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Trickle Down Economics & Music
By Eric de Fontenay (Founder & Publisher)
(more articles from this author)
2003-06-12
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I know that analogies I've made in prior editorials on how digital technology and the Internet has a 'giveth and taketh' effect has left some uncomfortable as it deviates from the more black-&-white arguments advanced in the industry. And while my comments applied to within the music industry, such as file sharing posing challenges to CD retailers while providing opportunities for musical instrument retailers, PricewaterhouseCoopers also found that "digital adoption both giveth and taketh away" in its Entertainment And Media Outlook: 2003-2007 report on the global entertainment and media industry. "In the near term, digitization will cannibalize existing revenues and piracy threatens new digital content business models."

While the fact that the report does not even mention music is very telling, the forecast for the broader entertainment and media industry is positive with media spending rising 3.7% in 2002 and at a 4.8% compound annual growth rate over the next five years. The problem is that much of the growth will be attributed to video games, Internet access and satellite radio, with video games emerging as the fastest growing industry segment. In the US specifically, the DVD format will "not only continue to boost the home video section of the filmed entertainment category, but will lead to more and more films being released widely at the box office than ever before." And while Ipsos forecast the slow growth of broadband in the US, PricewaterhouseCoopers predicts a 30% compound annual growth rate for broadband globally.

The music industry is left as the black sheep of the entertainment and media industry, facing increasing competition from DVD and video games as well as the uncertain implications of greater broadband penetration of unlicensed file sharing, in addition to licensed services. Columbia House's announcement that it will be offering video games in addition to its mainstay music and video products to its 11 million members provides a good example of the growing marginalization of music.

The picture is not totally dire, though. As the PricewaterhouseCoopers report noted: "New products and services generated by digital technology and broadband will drive market growth." For example, the growth of broadband is key to building a growing digital music market. The growth of satellite radio & webcasting will provide an important alternative promotional platform to commercial radio while the DVD format will enrich the music experience beyond the commodity CD product. Then there are licensing /synchronization opportunities from growth sectors such as cable/satellite video, increased film releases and a recovering ad sector to name a few.

The lesson for the music industry is to be proactive in riding the coattails of the broader entertainment industry - call it trickle-down economics.


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