Trends in digital downloads
So, to keep things less inflamatory, let's talk about the trends in the digital download market overall, and why it matters (even if not to Apple) if the digital download market is slowing down.
Take a look at the trends in this market here. All the excitement and press around digital downloads is swept aside by the simple stat that wile digital sold $500M in songs in 2005, the rest of the market (CDs, etc...) sold $11.2B (but those sales are dropping). That's something like 9 Billion tracks per year - if there are 100M music buyer in the US, it's 87 tracks per year, 7 per month!
The key question for the industry is whether digital can grow enough to add to or replace lost physical sales. We get an initial indication here: the growth in digital from 2004 to 2005 (corrected) didn't offset the drop in physical sales.
All the discussion below is around which of these two scenarios will play out.
- Digital takes off! iPods and Zunes sell into as many households as CD players, and their users buy digital music on an ongoing basis. They continue to buy roughly 7 tracks per month.
- Digital stalls. mp3 player owners initially buy 30 tracks in the first 3 months, but then drop off to (my estimate based on iTunes history) 1 track per month or less on average. In the long run, this is a catastrophy for the music biz.
This is why these questions aren't academic. They're academic for Apple, but not for the content industry. And it's why it's important for innovation in content services to continue to make them more attractive to device users over the long term than iTunes (and other current offerings) appears to be.
19 Comments:
I have a feeling illegal ways to get content will get easier and sales of content will continue to drop. I know more and more people using allofmp3.com, knowing very well it's no different than downloading from a pirate site... it's just faster and more convenient. At least we have some very rich Russians. ;)
Why do I feel like David is looking in all the wrong directions.
Music sales are dropping and he's looking to the technologies to fix the problem.
How about fixing the music? I quit buying music because I have what I want. I don't subscribe because there's not enough to warrant the $15/month. There are no bands creating "albums," i.e. Pink Floyd style. The last album which actually felt like anything more than a random group of songs was Green Day's American Idiot. So I buy singles... Even then the quality of music is on rapid decline, hence the sales of music are on a rapid decline.
When todays artists are coming from American Idol you're going to get a decline in music sales.
When iTunes was released I bought over 300 songs in a month without even owning an iPod. That was a pent-up demand for 50 years of music I wanted without buying 300 CDs to obtain 300 songs. I only bought my iPod a year ago. Now the music industry is lucky if I buy 100 songs a year.
I have plenty of money to buy music on a whim, but no desire. Release some good music and I'll buy more.
Until then David is looking in the wrong direction.
David, failed to make the final leap in his analysis. He says, "In the long run, this is a catastrophy for the music biz."
Correction: The music biz is the catastrophe.
Welcome to a generation of a more critical audience which realizes the value of most music - they pirate because its not worth the price. If piracy wasn't available, most of that music wouldn't sell anyway. When an artist releases something the public wants... it sells.
They pirate because, well, because it's easy and there is little risk. It's like speeding 5 MPH over the limit. It's all about convenience... and being cheap.
The comment "when an artist releases something the public wants, it sells" is naive.
And saying there isn't enough great music out there is even more naive... you may be stuck in a time period like many people, but if you open your mind, there is some EXCELLENT stuff out there NOW.
Music may not have any value to you, but it does to many.
Each of the two scenarios that you claim the future must be seem wrong, David. I can think of about 10 other scenarios that could coexist in a blended way. It seems like you are still trying to frame the debate as: we want Zune to succeed, and we think the iPod is vulnerable, but now that we are copying them, it's only the two of us that can succeed, or everything fails.
Completely lame analysis and poor prognostication.
Yes, definitely those are two possible options on a continuum. The data seems to be trending towards one end though.
Actually, I see this as unrelated to iPod vs. Zune. I don't think music retailing is a serious weakness for iPod or a real possible opportunity for Zune.
How are those two ends on a spectrum? Even if digital music isn't the saving grace of the music business, no one believes in a future where digital dies out. That's an absurd premise. It's equally absurd to imagine that the only success is for two companies to sell a device to everyone and everyone buys exclusively digital.
You seem to not understand the music market at all: it's always a blend of formats, it always has multiple sources of revenue, it is tiered.
