Apr. 21, 2010 - Issue #757: Face First
The upside of the slump
A decrease in digital sales actually saw an increase in profits
Last week, Billboard magazine announced that, for the first time, sales of digital songs had declined in the US market.
In the first quarter of 2010, 312.4 million songs were sold, down from 315.4 million from the first quarter of 2009. That's a decline of just under one percent.
Of course, pretty well everyone in the major media is portraying this as another sign of a battered recording industry. And the industry itself has been putting the blame on the decision by many labels to up the price-per-song charge on iTunes from 99 cents to $1.29.
But, in truth, this may be the sign of a decent recovery. In a bad economy, a sales slump of less than one percent isn't a huge problem. And this gets more confusing because industry doublespeak is blaming the tiny decline in total sales on a price hike. A 30-cent hike in the cost of a single has driven sales down by less one per cent.
Wait a sec. Not to go all Kevin O'Leary on you, but song prices went up by about 30 percent. So losing one percent of sales based on such a price increase will mean that revenues would have actually gone up by a large amount. Any business person will tell you that losing only one percent in gross sales based on a price increase of almost a third is a good thing for revenues.
No, not all of the 312.4 million songs Billboard tracked will have carried the new $1.29 pricetag. But, again, with almost all new songs going to the more expensive price points, chances are that increase more than offset the downward blip in total songs sold.
Really, for an industry that's struggling, the fact that so few consumers were driven away by the price hike shows that most of the fears that the industry has about price hikes driving consumers back to piracy are unfounded.
If anything, this is proof that the majority of consumers understand that, at 99 cents, the price of music was greatly undervalued.
I think we only have to look at the corresponding rise in vinyl sales—which is by far the most expensive medium for music on the market, with us not batting our eyes at prices of $25 – $30 for an album—and realize we aren't actually that repelled by the thought of spending money on good music. Last year, vinyl sales were up a whopping 33 percent according to Nielsen Soundscan numbers. Everyone in the industry would gladly trade a small drop in cheap online sales in exchange for a rise in vinyl.
Note the "good" point: I can see that novelty buyers—those who hear a song once and buy just the single—might be impacted by the price hike, but these numbers are reassuring to the artists who work hard to put out quality material.
It's not often when a sales drop can be seen as a positive turning point for an industry. But, that's the case this time around. Maybe the days of discount music are coming to an end. V
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