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Temperature check

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The music industry is having a hard year, as the Music Watch sales report in the August 24th Billboard Magazine indicates:

Total449,918,000390,378,000 – 13.2%
Singles23,165,0007,947,000 – 65.7%

The 10.4% drop in album sales is troubling for the record companies from a profit perspective, though the huge 65.7% drop in singles sales is quite striking. Singles have been a “loss leader” used for promotional purposes for quite some time, so the big drop in singles sales does not imply a corresponding drop in profits, but it does shed some light on how the digital age has changed the music business. To a large extent digital samples and web downloads have taken the niche formerly occupied by singles, both officially or otherwise.

As bad as this year’s sales have been, what really terrifies the music companies is the possibility that next time the 65% drop will be in album sales. Yet according to this study by Forrester that Billboard’s Brian Garrity summarizes, the downturn in music sales isn’t due to piracy or file sharing. They blame the economy, DVD and videogame sales for the drop. Forrester also forecasts that by 2005 the download business will finally hit its stride because of the adoption of new technical standards that will improve the legal burning and transfer of music to playback devices. They predict that subscriptions/downloads will account for a full 17% of revenues by 2007.


The Forrester forecast is interesting — it is easy to make fun of a prediction when a research outfit goes out on a limb, but it is stimulating. Certainly a user friendly music subscription service is long overdue, and should be able to find a sizable share of the market.


$2 Billion of music sales won’t happen by itself. It will require the record companies (or someone) to provide consumers with new high quality services at reasonable prices. The Forrester research tells us that the business is out there, but nothing we’ve seen indicates that the majors have the right mindset to provide the services that music lovers are looking for quite yet. This leaves a great opportunity for the record labels of the future to fill this void.

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