The music industries, as they are known nowadays, derive from technologies to record music and play back recorded music. The figure below shows a summarising timeline with milestones of the music industries since the beginning of the 20th century.
Finally, here comes the third part of the music industries history triology. It is a quite long article, but I hope it is worth reading!
If you missed the first two parts, here are the links:
At the end of the 1990s and during the whole 2000s, the comprehensive digitalisation of music with the MP3 codec, in both legal and illegal variation, became a serious problem for the record industry. The chart of DeGusta (2011) shows a peak of the US revenues with recorded music in 1999. These revenues mainly remain on the dominant success of CD sales, which were responsible for 91% of all income from recorded music sales (Fox 2002; Wikström 2009).
The global income from recorded music in 2009 was 18.6 billion US-$ (RIAJ 2011). The latest statistics from the IFPI reveal that this figure decreased to 17.1 billion US-$ in 2010 and 16.6 billion US-$ in 2011 (Musikwoche 2012; Williams 2012). The largest music markets worldwide are the USA, Japan, Germany and the UK (RIAJ 2011). The Digital Music Report 2011 (IFPI 2011) reports an estimated 77% loss of album sales between 2003 and 2010. Although digital download shops and other new digital income streams have developed and grown since Apple launched iTunes in 2003 in the USA, the value of the global record industry diminished by 31% between 2004 and 2010 (Renner 2004; IFPI 2011), or about 50% loss between 1999 and 2008 (Wikström 2009). Marshall (2012b) notes that in terms of the IFPI statistics the current recording industry includes a large number of smaller record labels and self-distributing artists that are not considered by the IFPI figures. He refers to Tunecore founder Jeff Price, whose distribution service handled 42 million track sales in 2009. Note that these figures might be higher today and Tunecore is not the only distribution service for self-distributing artists or small labels. Marshall (2012b) points out that the 1990s can be seen as an anomaly with the high CD sales and that the USA and Japan, as the two largest music markets, have been affected by the crisis more than other countries. Nevertheless, the overall global recorded music market has experienced a significant setback in the last decade due to several reasons, which will be analysed in the following.
Illegal file-sharing and its impact on CD sales were investigated in the last decade, because music industry associations saw a correlation between increasing file-sharing and decreasing CD sales (Leyshon et al. 2005; Marshall 2012b). Liebowitz (2008) confirms the opinion of music industry associations in his research, and observes that youth music genres such as HipHop and RnB were more affected by declining sales and a high amount of file-sharing, which implies a correlation. Liebowitz (2008) mentions other researchers who also analysed a negative effect of file-sharing on recorded music sales, such as Hong (2007), Rob and Waldfogel (2006), and Zentner (2006). However, other researchers deny a negative impact of illegal file-sharing on CD sales (McLeod 2005; Andersen and Frenz 2007; Oberholzer-Gee and Strumpf 2007; Janssens et al. 2009; Mooney 2009; Lasar 2011). According to their studies, other aspects are responsible for the decline of CD sales: digitalisation in general, changed consumer behaviour, additional entertainment consumption options, and a changed economic situation that influence recorded music sales to a greater extent than illegal file-sharing does. These influences are examined below.
- Digitalisation: De facto, digitalisation started with the introduction of the CD. MP3 and other compressed audio file formats have a small file size compared to WAV or AIFF in 16-bit linear PCM quality, which is used on CDs. This allows users to transfer, share and copy these files easily and quickly, and to store a higher amount of files (Hesmondhalgh 2007). These files have lower audio quality, but this quality seems to be sufficient for most consumers.
- Changed consumer behaviour: In the 1990s, buying CDs and identifying with music and artists was more important to the consumer. While the ownership of music and the collection of music were essential for many consumers, the access to music is sufficient for many consumers nowadays. Consumers can represent their identities and personalities in other ways, for example via social networks and other entertainment media (e.g. DVD, video games, and mobile phones) (Marshall 2012b).
- Changed format preferences: Since the 1960s, the phonographic market has evolved to become an album-driven market, which provides larger margins than single releases. With digitalisation, unbundled single tracks got more relevance (global figures: 233 million single sales in 2003; 1.636 million singles sales in 2009), and albums lost their market dominance, which led to a decline in revenue (Tschmuck 2009; Marshall 2012b).
- Ended CD replacement cycle: Marshall (2012b) highlights in his argumentation that consumers have replaced their music collections of vinyl or tapes with CDs. This brought higher sales of music records at a higher price than vinyl or tapes, and, therefore, rapid growth to the industry in the late 1980s and 1990s. This replacement cycle might have ended by the end of that decade.
- Additional entertainment consumption options: Additional entertainment possibilities not only have an impact on the changed consumer behaviour as personalities, but also in their consumption and spending. In the 1990s, DVDs, video games, and mobile phones did not compete with music as much as they do nowadays (Oberholzer-Gee and Strumpf 2007; Marshall 2012b). Therefore, less money is available to be spent on music (Leyshon et. al 2005). However, Liebowitz (2008) argues that the research of Oberholzer-Gee and Strumpf (2007) is not correct for several reasons: (1) DVD sales increased, but video rentals, which are substitutes, declined; (2) spending increased on video games until 2002, but this was followed by a recession in the following years (Liebowitz 2007; Snider 2011), (3) the costs of mobile phones fell, even though total mobile phone spending increased (Liebowitz 2007).
