Its fascinating to watch an industry implode — in slow motion — over the period of a decade. It becomes even more engrossing when the wreckage is self inflicted, due to foolish policies and technophobia.

Mind you, we are not discussing historical anachronisms, like steam engine manufacturers or the machine leather belt companies which were needed to transfer the steam power to a mechanical device. No, what I refer to is occurring right now in the music industry. It has been poisoning itself for decades, and we are seeing — a kind of time lapsed photography — the long term effects of their own toxicity and short sightedness.

After 3 years of a overpriced, recession driven, anti-competitive, alternative entertainment choice induced sales slow down, the music industry — for a brief instance — found religion. The industry settled many of their own litigation/criminal issues; And then, the Universal Music Group slashed prices.

What-do-ya know, sales increased!

Alas, short memories abound: “Universal Music Group, the largest record conglomerate in the world, has announced an increase in the prices of their CDs. This comes only months after UMG slashed prices in order to make CDs more competitive in a marketplace that features pay downloads as well as the dreaded “free” (or as record executives and the RIAA like to call them “illegal” downloads”). ”

Ans, its on top of very recent attempts to make “legal” download music more expensive.

The impact of this April 15th increase is already visible in the weekend adverts: None of the usual advertisers — Best Buy, Target, J&R Music (I didn’t see Circuit City’s) — have a single CD on sale for less than $9.99. Before the price hike, select CDs were advertised for $7.99 and even $6.99.

It only took a quarter or two of increased sales for the potential revival of the Music Industry to be put into danger. Its a case of Munchausen syndrome crossbred with self immolation.

The Chicago Tribune was one of the few major papers to cover the recent price increase. They noted:

“Universal stunned the industry eight months ago with the announcement that it would slash the wholesale price of its CDs by 25% in a bid to revive an ailing market and discourage piracy. At the time, Doug Morris, Universal Music’s chairman, said the cuts were intended “to reinvigorate the record business in North America” and would remain in force at least through the holidays.

But Universal’s competitors didn’t follow suit with wholesale price cuts. Some record label executives privately dismissed the price-cut plan as a promotional ploy aimed at boosting short-term sales numbers.”

My prediction: the recent sales uptick of CDs will either flatten out (i.e., small or no rise in sales) or even be reversed going forward.

I expect to see dissappointing sales numbers in Q3 / Q4 2004. And, Macro wise, those quarters should not be all that challenging on a year-over-year basis.

Here’s the underlying problem which the music industry still doesn’t get: I could buy the new Diana Krall for $9.99 . . . But is that really as good an entertainment deal, dollar for dollar, as let’s say, The Usual Suspectsfor the exact same price? Best Buy has both for $10, or Animal House, Armageddon, Shawshank Redemption, Gladiator, and a bunch of others recent or well loved films — at 2 for $20. As Audio Revolution so succintly put it, “the long term diminishing sales of prerecorded music has as much to do with the lack of video in the value proposition for a CD as it does with the overall price of a CD.” That’s one of key misunderstandings of the Music biz — their competition is for the consumer’s entertainment dollar (DVDs and Video Games) — not one CD versus another.

We have mentioned in the past that DVD sales have been cannibalizing CD sales for quite some time now; Its only going to get worse going forward.

There are other issues we have barely explored in this blog. One of my pet peeves is the mediocre sound quality of MP3. Audio Revolution observes:

“The CD has bigger problems than being overpriced. Competing with illegal downloads is impossible; however, the problem with the CD as a format is that it no longer meets the technological or entertainment value demanded by the modern consumer. On a technological level, CDs sound better than MP3’s without question but in comparison to DVD-Audio or SACD (UMG prefers SACD but has released a number of titles in each format) the CD is pathetically underpowered. CDs (in almost all cases) do not have 5.1 surround sound, higher resolution stereo tracks (20 and 24 bits at 96 or 192 kHz sampling rates) and other added values found on the new DVD-Audio and partly on the SACD format.

Despite the late rush to promote and sell lower resolution downloadable music, consumers still appreciate better quality. In the world of video, hundreds of thousands of consumers per month upgrade to HDTVs that are exponentially more expensive than traditional TVs. Even with very little HDTV programming being broadcast to date, consumers find the value proposition of a wider, more resolute TV worth $3,000 to $30,000 or even higher. Thevalue proposition of CDs is far less favorable to consumers now 20 plus years into the format’s tremendous run.”

So not only is the industry failing to market themselves creatively, they are wed to an outmoded format, which will likely only make their problems worse as time goes on.

“Aside from that Mrs. Lincoln, what did you think of the play . . .?”

