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Killing the Goose

Dan Bricklin thinks downloading, burning, and sharing are actually helping the music industry:

    To get some data to understand CD buying, I looked to both Forrester and the Recording Industry Association of America (RIAA). First, I looked to find more of what Josh Bernoff found. Some of that is presented on the Forrester web site on the “Downloads save the music business” page. (Listen to the video/slide presentation.) I also looked at the RIAA “News Archive” page to get some of their numbers and statements. Finally, I looked around me to see behavior on the streets and among friends and relatives.

    Josh breaks down the music download/burning and CD-buying public into various categories. The categories, from lowest use of downloading and burning to highest, are the “Offline” people, the “Nonusers” of digital music, then the “Dabblers” who have tried it but do it infrequently, the “Digital Music Learners” who do some (downloads, rips, or burns 3 to 8 times a month), and finally, the “Digital Music Lovers” (over 9 times a month). Based on the full report he kindly sent me when he learned of this analysis, I calculated: People who never download or burn their own (“Offline” and “Nonusers”) make up about 54% of the population and only buy about 39% of the CDs. Using values explained below of about 881.9 million CDs and 239 million people over 9 years old, that yields a value of 2.7 CDs purchased per year per person. Those that do sometimes download and burn their own (combining the other categories) make up 46% of the population yet buy 61% of the CDs (4.9 per year each). Of those, the “Lovers” and “Learners” make up only 22% of the surveyed population, yet buy 36% of all CDs (6.1 per year each). The “Lovers” alone make up about 5% of the population and buy about 15% of the CDs (9.7 per year each). So, it seems the more you buy, the more likely you are to download and burn your own, or, to put it another way, the more you burn the more you buy.

    Bernoff, in his Forrester report, discusses what he sees as the real reasons for a drop in CD sales: the economy (he says on his video presentation that in the pre-Internet early 1990’s economic downturn there was a “significant drop in the growth of CD sales”), competition from other forms of entertainment (including the yearly $6 billion of video games and the rush to the new DVD video format), and finally the shorter playlists on radio (partially a result of Clear Channel’s control of 60% of rock radio listening and their style) that leads to fewer new musicians becoming well known. I also hear that MTV is playing fewer music videos, and in general, there is a record industry style to push a narrower range of musicians. You can imagine that the death of Internet Radio will also cut down on the ways to find out about new music.

    The RIAA also provides numbers. I looked at their web site and looked at the yearly reports that come out in January or so, giving the sales figures for the previous year. They include the number of “units” of music sold, and the dollar amount of revenue that those units represent at retail. They also break things down by different media types, such as CD albums, CD “singles” (another, no longer popular, format), cassette tapes, etc. I looked at the 2000 report and the 2001 report to get numbers from 1991 through 2001. I typed some of them into a spreadsheet and “crunched” the numbers a bit to figure out average retail price (sales dollars divided by units) and year to year change expressed as a percent. Here is what I came up with (there may be rounding effects, and I haven’t rechecked all of my typing):

See chart on his site.

    Units have dropped, but revenue has not dropped as much because of an unprecedented 7% rise in prices. With a poor economy, basic economics says that a rise in price of a discretionary item already priced above the optimum point may result in a drop in total receipts. The history of results from large CD album price rises shows consistent negative changes in unit sales. As you can see with CD singles and cassettes, there is a life cycle with each format and CDs should be no different. Examples of other factors that affect sales that RIAA mentions include the 1997 effect of tighter retail inventory controls and retail consolidation that they blame for the 1997 drop in revenues (no mention of the price rises). In early 1997, trying to explain a 2% growth year after years of CD-driven double-digit growth followed by a drop in unit sales after a CD price rise, RIAA president Hilary Rosen said that “Two percent growth [in 1996] is positive news.” She neglected to say “Prices were the same or lower.”

    Trying to make a case against digital music downloading and burning, RIAA also reported that its own survey of music buyers showed “…over 50 percent of those music fans that have downloaded music for free have made copies of it. Just two years ago, only 13 percent copied it onto a portable device or a CD burner.” They also report that in 2001 40% of all “music consumers” owned a CD burner compared to 14% in 1999. (This matches Forrester’s 45% number from mid-2002.) They say that “23 percent of those music consumers surveyed said that they did not buy more music in 2001 because they downloaded or copied most of their music for free”. It is unclear if those people didn’t buy any music, or just didn’t buy more than they did (but since they call them “consumers” and not “fans” they imply that those people do buy), nor whether the other 17% who have burners said they bought more. (Bernoff’s say this is the case: “…while 13% [of Digital Music Lovers] say downloading will decrease their music purchases, 39% say exposure to new music online increases their CD buys.”) In any case, it is clear that those people that download and burn music generally still buy a lot of music when they could have gotten it “for free”. In fact, they still buy most of all music.

    If downloading invariably led to a cessation of buying, as RIAA implies, music sales would be off by a much, much larger amount….

About Eric Olsen

Career media professional and serial entrepreneur Eric Olsen flung himself into the paranormal world in 2012, creating the America's Most Haunted brand and co-authoring the award-winning America's Most Haunted book, published by Berkley/Penguin in Sept, 2014. Olsen is co-host of the nationally syndicated broadcast and Internet radio talk show After Hours AM; his entertaining and informative America's Most Haunted website and social media outlets are must-reads: [email protected], Facebook.com/amhaunted, Pinterest America's Most Haunted. Olsen is also guitarist/singer for popular and wildly eclectic Cleveland cover band The Props.

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