Executives Can See Problems Beyond File-Sharing
By NEIL STRAUSS (c) http://www.nytimes.com
Not long ago, the record industry's trade group issued an alarming
statistic. Music shipments, it said, were down 15.8 percent in
comparison with the previous year. The reason, according to the trade
group, the Recording Industry Association of America, was in large part
because of music downloaded on file-sharing services and music burned
onto recordable CDs.
Shortly after, Universal Music announced that it would reduce wholesale
prices on its CD's by several dollars in a move aimed at encouraging
retailers to sell them for as little as $10 each.
The chief reason was once again the drain from unauthorized
song-swapping online.
Today, the campaign became even more aggressive with the announcement
that the beleaguered industry had filed lawsuits against 261 people for
the unauthorized digital delivery of thousands of songs to other people
on file-sharing services like KaZaA and Morpheus.
But interviews with executives at record labels, Internet companies and
research companies revealed a much more complex array of problems facing
the music business than just digital piracy.
"It's not all file-sharing," said Andy Gershon, the president of V2
Records, home to the recording artists Moby and the White Stripes. "I do
think that right now, the business is sick but music is great."
Other record label executives agreed. Among the problems they cited were
the consolidation of radio stations, making it harder to expose new
bands and records, and the lack of a widely popular musical trend like
teen-pop, which relied on stars like Britney Spears and `N Sync to drive
young people to record stores.
They also blamed a poor economy and competition for the limited time and
money of teenagers and young adults, their main customers, who often
find that they prefer buying DVD's, video games, sneakers and more.
Indeed, thousands of music retail stores have closed recently, and the
ones that are still open have given shelf space to competing products,
like DVD's and video games.
In addition, the introduction of CD's in the early 1980's encouraged
consumers to replace their vinyl records with copies in the new format,
but that sales spike has since abated.
And as major record labels have become part of large international
corporations, industry insiders say, less attention is being paid to
discovering and marketing music properly.
"So many labels are in play — they're trying to be acquired or acquire
another company or merge — so anything that affects their immediate
balance sheet is slashed," one record-label executive said. "Money is
not being put into marketing and A.& R. because people don't want to
spend the money because it looks bad on the balance sheet."
As for unauthorized file-sharing and CD burning, no one interviewed
doubted that it is a serious problem. But research from independent
sources suggests that while file-sharing may indeed be hurting CD sales,
the problem is not as drastic as it has been portrayed by the industry.
"You can't just draw a line from A to B and say that sales are down"
because of unauthorized music downloading, said Josh Bernoff, the
principal analyst for media and entertainment at Forrester Research.
For one thing, the specter of a 15.8 percent drop in shipments of CD's
provided by the record industry illustrates only how many CD's record
labels are sending to stores.
According to the sales-tracking company Soundscan, which monitors actual
consumer behavior, music sales are down by 8.7 percent in comparison
with this period last year, a significant but much smaller number.
Moreover, analysts said that there are two different types of people
swapping songs online.
"We did a survey recently of both adults and young people and were able
to identify two groups of downloaders," said Mr. Bernoff of Forrester.
"One that reduced their CD purchases and one that didn't."
Within that universe, he estimated that the record industry is losing
$700 million a year in CD sales because of file-sharing among both
adults and teens.
Though that is a large number, even bigger figures have been bandied
about by record-industry representatives. And, Mr. Bernoff noted, from
1999 to 2002, annual music sales have shrunk by a much larger figure: $2
billion.
A similar study by Jupiter Research produced similar findings: a survey
of file-sharing users showed that 31 percent said that their spending on
CD's had decreased while 16 percent said that they spent more on CD's
after downloading music.
Since the rise about three years ago of the now-defunct Napster, the
first popular file-swapping service, a culture has been created in which
getting songs online is simply part of the music experience.
As a result, even sharply cutting the price of CD's, as Universal has
proposed, may not necessarily be effective in bringing people back to
record stores.
"Price isn't the issue," said Rob Lord, a creator of Muse.Net, a
computer media player. "The issue is access, integration and ease of use."
Thus, the record industry has been moving on two fronts: one is aimed at
lobbying the government and using the judicial system to make free
file-sharing services illegal. And the other has been toward creating
pay services to download music legally online.
So far, however, only one of these legitimate services has been viewed
as a success, Apple's iTunes Music Store, which has sold more than 10
million songs despite being compatible with the computer systems of a
thin sliver of PC users in the United States.
Still, even as legal downloading is expected to eventually become the
predominant means of acquiring music, the CD is not necessarily
disappearing anytime soon.
In 2008, according to Jupiter, online services like iTunes and
Rhapsodyare expected to account for only 25 percent of music sales (as
opposed to the 7 percent predicted for this year).
"The music industry needs to realize that they have a multiplatform
future," said David Schatsky, a senior vice president at Jupiter Research.
Meanwhile, even if a music-piracy-free future of healthy retail and
online music sales ultimately arrives, many worry that the scars left by
the recording industry group's aggressive tactics against music fans
will not heal as quickly.
"They're doing a lot to bring the business back," said Mr. Gershon, the
record label executive, "but we might have lost a generation of
consumers in the process."