- Changed music retail structure: Due to the changes mentioned above, fewer CDs were sold by music and entertainment retailers, and music distributors opened new ways to sell CDs in so-called ‘non traditional outlets’ (NTO) such as supermarkets, gas stations or drugstores. This made it difficult for traditional music outlets to survive, because records were sold in other shops; and shipments were reduced, because NTO’s offered a smaller variety of CDs (Oberholzer-Gee and Strumpf 2007; Marshall 2012b). Online retailers and download shops may offer a much higher variety of music than physical retailers, which is an advantage for the distribution but a disadvantage for traditional music retailers. Liebowitz (2007) criticises Oberholzer-Gee and Strumpf (2007) for citing a changed music retail structure as an argument for declining recorded music sales. Big box retailers increased their market share, and new shops such as download shops and online retailers entered the market (Liebowitz 2007).
- Changed economic situation: The world economy had two big recessions in the 2000s at the beginning of the decade (dot-com bubble, 9/11 crisis) and at the end of the 2000s (finance crisis, credit crunch) (Akyüz 2010). Consumers spend less money on entertainment in recession eras. Therefore, the recession of music sales is connected with the downturn of global economy. Historical comparisons can be made with the economic crisis in the 1930s and the oil crises in the 1970s.
Findings in research are partly contradictory regarding the reasons for the crisis in music sales. Regardless of whether the reasons for the sales decrease are mainly based on illegal file sharing or other mentioned reasons or both, the media and music industries have experienced significant changes in recent years, which resulted in a decline or a switch of spending to the detriment of the record industry (Wikström 2009).
Despite the problems of the record industry, the music industries in general in the UK are growing: live music experienced a boost during the last couple of years and saved the UK music industries from the recession in the record industry during the last decade (Wikström 2009; Page and Carey 2009; Page and Carey 2010). However, for 2010 the UK collecting society PRS for Music warned that the live music boom failed to appear, but 2011 might have been a growing year again (Koranteng 2011; Topping 2011). Although this result is a positive one for the total music industries, the division of ticket revenues for live performances between superstars and new talents enlarged during the last decades. While in 1982 only 26% of the ticket revenues were made by the Top 1% of all artists, the same group made 56% of the ticket income in 2003. The ticket revenue analysis of the Top 5% of artists reveals that they earned 84% of all ticket revenues in 2003 (Connolly and Krueger 2006). A similar situation is observed and analysed by Resnikoff (2011) who describes the music industries as “becoming a third world country […] [with its] extreme gaps between rich [superstar artists] and poor [newcomer artists]” (Resnikoff 2011). This does not simplify the development of new artists, because the growth of the live music market and success stories of the music industries do not affect new artists but established artists or artists who are highly supported by major labels’ investment. Furthermore, the growth in live music income does not help the record labels, unless the record labels close 360° contracts with their artists. Additionally, new players from the live music industry enter the music exploitation business, such as Live Nation’s artist collaborations with Madonna, Jay-Z, Korn or Robbie Williams (Marshall 2012a). However, record labels were and still are a fundamental business partner for artists regarding their development, because they are, in most cases, responsible for the exploitation of the artists’ music and the recorded music remains the starting point and focus of the artists’ and music perception. With the advent of 360° deals, record labels evolve to ‘music companies’ and increasingly refer to this new term in their communication (Marshall 2012a).
The music industries, especially the record industry, face challenges to monetise music in the new digital world. Although music sales declined in the past years, music is used more than before because of the new access to music through file sharing, streaming and digital downloads, next to physical formats such as CD or vinyl. Oberholzer-Glee and Strumpf (2010) state that, on the creative side, file sharing even encouraged new music to be created and published in the last years. Music production is influenced by file-sharing regarding the availability of pirated music production software. Additionally, the increased amount of available music and publishing artists is caused by digitalisation and cheaper access to recording equipment and music distribution. Before the digitalisation of music production, music studios had to be hired to record and produce a song, and record labels had to invest a lot of money in record manufacturing and distribution. Nowadays, music production can also occur in home studios, and music can be distributed digitally by everyone. Cheaper music production equipment has especially affected Dance music, as this music can now be completely produced within the computer environment without much hardware equipment (Huq 2002; Hesmondhalgh 2007; Wikström 2009; Waldfogel 2011; DerStandard 2011; Tschmuck 2012; Galuszka 2012; Marshall 2012b). Hesmondhalgh (1997) and Galuszka (2012) name this development the ‘democratisation’ of the music industries. Galuszka (2012) states that a large amount of artists do not have any profit aspirations by releasing their music via the Internet. This may suit his research’s focus on net labels and DIY culture, but it is not applicable to the majority of artists, who release their music commercially in download shops via record labels or on their own. Whether artists may reach the break-even point, make a profit or even a living out of their music releases, is a different question, because declining music sales income is divided among a larger amount of artists. An alternative approach of artists is to promote themselves with music releases in order to increase the number of and income from live performances.
Returning to music consumption, there is the danger that music becomes more a background medium for consumers and cheap content for other businesses (Degenhardt 2010). Illegal file sharing, digitalisation, and changed music retail structure have an impact on the devaluation of music. Illegal file-sharing and digitalisation enable free access to music downloads. Consumers perceive digital music as a format that should be freely available, while music had to be bought on CD or vinyl in earlier days (Fox 2002). Before the Internet, music could only be bought in physical format in stores. Record shops are in a difficult situation, because music is less frequently bought in physical format today. Therefore, the music retailers’ structure changed in the last few years, as many music-only shops were closed, and music is more often sold by general entertainment and electronics shops (BBC 2011). Additionally, the record industry has reduced spending on artist development and marketing due to their decreasing sales, which reinforces the devaluation.
Nonetheless, it is the task of the music industries to develop strong music and artist brands with sustainable and authentic artist development which counteracts this devaluation and sales loss. The more that music fans feel committed to and identify with their favourite artists, the more they will be willing to pay for the artists’ content.
Text extracted from my PhD thesis on “Organic Artist Development within the Dance Music Genres”.