Music Industry Playing the Crying Game
July 17, 2002
The music industry is in the midst of a major crisis that could spell the end of the music entertainment business as we know it. They are at the end of their rope and do not know what to do to overcome the major disaster that is lurking ahead. They have said that jobs are being lost, new artists are being squelched, existing artists are starving and overall album sales are way down. The cries of anguish have gotten so desperate that record companies are pleading with their greedy customers to help them out of this imminent abyss!
I have two words for these record companies: Puh-leeze!
This supposed crisis all started a few years ago when Napster and other popular music file sharing service companies became prevalent on the Internet and allowed anyone who had a computer and a modem to download any song by any artist at any time. The music companies have said that this has caused their profits to tumble in a steady downward spin ever since. They place the blame solely on downloadable music companies and their evil customers.
However, it is time to interject some reality into this story. There are several other important factors that have led to the recent decrease in music sales. I worked in the music industry for seven years and can attest that all of the following factors have attributed in part to a reduction in music sales in the past few years.
SATURATION OF THE MARKET
I cannot tell you how many times I would have a salesman from one of the major music companies visit me at the corporate office trying to sell me on the next big artist. This happened literally EVERY SINGLE MONTH! When I was new at purchasing music for stores, I used to buy into this garbage pitch and load my stores with these sorry artists.
But as I got wiser to the ways of the music industry, I quickly discovered that a large majority of these artists did not and will not do well in my stores. In fact, it is a documented fact that around 95% of new artists never make it to a second recording contract. This is a cold hard fact that is a tough pill for record company executives to swallow. They have a lot of time and money invested in these artists and hate to be told by consumers that they were wrong to sign them to a recording contract. However, it is the consumer who has the power to dictate who stays and who goes.
Have you noticed how the price of CDs has slowly crept up close to $20 now? If CD prices continue to increase at their current rate, by the end of the decade the price of CDs could be close to $30 a piece! That is outrageous! Record companies claim that it costs them more money now to produce a CD than ever before. WRONG! It only costs around $1.50 per CD to produce, record, market and sell a CD. All the rest of the money brought in from the sale is profit. Retail stores used to reap as much as 50% of the sales of music. Over the past five years, the record companies have slowly tightened the amount of retail discount they give that retailers are lucky if they can squeeze a 25% discount out of them by the time the product is sold in their stores.
Just to give you an example of this, imagine I am purchasing the brand new Britney Spears CD from her record company. Her CD retails for $18.99 and I am offered a 40% discount if I purchase 200, a 42% discount if I purchase 500 and a 45% discount if I purchase 1000. I know my store will only be able to sell 200 before the bill is due, so I take the first option. My price for each CD is $11.39. My customers expect our stores to have this CD on sale when it first comes out, so I decide to make the sale price $14.97 (although Wal-mart, who gets a much larger discount than my stores ever would, will have it on sale for $11.88). Guess what my profit margin is on this release? Twenty-four percent! And this doesn’t even count the costs associated with shipping, returns, restock fees, damaged goods and product demos. By the time that CD has sold, the store is lucky if ANY profit has been made. In the meantime, the record companies get paid (by MY store!) regardless of whether the product sells well or not.
CODDLING OF THE RADIO INDUSTRY
The music industry relies so heavily on radio to help them sell music that they send disc jockeys and radio stations bribes and gifts to play their music. Since I have also worked in the music radio industry in the past, I have seen this happen firsthand. Record companies get all excited when they think they have a song that will thrill radio listeners to go out and purchase the CD of the artist singing the song. Honestly, though, sometimes the songs they push are pure garbage. Just plain terrible. But, radio station managers tell their on-air talents to play this stuff to see how listeners react. If the song does not get much response, then it is quickly pulled. The station manager can tell the record companies that they played it. Again, the majority of songs pitched to a radio station are awful! Only about 10% of songs sent to a radio station ever get played on a consistent basis. Record companies think they can buy success (and some have!), but it is mostly dependent on the reaction of the radio listener.
DECLINE OF CASSETTE AND THE RISE OF NEW MUSIC TECHNOLOGY
Ten years ago, CD and cassette sales were nearly identical. In 2002, the ratio is 95 to 5 (CD to cassette). This sudden rise in the CD format and drop in the cassette format can be attributed to the market’s hunger for the latest technology. CD players have become more advanced than ever before. The introduction of music DVDs, which are already available on limited titles, will continue the advancement of modern technology. All of this is good for the technology junkie, but what about the other consumers. I met quite a few customers in stores who flat out told me they have never bought a cassette or CD player. At first, this shocked me. But after a while, I understood that there is a segment of population who used to buy 8-tracks and vinyl records who no longer purchase music because they have not updated their music ilistening devices. The older generation still loves music that suits them, but they prefer to play their records or listen to the radio.
ARROGANCE OF THE RECORD COMPANIES
Music consumers would be appalled at the arrogance shown by the record companies. Their blatant disregard for meeting the needs of retail stores has made many stores unwilling to invest in music as a product in their stores. On a personal note, I was released from my job as a music buyer with a 17-store retail chain in Virginia because they decided to substantially decrease the amount of music inventory in their stores. The deciding factor in the decision was the lack of understanding on the part of the record companies and the incredible amount of theft. All the record companies seemed to care about was seeing our store slam in 1000 copies of every artist they had, regardless of whether we needed it or not (and most of the time we did not!). When we did that, nearly half of that inventory would be stolen. Guess who got stuck with the bill and guess who still made their money? You guessed it! With no major profit being shown in the music category for our retail stores, the owner decided to put less emphasis on it than before.
Even if there has been a slight decline in sales, the music industry is still making a lot of money! Don’t let their recent crying game over declining profits fool you. The next time you hear the record industry complaining about declining sales and profits, remember what I have written in this article. It will bring a whole new perspective on the way you look at the music industry and their “problems.”