The End of the major record labels: nearer than we thought?
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A fascinating story in The Economist opens with this observation:
IN 2006 EMI, the world’s fourth-biggest recorded-music company, invited some teenagers into its headquarters in London to talk to its top managers about their listening habits. At the end of the session the EMI bosses thanked them for their comments and told them to help themselves to a big pile of CDs sitting on a table. But none of the teens took any of the CDs, even though they were free. “That was the moment we realised the game was completely up,” says a person who was there.
Now results from 2007 confirm what EMI’s focus group showed: that the record industry’s main product, the CD, which in 2006 accounted for over 80% of total global sales, is rapidly fading away. Paid digital downloads grew rapidly, but did not begin to make up for the loss of revenue from CDs. More worryingly for the industry, the growth of digital downloads appears to be slowing.
The smallest major labels, EMI and Warner Music, are struggling most visibly. Warner Music’s share price has fallen by 72%. The two biggest majors—Universal (which is owned by Vivendi, a French conglomerate) and Sony BMG (a joint venture between Sony and Bertelsmann, a German media firm) are protected a bit by their parent companies. For a while.
So far, so bad. But The Economist point out three reasons why the decline might accelerate from here:
First, because sales of CDs are tumbling, big retailers such as Wal-Mart are cutting the amount of shelf-space they give to music, which in turn accelerates the decline.
Second, because the majors are cutting costs severely, artists are receiving far less marketing and promotional support than before, which could prompt them to seek alternatives. (See the links below)
Third, record companies face such hostile conditions that their backers, whether private equity or corporations, don’t want to spend the sums required to move into the bits of the music industry that are thriving, such as touring and merchandising.
A former boss of Universal Music in Germany says the majors should have acted years ago. “Then they had the money and could have built the competence by buying concert agencies and merchandise companies,” he says. Now it may be too late.
Sources and links:
From Major to Minor - The Economist:
http://www.economist.com/business/displaystory.cfm?story_id=10498664
Earlier blogs on this topic, and more links, can be found at How much would you pay for your Radiohead CD?
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