The Gradual Demise of the Compact Disc

by Stubborn Mule on 8 July 2008 · 20 comments

The Australian Recording Industry Association (ARIA), after taking a look at sales for the first half of 2008, has run crying poor to the Herald Sun. While they have not yet released these figures to the public, they presumably continue the trend evident in published figures for 2006 and 2007.

Australian Music Sales

Nothing here is particularly surprising, but nor should it be particularly alarming. Sales of physical media fell by more than $60 million from 2006 to 2007, driven largely by the fall in CD album sales. In percentage terms, CD singles fell further, but this was more than offset by increased sales of digital tracks. So it appears that Australians are embracing iTunes and other digital music sellers. This is despite the fact that the music industry here seems more focused on combating piracy than promoting digital outlets. Sales of digital music grew by more than 40% and at that rate, if the 2006-07 trends continue, digital sales will exceed physical sales in under five years!

SonyBMG chief, Michael Smellie recently conceded that the Australian music industry has “missed the boat” in the digital age. The result is that Australian music-lovers are missing out on the benefits of innovations in music sales and, I would argue, the industry is forgoing revenue opportunities as well. By way of example, Apple’s challenges with music licensing in Australia were such that the Australian iTunes Store opened a full two and a half years after the US store. Music subscription services such as Pandora and Rhapsody are yet to sort through this licensing mire and are forced to block Australian visitors to their sites. I suspect that the likes of APRA and PPCA are not helping very much with this process, when they really should be embracing initiatives like these. The best way to fight music piracy is to provide decent legitimate options for people who are prepared to spend money on their music.

Rhapsody is a particularly good indicator of where digital music is heading. For a monthly subscription fee of around A$15, users are given on-demand access to an enormous library of music. Combined with a network music player (such as a Squeezebox or Sonos), a service like this can dramatically change the way people listen to music. A band or track comes up in conversation? Fire it up on the stereo, whether you’ve ever owned it on CD or not! There are benefits for the industry too. Subscriptions tend to be sticky: just think about your mobile phone bill. It is estimated that 25% of Australia’s 8 million households subscribe to pay TV. There is no reason that subscription music services should not aim to achieve the same penetration rate, if not higher, particularly since there is no directly comparable free to air competitor. At $15 per month, the resulting revenue would come close to monthly sales of CD albums in 2007. The sooner ARIA and APRA understand this, the better for everyone.

Of course, some of us (particularly of the older generations) will not be able to let go of our fetish for the physical artefact and so the demise of the compact disc will be a long, drawn-out affair. In fact, surprising though it may seem in a declining market, a new CD shop opened in my neck of the woods just last Saturday. Repressed Records joined So, Hum, Fish Records, Stikki Records, Egg Records* and (my favourite) Bravery Repetition & Noise on King St, Newtown alone. So, while shops catering to the latest pop releases will struggle to compete with digital alternatives, the CD will continue to sell in those shops that can command the loyalty of specific niches of music-lovers.

In one form or another, the music business has plenty of life left in it, despite the tales of gloom being peddled by the like of ARIA.


Digg!

* Well, technically Egg Records is on Wilson Street and Stikki has recently moved to Enmore Road, but they are in what you might call the “greater King St area”.

Possibly Related Posts (automatically generated):

{ 18 comments… read them below or add one }

1 Stilgherrian July 8, 2008 at 1:13 pm

This is spot on! The “old model” distributors of plastic discs whine about declining CD sales when the reality is that music sales are growing overall. It’s just that their plastic discs are no longer a value-for-money method of transporting the music from creator to listener. And that’s 100% their own fault for failing to change their business in a changing world.

The Rhapsody model , in my opinion, IS the future.

2 martin July 8, 2008 at 1:40 pm

Just to make things clear, I seperate Australian Music in “The Industry” and “The Artisists”. Artists are not well served by the industry, Artists want to be heard and seem to instinctively recognise the value of giving away their music to make MORE money from ticket sales and other music sales (look at the record of people like Slim Dusty – his promotion was playing to 300+ audiences a year). In short, most if not all innovation comes from the Artist not the Industry.

