NMB: Death of the CD

This is the first in a series of article about The New Music Business.

To get us started on this topic of The New Music Business I’d thought we talk about an article that appeared in the New York Times a couple days ago titled, The Album, a Commodity in Disfavor. It’s the story of a Rap/R&B trio that recently signed a “record” contract for two songs. You read that right. They aren’t recording an album, just two songs. Why?

Only true fans are buying full albums. Most people don’t really do that anymore.

The article goes on to say that consumers who purchase music digitally (i.e. downloads) are buying way more individual tracks than they are whole albums. The margin is 19 to 1. Even if you consider that a whole album download contains 10-12 songs, there are still more tracks purchased individually than there are corporately, in the digital download market.

To be fair we must admit that physical CD sales still outweigh download sales. But for how long? We recently reported that CD sales, which have been steadily declining for the last seven years, dropped by 20% the first quarter of this year, while sales of digital tracks have increased by 16 percent during the same time period.

Paul Resnikoff, editor of Digital Music News gives his explanation for why the trend will continue.

The reason is that consumer behavior has changed fundamentally over the past few years. The album purchase is now entirely optional, and usually exercised for a small group of highly-esteemed artists. Anything less than top-shelf is passed over, at least in quantities greater than one song.

Here’s another story on the topic over at the Wired magazine blog. It appears some people are skeptical about the imminent demise of the compact disc.

Will the CD go away anytime soon? Probably not. The best selling CD of all time continues to sell in record quantities. Of course I’m talking about the blank CD consumers purchase to burn copies of music they’ve downloaded. The CD as a format is here to stay, for a while yet. Eventually though, it will be gone. Consumers, like myself, will listen to music on their iPod, or other listening device, and CDs will be big bulky relics of the past.

Artists will have to find a new means of delivering music to fans at the show to capture those impulse buys that occur after a live performance. It could take the form of personal consumer devises with internet access and downloading capability, much like Apple’s soon to be released iPhone. Consumers could then be at the show and just download the songs they like from the band’s set list.

A scenario like that results in no physical CD for the band to pack along on the road, but also results in a loss of revenue since the band is not reaping the reward of retail sales themselves. One solution to that problem is that the band could sell the downloads directly off their own website, providing they own their music, or can work out a deal with their label.

Lonesome River Band is an example of a bluegrass band that is selling direct downloads on newer catalog recordings (back catalog stuff is still under label contract and unavailable for download from the band). The only question left, is will a devise like the iPhone allow the consumer to download from any web location or only from the provider’s point of sale. At this point it looks like the iPhone will be closely tied to the iTunes store, but the future changes a lot of things.