The Future State Of The Music Industry

This analysis of the music industry might be interesting. There is a little bit of statistical analysis for own interests and some intriguing findings.

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This is not your typical guitar column, but I thought this analysis of the music industry might be interesting. I did a little bit of statistical analysis for my own interests and came up with some intriguing findings.

The music industry is always complaining about how CD sales are dropping and how the music industry is in "Dire Straits", so I looked through as much data as I could find on the web to analyze this. This is a graph of vinyl, cassette and CD sales over time.

graph

As you can see, all the curves indicate a normal life cycle for each of the different products: cassette, vinyl and CD. The other thing to notice is that the CD curve is diminishing, but there is no other product to take its place. Digital downloads are the obvious replacement for that, but the RIAA did not start tracking these until 2004.

The digital download numbers: 2004: 4, 600, 000 albums 2005: 13, 600, 000 albums 2006: 27, 600, 000 albums

But it's important to note that those numbers don't include single-track downloads, which the RIAA reports as: 2004: 139, 400, 000 tracks 2005: 266, 900, 000 tracks 2006: 586, 400, 000 tracks (data obtained from the URL above)

Now to put the data up to date (and put the CD data down): 2002 CD sales 649 million 2003 CD sales 635 million 2004 CD sales 651 million 2005 CD sales 598 million 2006 CD sales: 588 million 2007 CD sales: 500 million 2007 digital album sales: 50 million 2007 digital single sales: 844 million (data Nielsen Soundscan)

For those of you who don't care to do math, that's a CD sales drop of 4.9% from 2005 to 2006, and a 15% drop from 2006 to 2007. Digital albums on the other hand have been rising, increasing 196% from 2004 to 2005, 103% from 2005 to 2006, and 81% from 2006 to 2007. Digital sales jumped up 92% from 2004 to 2005, 120% from 2005 to 2006, and 45% from 2006 to 2007.

So we've got ourselves some kind of supply-demand curve here. I used Excel to create a polynomial decay curve for the data, and was pretty happy when it came out about how the experts were predicting. So, using CD sales 2000-2007 curve,

graph

I got a decent predictor on what CD sales are going to be likeit's probably reasonably accurate through about 2012 or later.

graph

"Increase of digital songs download" curve shows the predictor for individual download tracks/10, which is usually considered a reasonable substitute for an album. For you math fans out there, the closer the R2 value is to one, the more accurate it is. This graph is probably accurate through the length of the curve, although it is slightly under economist's forecasts.

graph

Digital albums sold is another predictor graph, this time of digital album sales. This should also be accurate through the length of the predictor curve. Now, using the data that we've acquired, let's take a look at what this means for the music industry.

2007 sales: album sales of 634.4 million CD sales: 500 million Digital tracks/10 (ten tracks is an accepted standard for album length): 84 million Digital albums: 50 million

2008 prediction: total album sales of 675 million CD sales: 480 million Digital tracks/10: 120 million Digital albums: 75 million

2009 prediction: total album sales of 685 CD sales: 420 million Digital tracks/10: 160 million Digital albums: 105 million

2010 prediction: total album sales of 745 million CD sales: 400 million Digital tracks/10: 200 million Digital albums: 145 million

2011 prediction: total album sales of 785 CD sales: 350 million Digital tracks/10: 255 million Digital albums: 180 million

2012 prediction: total album sales of 875 million CD sales: 300 million Digital tracks/10: 325 million Digital albums: 250 million

Accuracy of the forecast is not necessarily 100% in line with industry estimatesat 2012, my forecast of CD sales matched theirs, but my forecast of digital album sales was ~60 million less than theirs. The question mark in this data is whether or not the sale of songs will continue to explode the way it has. Also I'm reading these from the graph, so the year-to-year numbers might be a little off, but the general trend is still intact. But overall, I believe that the data provided should give a fairly accurate picture of the economic state of the music industry around 2012.

So what does this mean for the music industry? The present state of the music industry is a little bumpy, but mp3's are the future. As more and more record labels begin to embrace the mp3 format, we'll probably begin to see an economic upturn for the music industry. The music industry isn't doomedfar from it. By 2012, as the mp3 has established itself as the dominant vehicle for sales, things should have returned to close to their peak level.

This doesn't mean that the industry can sit complacently and wait for things to happenit just means that a return to the height of the music industry is not too far away, especially if the economy as a whole can recover.

