April 8, 2008 Music Industry Trends have a Lesson for Radio
Ah, how things change.
I have spent a lot of time studying the pictures in this post. The data illustrated here is not new, of course. We all know music sales are going to Hell in a proverbial handbasket.
But when you chart the data as National Geographic has done so here (from their December issue), some new insights arise which have implications for radio as well as the music business.
These charts, especially the second one, is incredibly illuminating for several reasons:
1. It shows the transitional nature of all - ALL - recorded technology that distributes music to consumers. That is, one technology shrinks as another expands, ad infinitum. Radio, too, is a technology, a very well established and popular one. The erosion we’re currently seeing in radio usage - especially among the young - is not a hiccup. It is part of a long-term trend we are only beginning to experience. The more we face competitive alternatives which substitute for radio’s core benefits, the more this trend will accelerate.
2. This chart obviously excludes music distributed for free - a.k.a. “illegally.” One can assume that the steady decline of CD sales is matched - and exceeded - by a stunning rise in off-the-chart downloads. That is, demand doesn’t go away, it just moves to something else. Being in the right place at the right time with the right revenue model is the key.
3. This chart shows the amount of time it generally takes for transformation to occur. For example, it took 16 years for CD sales to peak. If it takes as long for CD’s to disappear, then by 2015 the last CD will be sold. Radio’s erosion - and the revenue problems that result in part from this - is not going to stop. We need a model and a strategy that anticipates and exploits the future, not a head-in-the-sand public relations gimmick. We need to surf the trends, not fight them.
4. This chart shows the absurdity of relating the present state of the radio (yes, radio) industry to any time in its ancient history. For example, the birth of FM back in the late 60’s to 70’s lived in a technological environment which this chart clearly shows has completely disappeared. It’s like comparing the Jimmy Kimmel show to the Dean Martin Roast. Let’s compare apples to apples.
5. This chart shows that older technologies yield to newer technologies if the benefits those newer technologies provide substitute for and beat the ones they replace. CD’s are unambiguously better than tapes - they provide similar benefits, but do a better job of what they do. If I can get music in my car delivered in a radio-like experience from Microsoft or Slacker or whomever - and if it has broad enough distribution - then my radio listening will shift - assuming it’s music I’m looking for (and it may not be).
6. Growth and decline in this chart are “steady” in all cases, not “explosive.” It may be strongly steady, but it’s steady. Thus the best reflection of future momentum for any new technology in this space is the momentum among its early adopters. Not the crazy gadget freaks, but the next wave of users, the early adopters. So what does this mean for radio? Well, if the momentum for a new technology, say, HD radio, is slow at the onset it is not likely to accelerate with time. What you see is what you’ll get. Look at this chart and all the evidence is right there. Ah, you might say, but look at the slow growth of cassettes. Would that it could be 1980 again and we could be faced with the slim choices of that era.
7. It is clear that the horse has left the barn on tangible media for the music industry and all things digital are the immediate future. That means it’s inevitable that the music industry will make up the shortfall in music sales with licensing (including licensing revenue from radio) and (drumroll, please) advertising. And a world of music for free with advertising is functionally identical to music-oriented radio. That is, the competition is going to get much tougher, folks.
Enjoy these charts. There’s a lot to learn hidden in those numbers.
[Double-click to enlarge]
Bruce Warila
I asked Mark to revisit this post for Music Think Tank because I believe the graphs and Mark's analysis of them tells a lot. Just to be clear, when Mark says "the competition is going to get much tougher, folks", he is referring to the radio industry.
I believe the takeaways for artists are:
1) As Mark said - the music industry will make up the shortfall in music sales with other music-derived revenues. However the timing, according to the historical patterns demonstrated in the graphs is important. The last CD should be sold in the year 2015, and as CD sales decline other revenue sources will fill the void. Unfortunately, those "other revenue sources" have not been fully sussed out; there is not one clear and simple "standard" that's emerging that everyone can gravitate toward. The only standard that's clear to me is - everything!
