Amazon Undercuts iTunes, Music Industry Receives “News” That No-One Pays For Music Anymore

The music industry received a “shock” earlier this week when it was told it must officially do what’s its been powerless not to do over the last few years, namely give music away for free. The unwelcome but crushingly inevitable news came from market research company Screen Digest, and put paid to any lingering hopes that there might be a future for physical music sales. Instead, we should expect a sharp rise in downloads to mobile, and cheaper MP3s from the likes of the iTunes-undercutting Amazon.

“Paying for music is progressively becoming a niche activity as the value of recorded music is in steep, possibly, terminal decline,” reports SD. You don’t say. Still, the effects of this trend are finally coming to pass. CD distributors Entertainment UK – supplier of Zavvi, WHSmith, Asda, Sainsbury’s and Morrisons – recently went into administration, with independent distributor Pinnacle Entertainment laying off 94 staff just a week later.

Apparently, mobile downloads will double by 2010 – although this prediction looks less impressive when you consider that half of these downloads are predicted to be for ringtones rather than actual tracks. At the other end of the spectrum will sit a gang of packaging-obsessed record nerds who will fling their cash at luxurious things like the new Franz Ferdinand in 2xCD, 6×7″, DVD, book format, plus commemorative record-centre, i.e. ultra-silly box set format that aren’t going to make very much money but are great for merely existing.

So how is the poor music industry going to make the rest of its money? If you’re a retailer, ride the long tail, and sell lots and lots and lots of things for very little money, so you make at least some money back – something that e-commerce giant Amazon.com invented and has now expanded with its MP3 arm. Their online music store is taking on iTunes (who currently monopolise the market) by offering promotional pricing. Meaning that singles are available for 59p each, compared to to 79p charged by iTunes. New KOL album for three quid as well! And DRM free!

But even this puts the industry in a weak position, because “iTunes’ near break-even pricing has set consumer expectations for buying individual tracks”. So if you’re a publisher, you’ll just have to get used to much smaller margins. Sorry.

Who else? Purists will get annoyed at kids on the bus playing bassline from their phones. Record companies aren’t going to keep giving out massive advances; instead they’ll have to search harder and then nurture it into something that people definitely want to buy, rather than chucking the Saturdays at a wall and hoping they stick. And the bands, except the absolute top of the pops, will have to work hard for smaller advances, won’t be able to buy a yacht built from impacted cocaine any more, but will have to go on the road and play gigs and have a really great time for a few years. The music industry isn’t in crisis; industry expectations about themselves are being cut down to size.

Posted by Ruth Stokes in Creative Economy | December 11, 2008 5:15PM |