“To glimpse the future, big music companies should look not at iTunes’ encouraging numbers but at September’s price cut by Universal Music Group, the biggest record company of all, which reduced CD prices by nearly 1/4. One reason for slumping music sales is that customers believe that CDs cost too much. Now, other firms will have to lower prices to compete with Universal. Discount stores such as Wal-Mart, Circuit City and Best Buy will drive them down more.
The success of iTunes has made clear to the music industry an uncomfortable truth: many people want to buy single tracks, not albums. Apple’s data show that its customers bought 12 singles for every one album at iTunes. That compares with 0.02 singles per album in American stores, according to research by Sanford Bernstein. The best artists may tempt people to buy a whole album. But the industry can no longer rely on getting the price of an album as a reward for backing a band.
In the end, says Moby, an influential musician, the record industry will have to throw out its current business model. It will no longer be able to make huge profit margins on CDs that cost next to nothing to manufacture. To compensate for lower prices, he says, the industry needs to cut its marketing for artists by as much as four-fifths. Once the record companies have less marketing clout, and with internet distribution, says Moby, artists will be in a powerful position. “Why”, he asks, “is a record company any more qualified to send an MP3 to iTunes than I am?”
Is the threat of online piracy receding?
The Economist, Oct 30th 2003
Doff of the cap to GMSV