Changes in music formats from CDs to digital files and price pressure brought on by supermarkets with their discounted music CDs are the two primary reasons that music revenues have fallen over recent years in the UK, according to a study that consulting group CapGemini prepared and as reported by The Register web site.
CapGemini prepared the report for the Value Recognition Strategy working group with the objective of examining the ‘value gap,’ which is the amount that revenue from music has fallen in the UK since 2004. The report remains confidential, but The Register obtained some details.
Capgemini calculates that of £480 ($960) million lost to the industry since 2004, £368 ($740) million was the result of format changes, mainly from CD albums to ‘a la carte’ sales of digital songs. Of the remaining decline, the report says, 18% cent was lost to piracy. If correct, that means that going after file sharers will solve only part of the problem.
The report says that the notion that P2P file sharing stimulates demand for sales is wrong.
Somewhat amazingly the report did not put most of the blame on P2P file sharing and on the spread of PCs that can quickly and easily convert CD tracks to digital files, which can be easily shared on the Internet, by e-mail and instant messaging and by burning CDs. Nor did the report cite as a cause the labels’ decision to put unprotected tracks on CDs, unlike the movie studios, which insist on controlling the copy protection that’s used on DVDs that have their movies.
Apple, of course, does sell albums on iTunes, giving the purchaser a price break when compared to buying each track separately.
The beneficiaries of the spread of easily obtained digital music tracks are the online music services such as iTunes, makers of portable music players such as Apple, social networks such as MySpace and the cable TV and phone companies that supply broadband. The labels, artists and composers have not gained from the spread of legal and illegal digital tracks.
The Register says the Value Recognition Strategy working group was created last summer – largely at the impetus of the independent labels and collection societies, but backed by all sectors of the industry – to examine alternative revenue opportunities for digital music.
After trying unsuccessfully to do their own thing with online music services, the labels hopped on the iTunes wagon and saw an immediate surge in online sales. It was not enough, however, to replace the revenue loss from declining CD sales. Most recently, Universal Music has been leading the way away from Apple with plans to create their own online music service to be called TotalMusic. Part of their objective is to convince the makers of portable devices to pay them upfront for, say, 18 months of music at, say, $5 a month. That comes to $90, which presumably would be added to the retail price of the device.
Purchasers of portable media players that came with the pre-paid subscription could download and play as many songs as they wanted. Universal Music set something of a precedent was when it got Microsoft to pay it $1 per Zune in exchange for giving Microsoft the right to sell tracks from Universal Music on its Zune Web site. Microsoft still had to pay the label the usual royalties on each track.
Universal Music is now selling tracks that have no copy protection on various online music services such as Amazon.com and Walmart.com. It pointedly did not give Apple the rights to sell the DRM-free tracks so Apple can only offer copy-protected music from Universal Music.
The music industry faces another threat, this one from its artists, some of whom are considering bypassing the labels and selling direct to consumers. Radiohead went even further. In addition to selling direct, it leaves it up to the consumer how much, if anything, they want to pay for downloads.
Meanwhile NBC Universal CEO Jeff Zucker has been saying publicly this week that his company made just $15 million from Apple iTunes last year, saying that it was Apple that was making all the money with its iPod.