Why music’s “digital milestone” is not what it seems

Thursday June 7, 2012

It Never Rains, But It Pours

There's a little bit of the farmer in every retailer. It's too wet, it's too sunny, there's too many releases, there's too few releases etc etc.

Perhaps it's because like farmers, so many of the biggest determinants of success or failure for entertainment are outside their immediate control.

But, as they say, just because you're paranoid, it doesn't mean they're not out to get you.

Which is what many retailers suspected when they read the BPI's latest press release about the growth of "digital revenues" last week.

The release made two key points (i) that digital had overtaken physical in music (although at the level of record company revenues, rather than retail sales) and (ii) digital's growth had been enough to return the music market to growth. 

The first objection was to the figures themselves. "Record company revenues" are clearly important to record companies, but they say nothing about the health of the "music business", nor do they reflect consumer behaviour.

This is ERA's take on the first quarter numbers based on actual sales figures from the Official Charts Company:

Retail sales figures from Official Charts Company. *Streaming figures are trade values from BPI

It is difficult to come up with a "retail" figure for streaming, but even if you were to double the trade figures for streaming listed above, the overall market would still have declined.  The numbers show that in terms of retail sales, physical accounted for 55.5%, compared with 44.5% for digital. Add in the BPI's streaming numbers and physical is still in the majority.

So no return to growth, and digital most likely still in the minority - a very different view to the BPI's figures.

Why is this important? It is important, say retailers, because while they may be made with the best of intentions, such statements potentially mislead and alienate the biggest single group of music buyers in the UK - CD buyers. 

Take this leader column from the Daily Telegraph, titled 'The End of the CD'. The Telegraph were clearly confused by the BPI's elision of 'record company revenues' and the 'music business' and declared "Britons now spend more on downloading music than on buying CDs". As shown above, they do not.

The Telegraph mourned the "passing" of the CD (which it compared unhelpfully to the demise of the trolley bus or lard), but the net impact to any CD buyer reading the column would have been to be left feeling a little old-fashioned and behind-the-curve. All this despite the fact that 70% of album sales are still on CD.

So where does ERA stand on this?

Contrary to the way they are sometimes painted, retailers view themselves as among the most progressive and internet-savvy forces in the music market.

The record of ERA members like Amazon, play.com, 7digital, Spotify, Deezer and We7 speaks for itself. HMV, Tesco, Sainsburys and many others have sophisticated internet operations to compete with anyone. More than half of ERA members operate online.

What they all believe, however, is that ultimately the consumer is king, and therefore music product should be made available in whatever format the consumer would like to buy it in.

Their beef is that their suppliers seem not to be on the same page.

Certainly reading last week's Music Week, one could be forgiven for believing that record companies can't wait to get shot of the CD.

Christian Tattersfield, CEO of Warner Music, declared, "The news that digital revenues have overtaken physical this quarter is very encouraging."

David Joseph, Chairman and CEO of Universal Music said, "It's been a much talked-about moment, but the promise of a new shape to the music market is finally being realised."

And Nick Gatfield, Chairman and CEO of Sony Music UK said, "…this is the strongest signal we have had yet that real transformation is taking place…"

Only Andrea Vidler, CEO of EMI Music, thought to say, "We'll continue to work with all our retail partners to give them the music that their customers want in the ways they want."

There is a growing feeling at retail that rather than following the consumer, record companies are trying to lead them to a digital world many simply do not want.

The debate should not be about digital versus physical, they say. It should be about maximising both.

Their fear is that the greatest threat to the CD is not consumer indifference, but supplier neglect.

Or is that just paranoia?

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