35 comments sorted by best / new / date

    PendulousThread
    Good study, should try to get it published in an academic journal or something. Could be a useful reference in an essay.
    BrianApocalypse
    Bobbito315 wrote: I don't think there's any difference sound wise between the two, if anything mp3's should have higher sound quality because of the digital technology and the fact that there's no transfer
    Um, no. .wav files are mathematically lossless. MP3's, in particular, 128 download standards, top BELOW the upper limit of the human hearing range. I know there's also a loss of sub-bass frequencies. So you lose high end and low end presence for a start. Then on the standard 128kbps mp3 you'll hear washiness on most MP3's if you listen carefully.
    _GoingBlind_
    I'm a believer in both. 50/50 for me, I would rather have an album (CD or Vinyl), but I don't have a record store open late to sell any good albums(wal-mart, but its censored crap). So if I have been waiting for an album, I download it the minute its released, which sux. Because I download my favorite bands and buy CD's of bands I like, but not as much as the ones I download. Impatience. and "touring deals" that's awesome....wish more would catch on to that....this DIY sh!t is getting expensive
    MrReMo
    Video killed the radio star... If you know what i mean. Interesting data though.
    ValoRhoads
    mnhockey99 wrote: To turtlewax's comment above. Not only having physical media in hand, the quality of the media is significantly better. I probably won't buy anymore mp3's until our memory capability improves and everything is in a .wav format at minimum. I enjoy hearing the intricacies of music and you can't get that with mp3, it sounds too "tinny".
    I totally agree with you on sound quality. But you have to remember, the vast majority of the people buying the 800 million records aren't tone snobs like us. They couldn't give a **** about sound quality, they just want to hear "insert crappy song name here".
    heminder
    i still only buy CDs... as for downloads: they better offer me downloads which are lossless with free and open source codecs... there's no way in hell that i'm going to pay the corporates for half-as5ed proprietary sh!t... (that is: mp3, mp4, aac, wma, and the like)
    manmanster
    LiVexXxhIgh wrote: Good Read! although i didn't see any data on illegal music downloads? that has got to be killing the music industry?
    You can't really track that sort of thing, so you wouldnt have much data to deal with.
    Kujaku
    turtlewax wrote: I still prefer physical media to mp3's, you actually feel like you have something for your money... Did you know that digital content isn't insured as household contents?
    Oh man, you're right. I am so stoned. Omfg.
    scott316
    in an IPOD generation it's only natural digital downloading would evolve, and most people download single tracks if they like certain songs instead of buying albums they might not like. BUT, 'till the CD is replaced by new technology I don't think it will die and numbers wont drop significantly, personally I like buying albums of my favourite bands as there are no issues of storage for your media and its a music colletors passion. Downloaders need media storage for their tracks and I still see CD/DVD as the best method (hard drives, flash cards, ipods, its easy to lose tracks or for something to go corrupt!) for example...my itunes software was renewed after my hard disk was erased, when itunes was re-installed, my library was erased and i cant transfer the 30Gb of music i have back into the library, i hav to sync and start again !! can't even add a new download. my point is, with a CD, you always have backup !
    Cool Z
    I don't need to fool myself into thinking I've got something more worthwhile through a physical copy. If I can hear it, it's worth just as much to me, physical or not. And I actually prefer digital copies over physical.
    Esparcia
    Interesting stuff, I just dont get the downloading of albums (on itunes and stuff).. most of the time people send me stuff they downloaded for free, or I download it. And if it's good, I buy the cd, if it's not my thing, leave it for what it is. Don't know about you guys, but I collect cd's, not sure how many people do that anymore. It's just great spending your monthly income on cd's and guitar parts, haha.
    Andy2k64
    actually gives people reassurance. Its crazy how much the world changes in short spaces of time. I prefer CDs and just burn em to my computer. I still like having the physical aspect of the CD...I don't know why!!! I'm saving up for a good vinyl player too so i can start collecting some old rock vinyls. Theres something about vinyl that is just great
    greenz
    thanks posting. it was intriguing to witness your view on the state of the music industry. I do believe that compact discs are relied less than in previous generations due to the fact of pirating and the emerging of down loadable content via internet. more savy independent artists are actually looking for other revenues opportunities. for example: rather than live performance, some artist are jumping into there own ringtone service. or even clothing lines. most major labels today find that having concerts more of a priority than CDs.
    druz15_UG
    I spent $120 yesterday on CD's and over $500 this year. I love collecting CDs even though I do most of my listening from an Ipod, and I know many people who are the same. I don't think CD's will die in this century anyway
    doive
    It's true that major bands are losing out to small bands with Physical sales reducing, large bands have more of a problem with piracy and a smaller percentage of "hardcore fans" who will buy full albums as opposed to singles (they also suffer more from piracy). But i've often felt that top bands can be quite overpaid, we all love sabbath but does ozzy osbourne need $100m? I can't believe that loss of big band profits is a good thing for big labels like EMI but it gives smaller labels a better chance of distribution. As for bands self producing, start up bands can find it almost impossible to get the money together to make a first recording (which can run into thousands of pounds) and so rely on labels bearing the brunt of this cost in return for a slice of sales and "touring duties". As for the technology/quality argument, i think it'll go the same way as cameras, people like old cameras for the physical-ness of them and they USED to be better quality, now digi-cams are of equivalent quality and far more widespread. a CD holds 750MB, an iPod holds 80GB, that means at full CD quality you can get 100 FULL cds, albums are typically not full, so if an MP3 player supported CD quality then you could probably get ~150 albums on to it. How can a library of CDs compete with that?