To take your point regarding the opening of CD shops further, one of the indicators that the Australian “music Industry” havn’t caught the cluetrain is the way they treat the long tail. You can’t get older releases, or if you can, they’re only available in these niche shops you described. Heaven forbid you want to get hold of something special like a commemorative or ‘special release’. By comparison, the recent releases by NIN and Radiohead only stimulated demand for these types of products.

Now I’m going to show my age; One of the things I STILL miss with the demise of vinyl is the art work on the cover. Tthere are several bands and groups for whom I’ll scour the earth looking for anything conencted with them. I may be a niche market, but while I’m possibly the only person who has this fascination with Split Enz, MotorHead and Neil Young, I’m sure that there is a market for each of those… Why should I have to go offshore to find the modern versions of these artifacts (posters, live recordings &tc).

At even the most basic retail level, why can’t those albums (the ones that aren’t selling enough to be physically stocked) be downloaded AT THE STORE ? With high quality copies of the art work and liner notes (perhaps a surcharge for different sized copies of the artifacts ?).

3 Fred July 8, 2008 at 2:06 pm

I think much of what you’ve written is right on the money.

The Australian music industry seems to have an anti-consumer bent. For example, in this News Ltd article (http://www.news.com.au/couriermail/story/0,23739,23974218-953,00.html) Gavid Ward is quoted as saying:

“We need to have variable pricing in the digital market, recognising the value of the key tracks but then maybe the whole digital album needs to be $12-$14. If two tracks cost $7 then people can get the whole album for five bucks more.”

Which is bollocks. “We” don’t need any such thing. The recording industry need that to extract maximum dollars from the music listening public. Sad truth is, Sgt Peppers notwithstanding, most albums these days ship with 3-4 listenable tracks with the rest being filler…

4 FiL July 9, 2008 at 8:08 am

From the big picture to one minutia: 11k cassette albums were sold in 2007? Good Lord! Who bought them??

5 stubbornmule July 9, 2008 at 12:36 pm

@Stilgherrian I really look forward to the day that Rhapsody, Pandora, last.fm, Slacker and the rest sort out the licensing issues and are free to operate in Australia. Soon, I hope!

@martin I agree with the distinction between “artists” and “industry” (although there are a few old school artists who don’t seem to get is). You are also right about the lack of older releases in many CD shops. To my mind, this is why shops like Bravery, Repetition & Noise can get a loyal following. It’s also interesting to note that shops like these are selling a lot of vinyl these days.

@Fred let’s hope that the industry wakes up sometime soon!

@FiL the cassette thing is extremely weird. The last time I bought a cassette was 2003. On holiday in NZ we rented a car that only had a cassette recorder and had to but a tape to listen to, otherwise it would have just been Dave Dobbyn on the radio! Would you believe that in 2005, cassette unit sales were actually 100,000 in Australia!

6 dan July 9, 2008 at 8:48 pm

i understand the cassette thing (sad thing is that every now and then i have to sit in my car to check out what’s on a tape i’m about to chuck – no longer have a tape player in the house).

what puzzles me is CD singles. i’ve never met anyone who’s ever bought a CD single. and yet apparently 2.5m of the things were sold last year.

what i want to know about the future of music/distribution systems/artist marketing is how the f*ck they compile what is purported to be the “top 40″ when no one buys singles.

i mean the system was tragically rigged back when sean sneaked into countdown (or more tragically, two girls in my year 10 hebrew class “hung out” with donny sutherland) but surely in an era of sqeezebox/rhapsody/ipod … Casey Kasem is dead.

7 stubbornmule July 9, 2008 at 9:02 pm

@dan I think these days you need to sell about 5 CD singles for a number 1. Well maybe a few more, but I don’t think it’s many.

Also, I can still remember surviving the drive from Sydney to Brisbane as a child by listening to the Top 40 (a few times over!) that my sister and I had taped on 2SM.

8 stubbornmule July 10, 2008 at 3:05 pm

Here’s a good example of where APRA and PPCA are focusing their attention: fighting with one another to get more money from existing music use rather than trying to stimulate the growth of new distribution markets.

9 Duncan July 25, 2008 at 2:15 pm

A clue to the source of the 11k cassettes perhaps ?
http://freakonomics.blogs.nytimes.com/2008/07/24/where-do-people-still-use-cassette-tapes/

Like others, the only scenario where I’ve bought cassettes recently (last 5 years) is at a petrol station in an older hire car.

