Ten Weird Lessons About The Future Of Music

This week the Australian Recording Industry Association (ARIA) released its annual wholesale figures, indicating how much money the music industry is turning over and where it comes from. Turns out the future isn't quite as filled with MP3 files as you'd think. Here are 10 notable lessons from the data.

Picture by opethpainter

Because the ARIA report deals with wholesale figures, it tells us (in a broad sense) how much record companies make, but not how much record retailers or digital music stores make. They will typically add a mark-up (though that mark-up is probably lower than in years past).

1. We're very keen to buy music

The music industry is often filled with gloom and doom, but one beneficial effect of cheaper music prices is that Australians are buying more music than ever before. 2011 saw a 20.5 per cent increase in the total number of units sold.

2. We're spending less to get it

While volumes might be up, costs are down. The total value of the market in 2011 was $382.7 million; in 2005 it was $528.2 million. ARIA blames that decline on piracy. In the report, ARIA CEO Dan Rosen comments:

We require urgent assistance in the fight against the negative impact of illegal online piracy. We will continue our fight to protect the rights of artists and labels, ensuring money flows back for their creative work and to the grassroots of the music industry. We will work in good faith with the Government and ISPs for practical progress in the coming year.

As that remark suggests, ARIA will be backing tougher sanctions against pirates, though whether it will back the controversial five strikes regime is anyone's guess. While I don't doubt piracy is a factor, it may not be the only one. When you can legally view music videos on YouTube on an artist's own channel, the incentive to buy music is definitely lower for some people.

3. We still spend more on CDs than digital music

While digital music is exhibiting strong growth, there's still more money in physical releases. The total value of all physical formats was $242 million (of which the vast majority, $222 million, was through CD sales). Digital sales accounted for $140 million.

4. We don't like buying albums digitally

One notable trend is that we prefer to buy albums in physical format, while digital favours individual tracks. 20.5 million albums were sold on CD; 4.8 million albums were sold digitally. However, 68.5 million individual digital tracks (which weren't purchased as part of an album) were sold. There's a whole separate argument about the cultural implications of this, but as a consumer trend it's undeniable.

5. Old formats never die, they just shrink

Just under half a million dollars was spent on "other" formats, a category which encompasses cassettes, DVD singles and albums, and long-forgotten minor options like Mini Disks and SACD. (Vinyl is still counted separately.) That's hardly a vibrant market, but nor is it a non-existent one.

6. Where did people find all those CD singles?

As the digital track numbers suggest, not many people buy CD singles. But despite the fact that they're now stocked by only a handful of record stores and online retailers, some 47,472 were sold during the year.

7. Vinyl releases are rather profitable

Vinyl is still a niche industry, but people are apparently willing to pay a premium for vinyl formats. The average wholesale value of a CD single is $3.19, while a vinyl single is $9.45. The average wholesale price of a CD album is $10.84, while a vinyl album ships to stores at $20.11. Clearly, between the nostalgia format freaks and the dance aficionados, vinyl will be hanging around for a while.

8. Digital albums are also rather profitable

Let's consider those album figures another way. A CD album ships for $10.84; a digital album ships for $9.55. While that means it is hitting stores for slightly less, the production costs involved are considerably less, as there's no need for physical media and fractional-to-non-existent costs for digital distribution. It's this disparity that leads so many people to complain that digital music is still too expensive, though the argument is actually more complex than that -- you need to factor in typical mark-ups in both formats and costs of marketing (which aren't reflected in wholesale revenue) to work out how profitable the business actually is.

9. People still buy ringtones

2.3 million ringtones got sold last year. No, it doesn't make sense to me either.

10. It's hard to tell if streaming is a hit

It's not yet clear if our digital music future is in selling individual tracks, iTunes-style; streaming services like Spotify, Rdio and JB Hi-Fi Now; or some combination of both. ARIA's data doesn't help much here. Subscription services are included in 'digital other', a catch-all category which covers music video sales and mobile ringback tones as well as streaming.

We don't know which contributes the most (I'd guess videos), but the total is $11.2 million -- less than 10 per cent of the digital marketplace. The overall revenue in that sector was down fractionally on the year before, and the most notable services only launched late last year or early in 2012, so it's really too early to tell. In that respect, the data in next year's report will be more helpful. But I still suspect CDs will be outselling digital tracks.

Lifehacker's weekly Streaming column looks at how technology is keeping us entertained.


Comments

    ARIA's Piracy comment makes no sense!

    They are blaming Piracy for reduced profits while the first point already states we are BUYING 20% MORE music than last year!!!

      Beat me to it, id love to hear how they come up with that cognitive dissonance.

        Piracy, among other things, is forcing the price down.

        i.e. buying 20% more but at 50% of the price equals 60% of the revenue.

    I'm going to keep buying music on CD's untill they stop producing them. I much prefer to archive them digitally the way I want them - no DRM either

    Small gripe with the article:

    "...3. We still spend more on CDs than digital music..."

    CDs ARE a form of digital music - it's just that mp3s etc are nonphysical.

      I think it's fairly clear they're talking about digital delivery versus delivery on physical media.

        Accuracy and being clear aren't exactly the same thing though, are they?

        I could grunt something and it be clear that I want that item over there... but is it really proper communication?

        ... UGH!

          Inability to understand context is a problem with the reader not the author.

    The reported losses of the majors over the past few years are only comparative to the unrealistic benchmark of the masses replacing their vinyl and cassettes throughout the last 20 years. This benchmark was never sustainable in the long term term. This coupled with the $10 drop of the average album price over the period plus the increased overheads of majors taking over indies in that time makes it look like the end of the industry, when in fact it's just returning to the natural order of things. However, it doesn't help when the companies A&R policy these days has departed from the artist development model 20 years ago to the immediate return for short term investment model. This results in less iconic rock stars today and the saturated promoters market scrambing to find any really decent lineup for the festivals - hence the resurgence of headliners from the 80's and 90's. Who's going to headline all the festivals in 20 years time - Lady Gaga?

      Blame the cashed up Tweens and Teens

    I always wanted a MiniDisc, and never got one. Even now I think they look awesome.

      I'll sell you mine... Still in top condition.

    Re point 4 and buying albums as downloads rather than in CD form…

    I would buy and download many more whole albums than I do IF more albums were a complete package. With an album, I want a booklet, I want proper documentation, liner notes, lyrics (for vocal music), information about the artists, etc. I get these things in virtually any CD I might buy, but very few digital albums include a booklet PDF. So if given the choice (and assuming my need isn't super urgent) then I will always prefer to own an album in a physical format.

    Looking at it the other way, on very rare occasions, I've gone to buy tracks from iTunes and noticed that the source album DID have a PDF booklet included. Since iTunes booklets can't be purchased separately, that has often tipped me over into buying the full album. So I would argue that, for the portion of the market that thinks in the same way, offering a booklet is an easy means of persuading the buyer to invest in the whole package rather than cherry-picking a few tracks. (And this would be especially so in the classical music market, where booklet documentation is important and useful.) It seems like such a no-brainer to me – especially given that most albums already have booklet material prepared for their physical releases – and I can't understand why so few albums have accompanying PDFs.

    I can still remember the majors wanting a tax on blank audio cassettes to compensate them for 'pirating' when people taped a record for their friends. The more things change...

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