Manage for Success: Stats & The Future, Newsletter #81, January 2008
"Manage for Success" is a free monthly newsletter for record label executives who want to operate their companies efficiently and successfully. It's published by Keith Holzman of Solutions Unlimited, a management consultant, troubleshooter, and trusted advisor, and is based on his many years as a senior executive in the music industry.
Copyright 2008 by Keith Holzman, Solutions Unlimited. All rights reserved.
Let me begin by wishing all of you a very happy New Year, with the hope that 2008 will be a better year than 2007.
Last year, overall sales declined a considerable amount from 2006, as delineated by Ed Christman in the January 12th issue of Billboard. <http://www.billboard.biz/bbbiz/content_display/magazine/upfront/e3id7569e30e6503646f137114a1410cc28 > (Subscription required.)
Year to year CD Album Sales were off a dismal 18.8 percent -- from 553.4 million units in 2006 to 449.2 million in 2007. On a somewhat brighter note, Digital Album Sales were up more than double -- from 32.6 million to 50 million. Individual Digital Tracks were up 45.1 percent from 582 to 844 million. If you figure an average of 10 tracks per album, Digital Track-Equivalent Albums added to CD Albums would total 585 million, and therefore off only 9 percent from total albums sold in 2006, still not very agreeable.
It's clear that digital downloads are here to stay, as Apple's iTunes was up 45 percent from the previous year. This is in spite of the fact that, according the Los Angles Times, an estimate by Big Champagne has about 1.1 billion tracks per month being downloaded and pirated from file-sharing networks.
The majors appear to have had it a lot worse than better-managed independent labels. In fact, some of my clients who've been in business for awhile and have built up solid catalogs fared rather well, and many ended the year with comfortable profits.
As to market share, Universal led with almost 32 percent, followed by SonyBMG with almost 25 percent, then Warner Music with just over 20 percent. The Indie sector was fourth with 13.5 percent, and EMI was in last place with less than 10 percent.
As for stores selling music, non-traditional retail (iTunes, Amazon.com, etc.) showed some growth while mass-merchants (Wal-Mart, etc.) experienced about a 15 percent decline in sales. They were followed by chains such as Best Buy, Borders, and Trans World which were off almost 26, and the independent store sector which was off about 13 percent.
Catalog sales, as opposed to current releases, were down less than the overall market, with strong sales shown for deep catalog titles -- those that have been in release three years or more.
Although all genres showed a decline in units, rock was off about 15 percent, while classical was off only 7 percent, jazz off 10 percent, Christian and gospel off 14 percent, country and Latin off about 15 and 16 percent, and R&B was off about 6.5 percent. The genre that declined the most was rap, off 30 percent.
US-based digital music will continue to see rapid growth, according to a projection by the Yankee Group as reported on January 9th by Digital Music News. The majors will "ultimately become marginalized in the process, thanks to strengthening direct-to-fan channels," while the "basic relationship between recording artists, record labels and consumers is in major flux."
Despite the fact that The Economist in a January 10th article says that the next few years are likely to be even worse for the music industry, I tend to be an optimist, although a realistic one. Yes, big-box retailers are exacerbating the downward spiral of decreasing CD sales by further reducing shelf-space. Other factors, such as slow-reacting senior staff and a bloated philosophy of doing business will seriously affect the majors, I strongly believe that there's likely to be a rosy future for independent labels who try new and innovative methods of marketing.
Innovation will clearly be the way to future success as evidenced by recent happenings. More and more artists are taking greater control over their careers and their recordings. The Eagles sold well over 264 thousand CDs on their own label in just two months -- without being affiliated with a major.
Contact me if you need help getting your label prepared and organized for the future. Take advantage of my many years of record industry experience and email me to see how I might be able to help. The address is mailto:email@example.com
Some artists consider the CD to be an adjunct and sometimes a promotional tool in favor of live performance and merchandising, which is where the substantial part of their earnings reside. For example, Bill Rusch, manager of Big Head Todd, told Billboard's John Schoenberger (also in the January 12th issue) <http://www.billboard.biz/bbbiz/content_display/magazine/upfront/e3i5d4ee6c1f9636327b895f51f685906bc > that they wanted to try something innovative. "The real source of income and continued success is our live show. We felt that in this stage of the band's career, we would try to use the recorded music as a marketing and promotional tour to drive that." He went on to say "It was a way for us to get radio onboard as a partner on a deeper level than just asking them for airplay."
What they did was to make available a quantity of their new 2008 studio recording, "All the Love You Need," and make them available as a direct-mail promotional tool to be given away by radio stations. The artwork was customized for each interested station, and four stations have so far taken them up on the offer.
They even went further and offered the CD to fans who gave them their addresses. More than 25,000 of them received it as a "cool Christmas gift." Sure there's a risk in this, but it strikes me as a great way of building a fan base and ensuring sold-out houses wherever the band tours.
Other methods of gaining exposure are by licensing your music to add-supported music websites such as imeem.com. And if you're clever you might also be able to get a small portion of their advertising income.
Seeing that delivery by download is clearly the key to the near future, another incentive to improved sales is to offer extensive graphics along with the downloaded songs. This could include artist photos, song lyrics, information about the songs. Consider including a "virtual coupon" with discounts for merchandise or performance tickets.
I recommend you take a look at a very provocative piece titled "Music Lessons" by marketing guru and agent of change, Seth Godin. <http://sethgodin.typepad.com/seths_blog/2008/01/music-lessons.html> It's controversial, but loaded with excellent ideas.
It appears that new formats are also likely to be in our future that allow more value-added features, as evidenced in the January 5 issue of Billboard. These formats include DVDplus, DFS (Digital Future Solution) Disc, CDVU+, and MVI (Music Video Interactive.)
I'm encouraged for indie labels by another article in the January 12th Billboard.
<http://www.billboard.biz/bbbiz/content_display/magazine/features/e3ie18fc18af9d5a143d2ea564ef3c88a6a > This is the cover story about Ingrid Michaelson, a virtual unknown until about four months ago. She assembled what she call her "Frankenstein" label by gathering around her some very talented and experienced advisers and developing clever approaches to marketing and distribution. There's no question that she was very lucky, but getting her songs used in an Old Navy sweater commercial and on TV's "Grey's Anatomy" took great effort but also meant that they were good songs and deserved attention -- sufficient to sell more than 87,000 units in a very short time.
Maybe the future's not so bleak after all.
Until next month,
Keith Holzman -- Solutions Unlimited
Helping Record Labels Manage for Success.
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Copyright 2008 by Keith Holzman, Solutions Unlimited. All rights reserved.