10 stubbornmule July 25, 2008 at 5:21 pm

@Duncan: Brilliant! Literally a captive audience.

11 Duncan July 29, 2008 at 2:19 pm

Very good :)

I stumbled across another source today – Audiobooks:
http://www.nytimes.com/2008/07/28/business/media/28cassette.html?em&ex=1217476800&en=4674bc0af138090f&ei=5087

That statement about keeping track of where you’re up to makes perfect sense; that’s actually annoying with DVDs as well, when you break a movie overnight for example (as Gus and I did with Mediterraneo recently), it’s not simple to resume at the same place.

12 Greg August 15, 2008 at 10:11 am

Note that *total* digital sales are less than the *change* in physicals sales in 2007, I suspect music distributors might just be rational capitalists who are trying to run their business with maximum profit (as they are supposed to). There seems to be a confused tone in some of this discussion that music distributors exist to deliver lifestyle enhancement to the public, they dont.

That responsibility falls to the invisible hand of capitilism. If a business model that better enhances people’s utility exists, it should spring up alongside and crush the status quo. That this hasnt happened is a question of regulatory frictions, who’s pulling the strings on legislation here? the same status quo that a natural evolution would destroy?
therin lies the critical problem, government protectionist legislation that, as per usual, protects the public from better/faster/cheaper goods and services.

I dont think anyone should critisize the distributors, they are doing the natural rational thing for the environment they’re in (if i were CEO id probably follow a similar path). And if they have unreasonable influence over legislation thats also not their “fault”, since getting that influence is what all business should naturally try to do. The problem is that they’re succeeding, and the blame for that lies with government.

Remembert the outcry over protecting the australian industry when we were negotiating the US free trade agreement?
Be careful what you wish for ppl.

13 stubbornmule August 15, 2008 at 10:22 am

@Greg: thanks for the comments. I certainly agree that the distributors are there to generate profits not spread love, but I think that they are under-estimating the profits that they can generate from alternative digital distribution models. It reminds me of the initial battles Hollywood fought against DVD and now they usually make more money from DVD releases than cinema releases.

Of course, another factor at play here is the perennial challenge established players have with innovation: often innovation risks cannibalising established businesses, which means that it can be easier for new entrants to innovate. The Qantas launch of JetStar is an example of an attempt to combat this challenge.

14 Greg August 15, 2008 at 10:22 am

A further request to the mule (may I call you Stub?) for a control case by which to judge the success of the australian industry’s tactics. Do you have comparable numbers for countries that have embraced the digital delivery model?
I would be curious to see if they really can supplement their loss in physical sales with digital ones, my prior is that its a less profitable business model.

Attention Passengers: The gravy train terminates at the next stop, all-off all-change.

15 stubbornmule August 15, 2008 at 2:09 pm

@Greg: While digital sales are certainly low, don’t forget the power of growth differential! As I noted in the post, “Sales of digital music grew by more than 40% and at that rate, if the 2006-07 trends continue, digital sales will exceed physical sales in under five years!”.

As far as other comparisons elsewhere are concerned, we are certainly behind the states. According to RIAA figures, 2007 digital album sales were 5.7% of CD album sales, while in Australian this figure is only 2.9%. If you add in US subscription sales, this percentage rises to 8.4%. I don’t have subscription figures for Australia but I expect it would be extremely low as none of the major subscription services operate in Australia yet (although I have heard Rhapsody is launching here before Christmas).

16 stubbornmule August 15, 2008 at 2:11 pm

P.S. I think that “mule” is better than “stub”, not because I don’t like the term but because of confusion with this stub.

17 stubbornmule August 22, 2008 at 10:46 pm

Sad to say, in the US the music industry is not looking to the future either and recent changes to licensing fees for internet radio could push Pandora out of business.

18 stubbornmule September 22, 2008 at 2:43 pm

Vodafone have launched a subscription music service, so the future of music is slowly getting closer here in Australia. I’m still counting on Rhapsody starting here too before the end of the year.

Leave a Comment

{ 2 trackbacks }

Previous post:

Next post: