The money is in the merchanise
Artists no longer look to record sales to make money, says David Sinclair. Today's profit is in live shows and merchandise

Published: Independent 25 August 2006
The days when sales of recorded music were the most commercially significant sector of the music business are gone. It may be overstating the case - but not by much - to say that recorded music is perceived by the iPod generation in much the same way that a glass of tap water would be regarded by a customer in a restaurant. The diner knows that it costs money to put clean, fresh water on the table, but expects those costs to be absorbed elsewhere. He is unlikely to complain about the steep mark-ups involved in providing the rest of the meal but would otherwise feel aggrieved at being asked to pay for an item that is so freely and generally available.

As a generic product, recorded music, nowadays, is almost as ubiquitous as tap water. It is provided, quite legitimately, free at the point of delivery, from a variety of sources. It comes blaring out of radios and TVs, or stuck on the covers of magazines and newspapers, or streamed on MySpace and thousands of other websites. Supply far outstrips demand. And where the demand is for a specific song, or collection of songs, the illegitimate methods of acquiring them - also for free - are still widely accessible and hugely popular. BigChampagne, an American media measurement company that monitors downloading activity on the internet, has estimated that roughly one billion illegal music downloads take place every month. Anecdotal evidence suggests this may be a conservative figure.

So the news that Sony BMG, Universal, EMI and Warner Music are suing the popular file-sharing network LimeWire for "massive" infringement of copyrights is hardly surprising. Of course, unauthorised distribution of copyrighted music is wrong, and doubtless LimeWire should be forced to follow in the footsteps of previous file-sharing sites, such as Kazaa and Napster, and either become a legitimate business or face the consequences. But it is unlikely to turn the tide in the long run.

Yes, legitimate sales of downloads are on the increase, with iTunes claiming sales of close to 100 million units per month. But everyone knows that on the rare occasion when the kid with an MP3 player does pay for a download or the even rarer occasion when he ventures into a record store and actually buys a CD, the music will have been copied by half-a-dozen of his friends by the end of the week.

"I'm not a big fan of litigation," says the business analyst Celia Hirschman, the MD of One Little Indian Records, North America, and owner of Downtown Marketing. "You're never going to be able to stop illegal downloading. It's a dam that's broken in too many places. But every download that exists is quantifiable. If we could identify a way to collect the revenues for downloading from payments that are made to the internet service providers, rather than create individual download companies, that would be the way forward. Instead of trying to sue people, which I think is a lethargic, poorly planned way to change something, they need to search out for other solutions that are much simpler to use."

The results of these trends are all too predictable. In America, where sales of CDs dropped by 25 per cent between 1999 and 2005, according to the Record Industry Association of America, the physical retailing sector has gone into meltdown. According to The New York Times, 900 record stores in America have gone out of business in the last three years, a contraction of more than a third.

Yet it seems that consumers still spend about the same proportion of their disposable income on music - it is just that they no longer spend it on recorded music. The same people who baulk at paying

and yet another forcasting the demise of music retail.
I reckon there will be almost no "music stores" by this time next year; just departments in other shops and supermarkets.

Aren't "music stores" / "record stores" an invention from the mid-60s (at least in the UK)?

...they were all departments in a bigger shop (furniture, musical instruments, audio equipment, etc.). Five years later (around 1970) we had many record shops - all independents at that time.

with singles for 50 or 60 pence.

My favourite shops were Record & Tape Exchange (Notting Hill Gate branch) and Cheapo Cheapo (?) in Soho (Berwick Street?).

It wasn't long ago that i stated on here in one of my posts that 'bought' recorded music cannot last long and will be replaced by and ad sponsored or 'free' model. It's good to see when others are waking up and looking at the 'signs of the times'.

The world is used to free music now and those that are going to buy a product will be buying it for other reasons than the music and it is time that the physicals began to reflect this.

I also think now that labels must begin to understand that they cannot let others like myspace and youtube steal ground. We are the ones with the content and we need to ensure we get the maximum dollar return on it.

Monetise your marketing and market from YOUR website. Thats the new mantra. With Youtube set to make every music video in existance available, for free and with hundreds of millions of users registered i think it's goodnight sweetheart to mtv and all the powers that be that controlled music.

There are new rules and new methods to create a buzz,
of course you need to have great music, that goes without saying but this is the best time for those who love music and have a bit of savvy to understand that it's all about licensing, merchandise and personal appearances/gigs whether in person or webcast online (not in realtime though).

On TV this morning Universal are offering a free download service paid for by advertising.

Though this sounds good it will still mean that the smaller labels and bands will not be able to sell downloads so easily because the effect on the smaller download stores may be to put them out of business.

At present the whole model of selling music is in a state of high flux. It seems to be changing on a 3 monthly basis. Though the biggest labels and artists are still selling albeit with smaller margins.

The move to selling CDs through supermarkets will mean that very few acts will be able to get their CDs in front of the public. The rest of CDs will be sold through mail order or download.

Even if a download sells 10,000 copies at 79p, once you strip out the VAT , publishing etc. the recording cost and any advertising cost there still will be very little profit for the artist.

Therefore the merchandise sales are becoming more important.

