Look, iTunes is not going anywhere anytime soon. But with the world moving away from downloads and into streaming, Apple has to look beyond selling music files if they want to keep in the music game. Music Industry Blog takes a look.
When new formats race to the fore it is easy to make the mistake of taking an eye off the legacy formats. This is risky because they usually still account for very large portions of existing revenue. Now that the marketplace has finally accepted that streaming does, in fact, cannibalize download sales (indeed 27% of subscribers say they have stopped buying downloads) the attention has, understandably, simply shifted to figuring out how quickly streaming revenue will grow. At a macro level, this is fine,
At a macro level this is fine, in fact, it even works at a big label and publisher level. But it is far more challenging for smaller labels and publishers, and also for artists and songwriters. Each of these constituencies still depends heavily on download sales.
Of course, the big labels and publishers do too, but their repertoire portfolios are so large that they can take the macro view. For the rest though, because the average royalty income per album per streaming user is just $0.21, download sales remain crucial to cash flow. So, what happens when the download dies?
The demise of legacy formats normally follows this pattern:
- An accelerated initial decline as early adopters abandon the technology in favour of the shiny new thing
- A steadier, slower, long term decline as the mainstream migrates away, leaving only the laggards
- A sudden death when the sales channel no longer supports the product (think black and white TVs, cassette decks, VHS recorders etc.)
The CD is clearly following this trend but phase 3 will be long in coming because it is so easy for Amazon to continue stocking product, especially super high end box sets etc. Meanwhile discount retailers, petrol stations, convenience stores etc. will continue to find space for super low end cheap catalogue CDs.
For downloads though, there is likely to be a near-sudden halt within the next 5 years. Although Amazon has made solid inroads into the music download business, Apple remains by far the dominant player.
Thus the music industry is in effect dependent on the strategic whims on one partner for one of its most important revenue streams.
Keep reading. This gets good.