Posts filed under “Music”
Altitunes is a Music retailer located almost exclusively in airports. Not exactly the most competitve of retail spaces — captive audience and all that.
The one non-airport location is Grand Central Station — right across from my office. I walk by it a few times aweek. Their latest promotion is 2 CDs or DVDs for $25.
This may not be the best pure sale prices — Target regularly runs $7.99 CD and $9.99 DVD sales, and this week, Best Buy is advertising a “3 DVDs for $20 sale.”
But it points out an interesting conundrum facing the music industry: The competitve pressures they have been facing from the Film industry are actually increasing.
If DVDs — with 2+ hours audio/video, plus many extra features, interviews, fan items — can be sold at the price point of 3 for $20, then why can’t CDs? Even if the BestBuy promotion is a loss leader (I’m not sure it is) — there is something unequivocally broken about the CD pricing model.
The economy slows, CD sales slow.
The economy recovers, CD sales recover.
If I am going too fast for you with this complex and sophisticated economic argument, please let me know. I can’t make this explanation any simpler, but perhaps I can find some crayons or blocks for you to play with.
The simple truism above is well known to everyone outside of the music industry. For unknown reasons, the music industry and the RIAA act as if they are exempt from the business cycle. Most sectors of the economy suffer during recessions — the exceptions are “interest-rate sensitive” groups, like Autos, Home, and Durable Goods, which benefit from the falling rates which usually accompany economic slow downs.
As we have been discussing for quite sometime now, sales of discretionary entertainment products like CDs are not an exception.
Despite the high, illegally price-fixed costs of a CD, you don’t yet need to take out a mortgage to buy one. So there is simply no reason to believe that CD sales have ever benefited from a broader economic slowdown. Yet judging strictly from the public statements of the recording industry over the past 3 years, one would never have even known that a post tech-bubble recession happened from 2000-2003. They simply never mention it. The New York Times, in an article about the continued uptick in music sales (“CD Sales Rise, but Industry Is Still Wary“), never reaches the issue of the economic weakness during the past three years.
As the economy weakened, so have CD sales:
Annual CD sales
Source: New York Times
Not surprisingly, industry sales are running parallel to the broader economy.
Indeed, in the aftermath of the world’s greatest speculative bubble, during a recession and a bear market which saw the Nasdaq lose 80% of its value, the sector only saw a 12% drop in sales during the same period. Its hard to undestand why music executives are wringing their hands over this; Most businesses would have been thrilled with “only” seeing their business off by 12% during this period.
Since then, we have seen an improving economy. Although consumer confidence remains shaky — mostly due to anemic job growth — we have seen a general improvement in spending. This has been especially true in the second half of 2003, as the hottest part of the Iraq war passed.
As the economy continued to gather strength, sales of CDs recovered. The last quarter of 2003 saw a marked marked uptick in total album sales.