The Record Store is going to die, and I doubt anything can stop it.
The boom time for the Record store was the 1970s. There were literally thousands of independent shops selling music, run by enthusiastic owners. London had Our Price and Harlequin (later taken over by Our Price). The east had Andy's Records, the south had Music Market and Subway, the midlands Discovery Records and Revolver Records, and the north had Ames. On top of that, you had Virgin and HMV. Every small town had two or three good stores, and the bigger towns and cities had stores both in the centre and the suburbs. Now, most of these stores have been replaced by supermarkets. Has somebody ever written a book about the rise and fall of the record shop?

Let's look at this from another perspective.
This may be an attempt to undermine Itunes as the dominant force that it is. I do think the ad sponsored model is the way forward for music on the internet to survive the onslaught of the p2p, youtube, myspace
etc.

I have previously suggested a two tier system.

1. A lower bitrate free version perhaps 128k
2. A higher bitrate paid for version of 192k and
above through Itunes or others.

As far as physicals are concerned mail-order will
suit independents who cannot possibly compete with
the majors as far as supermarket sales
are concerned. Sales at gigs could be measured and
if you look at the Americans they have a system whereby you can
soundscan your gig sales of CDs.

I don't think the independent labels or artists are going to be severely disadvantaged as long as the
following happens.

Artist must now look to having websites of their
own that serves ads. May not necessarily be their
own or label site but they need to have one of their
own.

Artists can join the new ad sponsored site (i haven't
been on it yet so i dont know if it is open to
indies). If this isn't possible then it may be time
for AIM to help set up one specifically for indies.

Merchandise sales of collectible items can make up
the shortfall but there can be a workable and profitable formula with free music. Watch this space
as i am looking into it.

Getting adverts to small site is very difficult. Bands surely will be spending their time as ad execs if they try to follow the model.

The download war has now started in earnest and it will be interesting to see how the next 12 months develop.

7 Digital seem to have the most flexible and consumer friendly model which offers both labels and bands ( through its indiestores ) a chance to sell on-line.

I can see many of the less flexible small download service providers folding if free major label downloads become the norm.

Spiralfrog / "free" downloads this is just HYPE / BULLSHIT.

Bob Lefsetz:

Rental, and make no mistake, SpiralFrog is rental, it's just that you pay for it with your eyeballs/time as opposed to cash, has been proven to be a failure. Napster's going out of business, and Rhapsody is a niche product. So, why in HELL should I care, should ANYBODY GIVE A FUCK, about a service that allows you to have the material on the MAN'S terms when you can steal it all and own it with no questions asked? Isn't the solution to monetize the stealing, by charging at the ISP level, as opposed to capitalizing enterprises that nobody wants, trying to convince people to be satisfied with LESS than they're already used to?

....

But the real story, which the labels won't admit, is that the iTunes Music Store sales are de minimis to the ongoing theft. Never mind P2P, but CD and hard drive swapping. But rather than address the stealing, the record companies focus on Apple's near monopoly? Trying to break that? Unbelievable.

And why does Apple have this monopoly? Because of the sheer ineptitude of its competitors. Anybody can make an MP3 player, but people want iPods, because they WORK better.

Let's ask Sony. Which had the name brand advantage. Connect and their devices are a failure. Maybe because, at first, they only sold the music in a proprietary format, THAT NOBODY ELSE USED!

I know that Microsoft pushes WMA. But if you think Microsoft always wins, you've never heard of Google. WMA IS NOT the music standard. Shit, do we have to watch the Betamax movie one more time? Sure, WMA preceded Apple's AAC, but it's been ECLIPSED!

And, everybody savvy knows the real standard is MP3 anyway. And isn't it funny that the labels want to punish Apple by throwing in with MICROSOFT? Isn't that like punishing Righteous Babe by throwing in with UNIVERSAL?

And should we be impressed with any digital moves made by Universal anyway? These are the same guys who came up with Farm Club and PressPlay. Literally the same guys, Doug Morris and Jimmy Iovine. Doug's a sexagenarian song guy. Jimmy? He's an opportunist. Believing these guys have the digital answer is akin to believing the guys who did the Mentos movie are going to eclipse Paramount.

SpiralFrog will use the Windows Media format for the service. Details of financial arrangements between the two companies were not made public.

SpiralFrog said it had carried out research into user preferences and it has found that most of the users are ready to pay for content and would not mind non-intrusive, contextually-relevant, targeted advertising. It said it will target people in the age range of 13 to 34.

The firm said it will take some 90 seconds to download a song. However, this is longer than the 15 to 20 seconds it takes to download a song from iTunes.

According to online content specialists, the free download service will not be without strings. First of all users will have to bear the advertisements. Secondly, there will be measures in the form of software to prevent copying the songs or sharing them with others. Thirdly, there will be the question of device compatibility. Of course, it will not be possible to use the popular iPod.

The music industry and SpiralFrog will integrate digital rights management technology into their downloads, in effect controlling illegal sharing of the downloaded music and videos.

It was unclear how the ads would be integrated into the downloading process. Many marketers are convinced that

This is the most exciting thing to happen in the music business for a long while, it could really turn everything on its head.

Channel Four News ran a report on the Spiral Frog last night and stated that Universal were going to place spoken ads at the beginning of each track. If this is correct it is a terrible idea ! I don't want to be sold washing liquid before I rock out !

Why would I download a track full of adverts that can only be played on a WMP compatible player and burnt to CD a restricted amount of times when I could get the same track ad free, unrestricted through Limewire ? Where's the incentive to acquire this track legally ? This will do nothing to prevent piracy. It seems so misguided and wrong.