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Wednesday, March 21, 2007

Has the Music Industry Reached the Tipping Point?

In a dramatic acceleration of the seven-year sales decline that has battered the music industry, compact-disc sales for the first three months of this plunged 20% from last year, the latest sign of the seismic shift in the way consumers acquire music.

The music industry is smack-dab in the middle of a tipping point.

Sales of CD's, which still account for more than 85% of music sold, has far eclipsed the growth in sales of digital downloads. Some say that the music industry finds itself almost powerless in the face of this massive consumer shift to digital music consumption. In recent weeks the music industry has posted some of the weakest sales it has ever recorded. One week "American Idol" runner-up Chris Daughtry's new CD sold just 65,000 copies - and it was the number one album that week. In prior years, it wasn't uncommon for a number one record to sell 500,000 copies a week!

Digital sales have countered this CD slide somewhat rising 54% from last year at this time to 174 million according to Nielsen SoundScan. Yet it's not enough to offset the 20% decline in CD sales.

In sociology, a tipping point is the event of a previously rare phenomenon becoming rapidly and dramatically more common. Much like in physics when a small amount of weight is added to a balanced object it can cause it to suddenly and completely topple. This is what is occurring today in the the music industry.

So, what's the music industry to do? They have been resentful of digital downloads - perhaps rightfully so when it comes to illegal or free downloading and sharing. And the digital protection (DRM) on files the industry does allow to be legally downloaded prohibits mass consumption because that protection is not always capable of playing on all types of digital music players.

Now is the time for the music industry to seriously consider Gerd Leonhard's "Music Like Water" manifesto.

This concept essentially calls for the music industry to realize that the more people who are exposed to music the more will buy. Lower prices, make the music ubiquitous, expand distribution.

  • Drop digital protection and release music files that can be enjoyed on any MP3 player
  • There are 75,000 different devices that play MP3 files and approximately 75 that play protected files.
  • "Music Like Water" = everybody uses and everybody pays (but not at each and every point of use). Tap water is ubiquitous and "feels free" as consumers pay a flat rate or a rate subject to actual use.
  • Ubiquity increases value. Sell access first.
  • Business models that empower the end user will be successful.
The music industry has been ignoring the inevitable as sales of its prime medium (CD's) continue to slide. Will the industry wait until it is literally forced to adopt this model? Or will they begin to move the paradigm toward this solution now to create a smoother transition and ultimately a significant increase in music sales.

Music remains important to the average consumer and we want to be in control. We want to program our own media - we don't want it to program us. The music industry has not accepted this transition of power to the consumer which has not occurred overnight. It's like plugging holes in an expanding dam - eventually the pressure will be too significant.

To the music industry I say: you're losing the war. It's time to face the facts. Your battle with consumers is reminiscent of the movie '300' - you're doing your best to hold back the Persians. Accept the change in the marketplace, develop a model for ubiquitous music access, charge me for use and watch distribution flourish.

This may be the music industry's last chance.

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