I'm glad you were for Microsoft. And did you really just say you think the Zune marketplace isn't a viable opportunity for Microsoft? Jesus, those numbers you're afraid to share must be pathetic.
Hmmm, RIAA sales have decreased yet more and more artist are selling their goods without belonging to the RIAA.
It looks like the artist are avoiding the RIAA/labels in a big way and putting more money into their own pocket.
Sorry David but....
"We get an initial indication here: the growth in digital from 2005 to 2006 didn't offset the drop in physical sales."
...... the data you linked to was up until the end of 2005.
Could be a bit more interesting when they publish this year's figures.
Piot
duh - yeah, typo. Agree sales for 2006 will be interesting.
I think David's last couple of posts are actually really interesting. However, I also disagree with the 2 outcomes he has listed in this post. New business models could actually have a big impact on how the music is sold in general eg the bands get a bigger cut of what they do and merchandise directly to their fans. This is an example (not necessarily a sustainable one) but my guess is that this is already starting to happen.
BTW I agree that there is a ton of great new music being created, albums and singles alike.
Interesting detailed figures from Nielsen
http://www.tiny.cc/eRQY2
The issue with commenting on music is that it's intensely personal. Everyone has their own take on it.
I believe digital downloads will drastically increase once there is a standard form of DRM. I know plenty of people that stopped buying from iTunes the day they tried to share a song with their husband or play it back on their new shiny Sonos system. The average consumer often doesn't realize that music purchased from iTunes/Zune Marketplace only works on that single device. They assume that they should be able to listen to it anywhere and when they can't they either re-purchase it physically or they refuse to pay for something twice so don't buy the CD but either way they stop buying music from iTunes as they feel like they got burnt.
When I do buy music online it's from eMusic or the Russians. I *want* to pay someone for my music, I'm just unwilling to pay $10 for music that only plays on one device at a mediocre quality level. I know some consider DRM "evil" but I could care less about it as long as it doesn't get in the way of me playing purchased content on any device I own, from Zune to Sonos to cellphone to desktop to laptop to car stereo to my 5 year old Muvo.
For the poster that doesn't think there is any more quality music, that is obviously just a matter of opinion as well as being irrelevant to the bottom line. Music is generational so even if Panic! At the Disco sounds like a knock-off of Blink-182 which sounds like a knock-off of Green Day which sounds like a knock off of Pennywise which sounds like a knock-off of Black Flag... well, none of that matters to my young cousin who is part of the group that still drives a large portion of the consumer music segment. To them there is a wealth of music out there, from Panic! to Sufjan Stevens to The Decemberists to The Streets to Jack's Mannequin to The Fray. The question is, how are they going to purchase it?
David,
If you don't mind reading my questions and observations regarding your iTunes Store and music trends posts, maybe you could clear some things up for me.
It's rather long so I posted it off-site.
Dave - some great posts on this. I'm hoping this is leading somewhere and MS has been working on something innovative - or maybe you are happy to just profit from the hardware?
The labels need to realize that the download market presents itself with more opportunities than they have with CDs right now. It's very unlikely that a change will ever be made to the CD that prevents unrestricted distribution. The impact of CD ripping means that one person buying a CD can lend it to 5 of their friends, they each rip it and give it back. In the old days this may have happened with 'tape-to-tape' decks, but the loss of quality from second and third generation copies would force real fans into going out and buying the record.
The download market is the label's opportunity to at least track digital media ownership. The current DRM is too restrictive and probably plays a big part in why digital downloads are not more popular than they should be.
Other factors can also be attributed to the drop in music sales - quality of music and maybe also the fact that radio is much better quality now than the mid-80s when everything was AM in mono with a whistle noise in the background.
As for DRM, the record labels need to move to a model based on self policing. There's probably a solution here working with file watermarking and removing the file restrictions. A file marked with its registered owner is better for the labels than an unrestricted MP3 file and the download price should reflect that.
Not one Zune related announcement during the keynote address! :(
Really, why would there be? The Zune barely launched 60 days ago, and they just added Vista support.
"why would there be?"...because its a marketing opportunity. I personally was looking forward to some new small-form factor devices. Hopefully during the week we get some news of cool features to be added soon.
Don't expect it. Nothing is more lame than vaporware announcements...
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