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'What About That 25% CD Sales Drop?'
By Eric de Fontenay (Founder & Publisher)
(more articles from this author)
2003-05-12
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I remarked in Friday's editorial, "More Hot Air On File Sharing," that 'research' surveys by firms such as Nielsen/NetRatings and Ipsos were "about as accurate as the exit poll figures on election night... They hold about as much water as industry organization charts showing how CD sales started dropping as file sharing emerged." I went on to note that "what we are incapable of saying with any statistical & scientific certainty, despite all the 'significant' research, is what the net effect actually is, and not only on recorded music sales, but concert ticket sales, merchandising or even song plugging"

So naturally, I would receive the following question in my in-box: "So you're assuming that the drop in CD sales, which amounts to close to 25% over three years, has nothing to do with file sharing?"

First of all, my challenge was to all the bogus numbers being bandied about by supposed 'research' firms and industry organizations proclaiming they understand, nay, could measure the impact of file sharing. I believe we can both agree to give this about as much credence as the analysts' buy recommendation for Enron & WorldCom stock in 2001.

What I do not dispute, though, is the 'taketh/giveth' effect of file sharing that on the one hand threatens the recording industry's traditional business while on the other boosting concert sales and exposing otherwise unheard music. Clearly some artists feel that they can benefit from file sharing systems to sell music such as Ice T and Widespread Panic, to name a few. And while it is impossible to substantiate, I'll go out-on-the-limb and conjecture that artists such as 50 Cent & Eminem have benefited to some extent from file sharing. Nielsen/NetRatings latest findings, if they are to be believed, would provide some support to my unsubstantiated claim. Madonna's dueling with file sharers, on the flip side, may have created a climate that has hurt sales of her latest CD.

But that's the micro level and the question referred to the macro level effects on file sharing can best be summed by the following quote:"I'm curious how you explain the dramatic drop in CD sales since the beginning of Napster?" I do not dispute the logic of making some correlation between the popularization of file sharing and the drop in CD sales. But it is but one factor among several that impact CD sales (number & quality of releases, general economic conditions, industry's own reaction to digital music,...), and one that must be placed within context.

I've spoken at length on how the recording industry is mis-positioned in the new and evolving music marketplace. File sharing certainly changes the rules of the game and the recording industry happens to find itself with the worst hand in the reshuffle. The same could be said for IBM's mainframes or AT&T's microwave long distance network. Fiber optics eliminated AT&T's government-sanctioned 'natural' monopoly hold over the lucrative long distance markets. But AT&T adapted while IBM has turned into a leader in its industry. The recording industry will also need to adapt, and fast.

Other entertainment sectors, such as video gaming and film, continue to see record sales despite growing piracy. This is due largely to their adaptability and product development. And while pirated versions of major software applications, from PhotoShop to MS Office, have been easily available on the Net, it has not prevented Adobe & Microsoft from establishing very profitable businesses. I've also noted in past editorials that other sectors of the broader music industry, ranging from musical instruments, software sales and concert attendance, may in fact be the beneficiaries, in part, to file sharing. Guitar Center's CEO certainly believes so.

The major difference between the above sectors and the recording industry are extensive: lack of innovative product development (compare a CD to a DVD), over-inflated pricing (like the soundtrack CD being more expensive than the movie DVD), devaluation of their traditional production and distribution chain, changing dynamics of marketing/branding... that have not only prevented it from benefiting from the digital revolution, but left it out-of-touch with the new marketplace.


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