Politics, Technology, and Language

If thought corrupts language, language can also corrupt thought — George Orwell

Archive for January 27th, 2008

Entertainment ecosystems, part 1

Posted by metaphorical on 27 January 2008

I’m not sure video killed the radio star. But we know who’s killing the record store. Actually, I think in many ways the causes of the two deaths are the same, so let’s start with who killed the radio star.

One cause was the deregulation of media in the 1990s, which allowed for station consolidation. Suddenly a single company could own hundreds of stations each, and a few emerged to do so. As a consequence, we saw the emergence of national DJs, national playlists, a disregard for everything except the Top 40, and radio’s contribution to the dissolution of what we might call the ecosystem of music.

I’ll have more to say about entertainment ecosystems in a bit. Let’s turn now to the record store. Dave Larsen, a staff writer at the Dayton Daily News, had a good article this weekend asking the question, “Has digital killed the record store?”, arguing that downloaded music is eclipsing CD sales.

The growing popularity of digital music downloads could send compact discs the way of cassette tapes. Music retail stores might soon follow.

Overall music sales were up 14 percent from 2006, according to Nielsen SoundScan’s 2007 music sale figures for the U.S.

Downloaded song and album sales hit record levels in 2007, rising 45 percent and 53 percent, respectively. But explosive digital growth wasn’t enough to make up for the loss in physical CD sales, which fell nearly 19 percent.

The steady decline of CD sales in recent years has led to the demise of such retail chains as Tower Records and the Musicland Group, which operated Sam Goody, Media Play and Suncoast Motion Picture Company stores. Locally, independent retailers such as Renaissance Music Media and the original Dingleberry’s have closed.

“Most of the independent and national chains that sold CDs have gone away,” said Hans Buflod, president of the local CD Connection chain. “It’s changed drastically, especially in the last five years.”

Larsen doesn’t really go into it, but it’s the record labels who killed the small stores, by cutting deals with the big box stores, especially Wal-Mart and Best Buy. By 2003, Wal-Mart alone accounted for 20% of all major-label record sales. It did so by selling CDs at a loss for $10, to draw shoppers into the store. By 2004, it decided it didn’t need to lose money anymore, and, as Rolling Stone reported at the time, it demanded price cuts that let them sell CDs for $9.72, without a loss. (Isn’t that a great number, by the way? It doesn’t feel arbitrary or random at all.)

Instead, Larsen notes that the record labels blame illegal downloading, especially filesharing networks. And indeed, though he doesn’t mention it, the battle against college students has gotten particularly hostile in the last month or so, with the students resisting in a number of places, such as Maine, Stanford, and MIT, and even countersuing.

But he also notes the poor evidence for that claim:

However, a 2007 study by Felix Oberholzer-Gee of Harvard University and Koleman Strumpf of the University of Kansas found that file sharing has had a negligible effect on the decline in CD sales. “Moreover, by exposing users to new music, sharing may actually have increased sales,” they wrote.

I wrote about the same thing anecdotally at work back in July 2002 in an article that’s ironically no longer freely available.

But back to Larsen:

Gary Staiger, owner of Omega Music on North Main Street, blames record companies for phasing out the CD single.

“When you put out a crappy album that only has two (good) songs on it and you can go buy the two songs for a buck a piece (online), why would you spend $15.99 on the whole album,” Staiger said. “Consumers have brains.”

Competition from other sectors is a more likely explanation, according to Oberholzer-Gee and Strumpf’s statistical analysis of file sharing activity in 2002.

“A shift in entertainment spending toward recorded movies alone can largely explain the reduction in sales,” they wrote. “The sales of DVDs and VHS tapes increased by over $5 billion between 1999 and 2003. This figure more than offsets the $2.6 billion reduction in album sales since 1999.”

The rest of Larsen’s article looks at some small chains and individual stores, and their strategies for surviving.

Chain music stores for the first time dropped below 40 percent market share, falling to 36 percent from 41 percent in 2006.

Independent record stores held steady with 6 percent of the marketplace. Some independent retailers, such as Massachusetts-based Newbury Comics, have opened new stores.

“There will be physical buyers for a long, long time,” [Rob Perkins, CEO of Value Music Concepts] said. “Some people just want to touch it and feel the product and communicate with folks that are addicted to music, just like they are. That’s what these independent stores provide. We have people who spend an hour at a time in our store just looking at the product and speaking about music.”

Larsen quotes Hans Buflod, president of the local CD Connection chain, as saying,

“I think at some point in the future all music and all video and probably all books, as well, will all be available for download directly from the manufacturer.”

And sure enough, even a year ago, Wal-Mart was down to 15.8%, Best Buy’s share at 13.8%, and iTunes was a just under 10%, according to an SFGate.com story.

As it happens, I recently did a radio commentary making the exact same prediction, for DVDs — even high-definition ones. (It can be downloaded here.)

I want to linger over one thing that Perkins said:

We have people who spend an hour at a time in our store just looking at the product and speaking about music.

This is the ecosystem at work. The more people know about music, the more time — and money — they want to spend on it.

And music has never had to fight for mindshare like it does today, what with television, videogames, movies, books, YouTube, message boards, email, and so forth. At the same time, it has fewer tools than ever with which to capture that mindshare, and in particular, for people to discover new music.

Radio used to be in the center of that. Stations would promote, and in many cases sponsor, and sometimes broadcast, live events. DJs — local DJs — would interview touring singers and bands on the air. DJs played a much broader mix of music, not just the top hits as defined by record label promotion.

And music stores used to be in the center of that as well. For true fans, perhaps they still are, but a vastly greater number of music purchasers abandoned them some years ago in favor of lower prices, disregarding the meager selection. Today’s music stores — the big box stores — don’t have knowledgeable salespeople recommending stuff, and they don’t have the stuff that a knowledgeable person would recommend anyway. Walmart.com has 90,000 CDs, but the stores themselves carry only a small fraction of that.

And don’t underestimate Wal-mart’s power. According to a December article at MTV.com, “The Eagles’ Wal-Mart-only LP, Long Road Out of Eden, [debuted] at #1 on the Billboard albums chart with sales of more than 711,000 copies.”

My hunch is that movie soundtracks and now videogame music are incredibly important now because they’re one of the few ways we have of hearing something new without seeking it out. It’s not surprising that ever since at least Buffy, television shows have also been introducing new music.

The music ecosystem is vast and deep, and it includes everything from cover bands to sheet music to marching bands to high school musicals to elevators and bars and banks and your own desk when you’re placed on hold on the phone. But the traditionally biggest sources of new music for most people aren’t delivering it. The ecosystem is out of whack and new predators of people’s time, from videogames to mobile phone calls, are rushing in.

The question the major labels should ask itself is whether music fans have enough ways to find new music even when we include sampling it on file-sharing networks. The last thing the industry needs to do is shut down its last best hope for the ecology of music to find a new balance.

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