the impact of digital music sales

Posted on January 13, 2010

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this is a great analysis of the economics of digital sales and primarily the effect of bundling and price reductions.

paraphrased for the lazy:

1. the pricing strategy currently employed – physical albums $14, digital album $9.99 and digital single $0.99 is a problem
2. more singles are being sold and not as many albums are being purchased on-line, with stronger artists being less impacted than newer artists
3. the overall impact is that although more units are being sold, the units are more often singles and not full albums. as full albums cost more (and thus earn more) the impact is olwer revenues.

simple analysis:
1. people dont like most of the songs on an album and just want to buy the ones they like
2. lower entry point is probably driving more trial of new artists
3. labels are making less money

click here

personally, the key change i think is in the cost of entry into the industry. most bands dont have a problem of not selling enough albums vs singles. they have a problem of not being known. reducing the barriers to entry for the music industry will mean a bigger industry. there may be some value erosion for labels, but as they are generally adding lower value into the marketplace, this makes economic sense.

overall this is an interesting study, the change in buying behavior in online music is an important marker for labels and for artists and is generally showing that quality of music is an issue. as much as quality is subjective, blockbuster artists tend to have a small number of hits on an album – so a high quality differential – and although they have a wider audience, that audience is less likely to purchase a full album. the bundling strategy (album) was only introduced late in the music industry as singles were historically the preferred purchase mechanism.

the challenge for record labels, as much as bundle sale erosion is an issue, is relevance in a changing market. without control over distribution into CD stores more artists will be able to independently sell their music.

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