Creative Destruction, Music-Industry Edition

22 February 2011 at 1:24 pm 9 comments

| Peter Klein |

Note that the chart nicely illustrates not only the competition among formats, but the industry’s overall decline. Indeed, “creative destruction” is a good name for the the damage done to the creative arts by the recording industry’s approach to digital media.

Entry filed under: - Klein -, Business/Economic History, Evolutionary Economics, Strategic Management. Tags: .

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9 Comments Add your own

  • 1. Matt Stiles  |  22 February 2011 at 2:07 pm

    Yep. I’ve basically given up purchasing music. I get TV channels with dozens of music genres. I listen to the radio in the car. I go to a lot of live shows. And that’s about it.

    I had stopped watching movies entirely as well for about a decade. Now I have Netflix and have probably watched more in the last 3 months than in those previous 10 years.

    Unless the music industry figures out that people’s willingness to spend money on something of such great abundance declines along with that abundance, the “creative destruction” of that industry will continue unabated – and will be replaced by something else.

  • 2. Andre Sammartino  |  22 February 2011 at 4:55 pm

    That’s a verey handy graphic.

    An interesting way of using this in a teaching context is to ask the students about their level of digital music ‘ownership’ (i.e. how many songs/files they have).

    That will quickly highlight that there isn’t a lack of ‘product’ out there (indeed the number of producers- i.e. musical acts – has probably increased). It’s the music companies, who had dramatically greater control over distribution of physical product pre:digital, who have lost their way here…

  • 3. Martin  |  22 February 2011 at 9:30 pm

    That chart also handily illustrates how the record companies overcharged for compact discs after vinyl was phased out. I recall that the high initial price of cd’s was to “recover costs” and then the price was supposed to drop to match that of an LP. It never did and that chart shows the profit taking that went on. After decades of being ripped off it is really hard to feel sorry for the industry.

    Also note that the total turnover is still way above what it was when vinyl was king. Perhaps we are really just watching a return the era of ‘singles’?

  • 4. Andre Sammartino  |  22 February 2011 at 10:56 pm

    Martin, that all depends on whether the turnover totals are adjusted for inflation…I’m guessing they’re not

  • 5. Randy  |  22 February 2011 at 11:35 pm

    Andre, you are correct. The SAI site published the inflation-adjusted chart two days later. It is two clicks away from the original chart on their site.

  • 6. Martin  |  23 February 2011 at 12:14 am

    There is a nice write up about the the chart and it’s foibles here:
    http://www.businessinsider.com/these-charts-explain-the-real-death-of-the-music-industry-2011-2. It does seem that the era of the single has returned :-)

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  • 8. Bob  |  23 February 2011 at 10:21 am

    A couple of other factors that I would throw into the mix:

    First, production and distribution costs are plummeting due to digitalization. Therefore, it makes sense to have declining revenues.

    Second, a lot of music is now purchased internationally. I bet tracking of revenues from off-shore music sales is unaccounted for (e.g. the thriving Russian sites).

    Long live the single, btw. The future holds a lot more 1 hit wonders and fewer super bands.

    Cool post Martin.

  • 9. Rob Szarka (@szarka)  |  1 January 2012 at 9:37 am

    My reaction to that chart (beyond the obvious real vs. nominal issue) was to wonder how much of the “decline” actually represents disintermediation. Artists have always sold directly to the consumer in a way that the RIAA numbers might miss, but digital formats and the web have made it much easier. (Heck, I’ve spent hundreds of dollars that probably doesn’t show up in the RIAA figures on Bill Mallonee’s music alone.)

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