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