    Nirvana6722
    He forgot to mention PIRATING. Do you know how many people do this? Hundreds of thousands of people pirate music. This would impact the music industry substantially
    ChucklesMginty
    I still buy all my music on CD, I feel uncomfortable if I don't have an object that was solely intended for that music, with a box and album art. That way the music has proper value and I can get excited about new CD's, they're more important. But when you can copy and paste and make and send round as many as you want, music has been undermined to another file on your computer.
    Belgarion89
    Well done. It's been awhile sine Stats for me, but everything seems correct. The R-squared value seems a bit low on Cd sales compared to your other regression, did you try other models?
    51VH50
    i now and will always but cds and vinyl. why would people download? im sorry but i like to have something physical to hold and love. downloading (pirating) music is not only illegal, but cheats bands you love. and as for itunes, for the same price why not have the actual ****ing cd??? plus i cant imagine a world without record stores. LONG LIVE THE RECORD STORE!
    turtlewax
    I still prefer physical media to mp3's, you actually feel like you have something for your money... Did you know that digital content isn't insured as household contents?
    mnhockey99
    To turtlewax's comment above. Not only having physical media in hand, the quality of the media is significantly better. I probably won't buy anymore mp3's until our memory capability improves and everything is in a .wav format at minimum. I enjoy hearing the intricacies of music and you can't get that with mp3, it sounds too "tinny".
    Bobbito315
    I don't think there's any difference sound wise between the two, if anything mp3's should have higher sound quality because of the digital technology and the fact that there's no transfer, but I prefer cd's just to have the actual album itself instead of just the songs that are on the album. I do see why so many people use mp3's and I don't blame them, it's just to easy to pass up.
    PhantomNote
    So combined with mp3/audio players and some good speakers that can take those - I guess I can accept this. I'd still like to think it could pay off to actually try and sell albums. I just know I wouldn't feel sure by buying data, I feel like having something physical. Then you'd have to do backups and stuff. I'm probably a little old school on this point, but I like standing with the album in my hand.
    SY22
    In case you didn't know, the music found on cd's is just as digital as an mp3. Besides, digital doesn't mean better. Everybody who's ever compared a CD to a good old fashioned LP knows that.
    jast
    From what I've grasped the issue isn't with sales declining per se, but with declining sales numbers for individual bands due to the market flooding with (average) bands with the internet as a distribution method. Consumers are spoilt for choice. This makes investing large amounts of money into a particular band a worse prospect for record companies compared with a few years ago. I'd love to see this study extended to cover this issue.
    ScreamingCheeto
    The art of the "record label" is dying, and I embrace it. I hope to see a new era where artists pay for the production and recording costs by their own means and solely pay companies for distributing. It would make for more artist profit and probably lower CD costs.
    samjackson1990
    Gargan : Not all artists can come up with the capital to 'go it alone', especially when they are just starting out. Nor do they have the connections to get their music distributed the way Record Labels do. I just cant see a world where there is NO record label. Maybe the role of the label will change, but dissapear completely? I doubt it.
    I think the "Record Label" will start doing tour deals with bands as oposed to selling their music. I believe Live Nation are already doing this...
    Gargan
    Not all artists can come up with the capital to 'go it alone', especially when they are just starting out. Nor do they have the connections to get their music distributed the way Record Labels do. I just cant see a world where there is NO record label. Maybe the role of the label will change, but dissapear completely? I doubt it.
    tom-the-lawn
    turtlewax wrote: Did you know that digital content isn't insured as household contents?
    Well once you buy it you can redownload it for free as much as you like.
    CHOCOmoney
    intersting study, ofcourse we all knew this was coming. cPersonally id rather have the physical copy, but i cant get out and buy them, so i just go with ituns
    LiVexXxhIgh
    Good Read! although i didn't see any data on illegal music downloads? that has got to be killing the music industry?
    grille
    i relly liked that scale. I too have heard that they say they dont sell cd as much as they used to be and such. It was relly intresting to read. Thanks
    cobalt
    LiVexXxhIgh wrote: Good Read! although i didn't see any data on illegal music downloads? that has got to be killing the music industry?
    Not really, its just cutting their profit margins / growth rate slightly.
    theway1966
    I still prefer to have the hard copy (CD) of music. However, Everyone should think that changing the music format (i.e. 8 track to cassette, vinyl to cd, cd to digital) is good for everybody. Here is a personal example of what happens: When I was young, I had my music on 8 tracks and vinyl. When those wore out, or no longer a vehicle to play them, I replaced all my vinyl and 8 tracks with cassette. When cassettes when out of print, or no vehicle to play them, I replaced all my music with cds. The point is, some of the music I purchased 3 times on different mediums. That's good for the artists, record companies, and the local music store.