The right lesson learned

What happened to the music business?

“We don’t want to have what happened to the music business happen to the book business.”

When it comes to discussions of DRM and the impact of piracy, this is one of the most frequent refrains I encounter.  With equal frequency, I have tried to sidestep the argument, largely because the comparison, lacking an analytical framework, stirs emotions and unnecessarily muddies the water.

The refrain keeps coming back, though, so here’s a first take on my own analytical framework.

Physical (largely CD format) sales of albums peaked in 2000.  The peak coincided with the rise of piracy.  Observers have linked the two and concluded, “Piracy decimated sales of music.”

A research study by Felix Oberholzer and Koleman Strumpf (available as a PDF) found otherwise.  Using massive data sets, the research team determined that they could not establish any meaningful impact of piracy on album sales.  In sum:

“Downloads have an effect on sales which is statistically indistinguishable from zero, despite rather precise estimates. Moreover, these estimates are of moderate economic significance and are inconsistent with claims that file sharing is the primary reason for the recent decline in music sales.”

Oberholzer and Strumpf did find that the 2000 peak signaled the end of a decade-long effort by baby boomers to replace aging vinyl collections.  Admirably free of pops and clicks, digital formats were portable and (with jukebox players) much more accessible.

This simple explanation resonates with me.  I loved my vinyl copy of Making Movies (1980), and I had played it with alarming frequency between its release and the time (1993) we bought our first CD player.  When the album became available on CD, I happily replaced the vinyl (kept the older copy, though; I’m that way).

Since the debut of iTunes and (later) the iPod, digital sales of songs has risen, even as sales of albums have fallen.  Blaming piracy for this more recent trend is misplaced.  It’s as easy to obtain a pirated song as a pirated album.  The lesson here is simple: people want songs more than they want albums.

I do like albums; there’s a sense of discovery and serendipity in buying the work of an artist.  I’m not the only person who feels that way, but (clearly) there are many ways to feel.  The music business resisted selling digital singles long enough for Apple to become the purveyor.

You can blame Apple (or Amazon, or Google, or … ) for meeting consumer demand, but I think it’s the wrong lesson.  As the Kinks wrote, “Give the people what they want.”

Up next: why the book business is not the music business.

Edited May 12 to add: A post at ars technica presents the relative share of digitally delivered songs, streams and albums (as reported by TuneCore) as well as songs versus albums for the full RIAA data set.  Across digital formats, full-album sales represent about 6% of total unit sales.

Posted by Chris Johnson
Feb 09, 2010  at  02:20 PM

One thing that also gets overlooked when assessing the reasons for the decline in music sales is that this also occurred at the same time that console and PC video games were taking off. I always thought that when teenagers were deciding how to spend their limited disposable income, they were suddenly choosing to buy a 50 dollar video game which a decade before would have gone to purchase 3 full-length albums.

Posted by Brian O'Leary
Feb 11, 2010  at  10:31 AM

Thank you - you’ve made a helpful point.  When looking at any form of media, it’s useful to assess growth (or the reverse) in context - here, market share of entertainment spending across target audiences.  The narrower view naturally leads us to pirates, while the broader view may place any trends in a broader setting.

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