent, only to turn a profit.
I can't really comment on Naxos, as the classical record world is beyond my knowledge.
My business model? In a nutshell: More cover tunes, as that is what gets noticed on iTunes, and CD packaging that will inspire people to want to own the physical product. And no more money-losing tour performances.

Anonymous said...

So, do I take it correctly that you agree with Klaus Heymann's notion that you can come out ahead on the sale of a physical CD versus direct downloads? The reason I mentioned that was because he avoided a detailed explanation about why they would make more money on physical sales versus downloads.....and even went on to state a lot of reasons why the download seems to be a no-brainer cost advantage.

He didn't seem to make a very strong case against a business model based on downloads versus physical sales....and it sure seems like the market is drifting away from physical CD's.

As an aside.....yesterday, I noticed that some of your physical CD's that I want aren't available at the moment on CDBaby, but the mp3's are. I'll buy them when they are back in stock, I promise :-)!!

GKahn said...

Thanks for letting me know that CDBABY is out of stock on a couple of the CDs- I will send them off tomorrow.
Again, I do not understand why in Classical Music they make more money on a physical CD than a download of the music - that is certainly not the case for an independent artist like myself - I earn the same income from a digital download as i do from the album purchase, but i don't have the product and shipping cost of the physical product.