Illustration by Dan Vasconcellos
Turn on the radio and chances are you'll hear a top-selling song from a rock, country, or hip-hop artist. But stroll through the offices of almost any major record label and you'll hear an entirely different kind of music: the blues. After nearly a decade of unfettered growth, music sales are down for the second year in a row. And if the Recording Industry Association of America (RIAA) is to be believed, downloads and piracy are the verse and the chorus of the music industry's current sad song.
By the Numbers
Placing the blame for declining sales on downloads and peer-to-peer file-sharing networks would appear to make sense. After all, just a few years ago, when downloading was still relegated to a few students in dorm rooms, recorded-music sales were booming. Since 2000, however, sales have been falling while activity on file-sharing networks has exploded - and the RIAA believes that's no coincidence. Although music-industry lawsuits effectively neutered early file-sharing networks like Napster and Aimster, others - like KaZaA, WinMX, and iMesh - have popped up in whack-a-mole fashion, leading many to believe the genie is already out of the bottle and can no longer be contained. KaZaA, for example, now boasts more than 200 million users, and traffic across all file-sharing sites has reached over three billion music downloads each month.
So it's not surprising that the record industry sees downloading as the main cause of its ills. In a report issued last August, the RIAA placed the blame for the slump squarely on the shoulders of those who trade ripped files of copyrighted songs. The organization cited a survey, conducted last May by Peter D. Hart Research Associates, it said provided "the strongest evidence to date" that downloading is displacing sales.
In the survey of 860 Internet-connected music consumers between 12 and 54, those who downloaded more and bought fewer CDs outnumbered those who both downloaded and purchased more CDs by two to one. While conceding that things like the overall decline in consumer spending could be playing a role, RIAA president Cary Sherman called downloading "the main culprit" in the drop in sales, adding that "this data should dispel any notion that illegal file sharing helps the music industry." Sherman also noted the dramatic rise in the number of people who've "acquired" burned CDs, although it wasn't clear whether "acquired" meant "purchased" or "received from a friend."
The RIAA also said that the total value of music shipments for all formats had fallen from a high of nearly $14.6 billion in 1999 to $12.6 billion in 2002. The number of CDs, cassettes, LPs, and so on shipped from warehouses fell 10.3% in 2001 and 11.2% in 2002. CD sales, by far the largest category in the statistics, dropped 6.4% in 2001 and almost 9% in 2002. These statistics for units shipped jibe with those from Nielsen SoundScan, which tracks actual retail sales. SoundScan reports that CD sales, which made up 94% of music sales in 2002, declined 8.7% that year.
While few dispute the numbers, some, such as George Ziemann, are challenging the RIAA's inferences from them. Ziemann, an Arizona-based musician and owner of MacWizards, a music production company, was propelled into the debate when he wasn't able to sell his band's CDs via online auctions on sites such as eBay, Amazon, and Yahoo because they were burned on recordable CD-Rs. Ziemann says he was told that because CD-Rs are often used to record pirated material, they're banned on many auction sites as a result of the RIAA's antipiracy efforts (eBay allows CD-R sales if the seller stipulates he owns the copyright).
As a result of that experience, Ziemann researched the RIAA's figures and came to very different conclusions, released in a much-circulated article, "The RIAA's Statistics Don't Add Up," posted on his Web site (azoz.com). He makes two key assertions: 1) that the labels raised CD prices during a down economy, and 2) that they slashed the number of new releases by almost 25% during the past three years. He says that these factors, and not downloading, are responsible for sluggish CD sales.
To arrive at the first conclusion, Ziemann took the RIAA's numbers for the retail value of CDs sold and divided it by the units shipped to determine an average CD price. He found that prices have steadily increased, from an average of $12.05 in 1990 to $14.23 in 2001. Although the numbers for 2002 weren't available when Ziemann did his analysis, using the same formula we determined that the average CD price reached $14.99 in 2002. But when you exclude the promotionally priced CDs sold through record clubs or nonmusic stores like Starbucks and The Gap, the average price rose from $14.31 in 1998 to $17.09 in 2002 (click for "The Big Picture" graphic sidebar ).
Ziemann supports his contention that labels are releasing fewer new CD titles by using the RIAA's market data through 1999 - it inexplicably stopped issuing these numbers in 2000. Combining this with an RIAA press release entitled "The Value of a CD" that said 27,000 new releases hit the market each year, he constructed a graph showing that releases fell 25% over two years, from a high of 38,900 in 1999 to 27,000 in 2001. SoundScan's numbers show new releases falling from 38,857 in 1999 to 31,734 in 2001, a 20% drop. Although its latest figures show releases increasing to 33,443 in 2002, that is still 14% below 1999's peak number.
In Ziemann's assessment, the combination of fewer releases and higher prices - not free downloads - caused sales to slump. His argument is bolstered by Josh Bernoff, an analyst at Forrester Research, who pointed out in a report issued last August that this isn't the first time booming CD sales have plunged. For instance, during the recession in 1991 - long before anyone even knew what a download was - CD sales growth fell from 15% to 4%. When you consider that the annual rise in the country's gross domestic product (GDP) slowed by 36% from 1999 to 2002 and that the S&P 500 dropped an equally depressing 28.78% during the same period, the recent 9% decline in sales doesn't seem so dramatic - particularly for a format that's been around for 20 years.
Copyright © 2013 Bonnier Corp. All rights reserved. Reproduction in whole or in part without permission is prohibited.