Thursday, June 03, 2010

4/5 albums released last year sold less than 100 copies

great article:

First the good news: music consumption is at an all time high. The number of recorded transactions for albums, tracks, singles and videos reached 1.5 billion and the forecast for 2010 looks equally rosy.

Now the bad news: the estimated retail revenue was at it’s lowest point in the decade and 2010 looks set to see yet another decline. If the forecast proves accurate, this year’s retail revenue will be just over 50% of what it was in 2000. By comparison, the number of transactions has nearly doubled in the same period.

Something is clearly wrong.

Looks to me like a classic case of bad pricing. Law of Demand recap: price drops, demand rises. All well and good, but driving demand through price cuts only makes sense if you end up making more. If you’re earning just over half of what you used to while at the same time you’re shifting almost twice as much product, your average transactional price is roughly a quarter of what it should be.

We all know why the price of music has dropped: unbundled tracks, competing with free and all that, but these numbers should show us that further price reductions aren’t the answer. The next time you hear someone saying that music should be cheaper, ignore them – it’s already too cheap, on average.

Okay, perhaps an additional qualification is in order: given the large differences between types of transactions aggregated in these figures (and the unit prices thereof) it is plausible that there’s room for some tweaking of prices – the expensive stuff could perhaps be cheaper and the cheap stuff more expensive. However, calls for lowering music prices across the board are just plain crazy. It hasn’t worked so far and it won’t work in the future.

The report offers two more pieces of information that I’d like to focus on. First is an answer to the question whether the present situation is harming creative output – an assertion often challenged by those who’d like see less copyright protection.

Given that the sales of new v. catalog albums has fallen steadily over the last ten years I’d say it’s a big “Yes!”. Catalog items that have also seen a decline over the period, but over a much flatter curve now make up almost 44% of all scans. In unit terms, 2009 saw new releases shift less than half the volume they did in 2000. That’s not an encouraging perspective for those contemplating market entry.

(Aside: If you plan on releasing new material, you’ll generally want more copyright protection, as the competitive advantage of exclusivity will help you make back the investment in an unproven product. If, on the other hand, you plan to deal in catalog items, you want less copyright protection, so you’ll have access to attractive catalogs without the need to pay royalties or secure approvals. So, how is less copyright supposed to promote creativity again?)

Still don’t believe me? Then why don’t we look at the breakdown of album sales for 2009?

Glenn already pointed out the most important points: only 12 albums sold over a million units and only 2.1% of the 97,751 new releases (just over 2,000 albums) sold more than 5,000 units.

Let’s think about that last figure for a moment. Remember “Paradise…” and the minimum wage calculations? It so happens that 5,000 units per year is something of a magic number. If you’ll recall, we’ve established that going through a distributor like CD Baby (who do report to SoundScan, by the way), you’d need to sell roughly 7,500 units a year to support a four-piece band on minimum wage. If we assume they make up the difference by playing live, for example, 5,000 units a year can be seen as a point where they are beginning to become sustainable.

97.9% of the albums released last year did not reach that level.

It gets better – or worse, depending on your point of view – only 5.3% of the new releases sold more than 1,000 units. That’s a sales level that, while not sustainable in itself, at least provides encouragement to keep going – you’ve made some kind of inroad. You might scrimp and save and put out a follow-up. Maybe that will hit.

Next in Nielsen’s breakdown is 100 units. What percentage of albums managed to cross that line, do you think? A mere 16.9%. Of which two thirds fell short of a thousand copies (the percentages are a running total, so the 16.9% includes the 5.3% that sold more than a 1,000 and that in turn includes the 2.1% that sold more than 5,000).

That leaves us with the remainder: 83.1% of last year’s new releases – 81,241 albums – failed to sell even a hundred copies.

How many of the people involved in making those recordings will make new ones, do you think?

(Important note: It is not readily apparent whether the numbers given by Nielsen include Track Equivalent Albums. I am assuming that they do.)

These figures underscore the primary assertion in “Paradise…” – the Internet has not improved the position of the independent artist. If anything, it is now worse. I think we can lay the myth of an emerging middle class of artists to rest. Such a middle-class – self-sustainable, but nowhere near superstar status – would need to shift somewhere between 10,000 and 100,000 units a year – a feat achieved by just 1% of last year’s releases. That’s not a middle class, that’s the Forbes list.

Whatever we may say about lower recording costs and new forms of distribution, the fact remains that 4/5 of albums released failed to sell 100 copies. No way can you make a business out of that.

Other points of interest include rising vinyl sales – at their highest point in the decade, more than half of them current material – and the ever-increasing share of non-traditional physical distribution channels (online, mail order and venue sales). I’d hazard a guess that the latter is the result of both the emergence of new channels (or more widespread adoption of existing ones) and the decline of traditional music retail.

It would be nice if reports such as this one caused people to finally stop singing praises about the golden future of music on the Internet and realise that we’re hurtling towards the void (in his analysis, Glenn quotes the number of new releases in 2009 as being lower than in 2008 – another warning sign). I doubt it will happen though. Nevertheless, now you know and hopefully you won’t get suckered into fool’s gold.

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