Sources:
Universal Music To Increase Cost of CDs
Jerry Del Colliano
Audio Revolution, April 16, 2004

http://www.audiorevolution.com/news/0404/16.universal.html

Music labels mull digi-music price rise http://www.macworld.co.uk/news/main_news.cfm?NewsID=8397
Macworld, April 08, 2004

http://www.macworld.co.uk/news/main_news.cfm?NewsID=8397

Universal Eases Off on CD Price Plan
Jeff Leeds
Chicago Times, April 16, 2004

http://www.chicagotribune.com/technology/la-fi-universal16apr16,1,4157729.story?coll=chi-technology-hed

Price hike will sink iTunes
Matt Buchanan
Washington Square News, 04.22.2004

http://www.washingtonsquarenews.com/opinion/columnists/7370.html

Category: Finance, Music

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Music Industry Intent on Commiting Hari-Kari”

  1. Carnival of the Capitalists!

    Welcome to the Carnival of the Capitalists! I am thrilled to be hosting this week and invite you to take a look around Venturpreneur as long as you are here. (Apologies to Netscape users, as I am still trying to…

  2. Carnival of the Capitalists!

    Welcome to the Carnival of the Capitalists! I am thrilled to be hosting this week and invite you to take a look around Venturpreneur as long as you are here. (Apologies to Netscape users, as I am still trying to…

  3. Carnival of the Capitalists!

    Welcome to the Carnival of the Capitalists! I am thrilled to be hosting this week and invite you to take a look around Venturpreneur as long as you are here. (Apologies to Netscape users, as I am still trying to…

  4. Carnival of the Capitalists!

    Welcome to the Carnival of the Capitalists! I am thrilled to be hosting this week and invite you to take a look around Venturpreneur as long as you are here. (Apologies to Netscape users, as I am still trying to…

  5. John Brown says:

    See this from Sydney Morning Herald

    Russian site is music to the ears
    By Charles Wright
    April 27, 2004

    Over the past few weeks, purely as a research project of course, we have downloaded from the internet 4.74 GB of MP3 music, which amounts to 968 tracks or 56 albums – from a collection of artists that ranges from Norah Jones through the Beatles, Janis Ian, Otis Redding, Ray Charles, Paul Simon and Joni Mitchell to Miles Davis and Charles Mingus.

    Had we been able to use the Apple iTunes music store – still not available in Australia – those downloads would have cost us US99 cents apiece, which works out to $US958, or about $A1300 in real money. On the Telstra music store, we would have been up for $1442, provided we were BigPond customers. Since we’re not, our credit card would have had a $1829.52 work-out.

    We weren’t about to spend anything like that, but we also weren’t prepared to do anything conspicuously illegal. We bought all those songs for $US48.65, or $66 in local currency, which works out, according to our arithmetic, to 6.8 cents a track.

    That’s the apparently insane price proposition that a Russian site called allofmp3.comoffers its customers. You buy your music by the megabyte, at the rate of 500 MB for $US5 and you dial in the sort of encoding you want: MP3, MPEG4-AAC, OGG, MPC, WMA etc at various bit rates using different encoders _ say the LAME alt-presets. If we were prepared to pay more for the bandwidth, we could elect to have the music encoded with lossless algorithms, giving us the same quality as the original CD.

    Computers at allofmp3.com encode them on the fly and spit out the files, at an impressively fast rate. It will even email you when they’re ready, or you can use their software, Allofmp3 Explorer, to manage the transfers. The software – like everything else on the website, from the catalogue to the order and payment mechanism – is surprisingly well written and professionally presented, the range of popular music is vast, and the quality of the music is at least the equal to anything we’ve heard.

    There is no indication in our dealings with allofmp3.com over several weeks that this is one of those dubious enterprises so much loved by the Russian mafia. Our credit card doesn’t seem to have been abused, and while we have no legal qualifications, we can’t see that it fails to comply with the Berne Convention on copyright. According to the company, “All the materials in the MediaServices projects are available for distribution via internet, according to Licence # LS-3M-02-36 of the Russian Multimedia and Internet Society.”

    It claims it pays licence fees for all material on the site, “subject to the law of the Russian Federation on copyright and related rights”. We hope that this is correct, because under the terms of use, we’ve agreed we won’t use their services “if it is in conflict with legislation of your country”.

    We can’t see any legal or moral objection to using the site. We’re using the material for private use, there is no restriction in this country on the parallel importing of recorded music and none of the artists seem to have been deprived of their rights. While we suspect the recorded music industry would like to earn more from their music, we’re in no position to judge the arrangements they might have made with Russia.

    Nevertheless, the prices we’re paying to satisfy our increasingly obsessive passion for music tend to make us a little nervous about whether we’re engaging in a spot of bargain-hunting or a form of digital burglary.

    We sought some advice from a Melbourne barrister and contributor to these pages, Simon Minahan, who practises in the area of intellectual property.

    His opinion: “There’s probably nothing to stop the individual from downloading this material for private use. For end users, the issue is a basic question relevant to acquiring a reproduction of any copyright work: has the rights owner consented?”

    Even if allofmp3.com’s asserted licence is bogus, says Minahan, “the end user would seem to have a good basis to argue that he is an innocent infringer, which would mean he isn’t liable to damages, although he would still be liable to an order requiring him to destroy or deliver up any copies and an order requiring him to refrain from doing it again.”

    cwright@theage.com.au

    This story was found at: http://smh.com.au/articles/2004/04/26/1082831475556.html

  6. Well, the whole industry is changing. 10 years ago I was paying $25 for a music CD. Nowdays you can get these for under 10. Still,why would anyone buy CDs? Nobody have CD players anymore. Music industry should start changing. Sell mp3 usb drives and things like this!