Music Think Tank

Natgeo_musicsales1 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]

Update on April 8, 2008 by

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.