2) Radio is loosing its' dominance and its' importance. Over the next five years, someone on your team is going to have to make sure that your music is everywhere and anywhere consumers are. There's no clear winner in the race for ears. The radio audience is not being fractured by one big competitor; it's being split by lots of competing sources of audio entertainment (the "everything" standard applies here also).
3) "Advertising tacked onto your streams of music is functionally identical to music-oriented radio". I would take this statement to the bank. Don't fight advertising when consumers are opting for "free" music.
4) We are still in the early stages of a transition. You have to have one foot in the old and one foot in the new. It's a lot of extra work and it's going to take a few years to sort out. However and most importantly for everyone making great music, when we reach the puffing point in the graph we are in now - you should see a corresponding rise in income.
Thanks for the post Mark.
Reader Comments (6)
Very interesting. It's always the same pattern of rise and fall with each new technology. Time to look ahead.
If I look at the ways music is produced, there is a constant change in technology, but at the same time some things have stayed the same for more than 40 years.
If I look at our studio and instruments, I see electric guitars, tube amps, a hammond b3 with leslie, rhodes and wurlitzer pianos, vintage neumann micros and siemens tube preamps. All that stuff is 30 - 50 years old or hasn' t changed much within that period.
The same about the music: Although there is constantly new music, a lot of the styles and playing / performing have their roots somewhere in the last 4 decades.
According to some sources, radio has actually plateaued and although it has declined it's not going anywhere
According to Inside Radio: (Nov 2007) Radio numbers declined to their lowest level since Arbitron began keeping statistics in Fall 1998. Radio usage dropped in every cell except 50-54s. Steepest declines continue to be among teenagers and young adults, as their attention is increasingly diverted to other media. That’s especially true among males, with Men 18-24 and 18-34 cells posting the biggest year-over-year declines. But the crowded media world is also taking a toll on the 25-54 money demo, which fell 15.1-14.9. There’s also a disturbing trend among female demos. In the Summer book not a single female cell saw an increase in listening. All but two (50-54 and 65+) declined. Compare that to male demos. While older women mirror the trend of listening less, the Summer book shows Men 45-64 were listening to the radio more.
CHARLESTON, SC -- April 7, 2008: Seventy-two percent of American adults are listening to the radio about the same amount or more than they did five years ago, according to American Media Services' latest "Radio Index" survey. Seventy-three percent, meanwhile, still usually turn on the radio when they get in the car.
The phone survey of 1,004 U.S. adults -- conducted for AMS by OmniTel on the weekend of March 28-30 -- also indicates that 61 percent of American adults hear the radio at least once a day, compared to 64 percent in the April 2007 survey and 63 percent in September 2007. (The variations are within the survey's 3 percent margin of error.)
Thirty-three percent of respondents said they've listened to radio over the Internet, and 12 percent have heard an HD Radio broadcast. When they're listening to radio over the air, 53 percent said they stick with a station through commercial breaks, 35 percent change the station, and 8 percent turn off the radio. And those who change the station tend to do it quickly: Seventy-seven percent of those who tune away do it within 30 seconds after commercials begin.
"The findings are interesting from many standpoints," said AMD Chairman Edward Seeger. "They show that 'regular' radio remains a strong industry even while other audio devices are available. And perhaps because the Internet is broadly accessible, many more Americans have listened to the radio over the Internet than have purchased the equipment to listen to HD Radio. These are important trends for the radio industry to keep in mind."
@Julian
I have those stats on my site also. I also added a word of caution on the interpretation - I believe you have to account for the rise of talk radio and the falloff of music-radio. In the states for example AAA radio (adult album alternative) has all but disappeared.
Perhaps Mark can shed some light on the data discrepancy. I gather that radio is struggling? Perhaps it's just a falloff of advertising revenue?
There is really no descrepancy. Just apples and oranges.
What's down is the TIME spent listening - much more than actual binary listening/not listening. And that makes sense, doesn't it?
So radio can both be strong and weakening at the same time, depending on which set of numbers you view.