August 29, 2007
Promoters take over as file-sharing bug bitesPosted in International Economy · 5 comments ·
This weekend, many of the 40,000 people who will travel to Stradbally for the Electric Picnic probably still remember the thrill of getting your hands on a new vinyl album. Even for part-time, uncommitted musos, the new album with its cover, inside sleeve, lyrics and design was a prized procession to be treasured, shared with mates and above all, taped ferociously. A little later, the CD took over, but the buzz and the hype was almost the same.
For example, when Sign o’ the Times, Prince’s 1987 classic album, was released, it sold out in Golden Discs in Dun Laoghaire despite retailing for a steep Â£15 at a time when the average industrial wage was a little over Â£100.
For many thousands of Irish music lovers, that CD was an essential foretaste to the Prince concert in Cork a year or two later. But it was clear back then – the CD came first.
Contrast this with today. Last month, Prince’s latest CD, Planet Earth, was given away free in a British newspaper, while anyone who attended his gigs in the London Arena this month got a free CD at the door.
What is happening in the music industry? Yes, Prince’s powers may have waned but the same process – where even the hottest new bands’ CD prices are falling – is happening all over the industry. Bands can sell t-shirts at gigs for two or three times the price of their CDs. If you have ever been in a recording studio with its stateof- the-art equipment and highly- trained editors and producers, it seems a bit odd that t-shirts, made for a few cents in China, might cost more that the perfectly mastered sound. But strangely, they do.
For example, the Electric Picnic will feature headline acts that are making more money from merchandising than from music. People will spend good money to see them and get the t-shirt; yet the same fans will balk at the price of their traditional staple, the album. What explains this willingness to pay for live gigs but unwillingness to pay for the recorded music?
One idea might be that people have always liked the communal experience of a gig or a festival. The Electric Picnic advertises itself as a “boutique” festival, appealing obviously to “boutiquey” type of people. But that alone does not explain why CD prices are falling and why the only place a band can make money is through their live gigs.
Labels obviously realise the change. For example, most bands’ contracts now have to give a cut of the live shows to the record label. Whereas before, the live gig was seen as a way of generating album sales, now it’s the other way around.
Industry insiders claim that in a few years time, music sales will account for only 30pc of a groups earning, with merchandising and gigs paying the rest.
The same process is happening in music as has happened in hundreds of other industries in the past. The music industry, so long the standard for ripping people off, has now fallen victim to the irresistible force of technology. In an i-Pod age, where everything is downloadable at a fraction of the cost, why would anyone pay for a CD?
According to an article in this month’s ‘Prospect Magazine’ in the UK, the now ubiquitous downloading and file sharing trend first started in Germany. By making the digital copies available in the CD form, the industry opened itself up to allow the customer to clone the product. The Germans responded to this opportunity most enthusiastically. German music sales – serving a country of over 82m people – are now smaller than Holland’s.
This German weakness for file sharing has had profound impacts on the industry worldwide. For example, the august Journal of Political Economy, which normally concerns itself with issues of almost laughable economic esotericism, published a piece on file sharing. During German school holidays, when the children are at home and online, the supply of pirated music available to Americans balloons, making downloading quicker and easier.
All over the word the sales of CDs has plummeted. In the US sales last years are down 15pc and 35pc in Canada, while France and Germany has seen CD sales collapse. It’s difficult to get figures for Ireland, but doubtless if the falling price of CDs in Tower Records is anything to go by, sales here are crashing too.
The record companies have lost control over its asset. Music has no value, royalties are nonexistent and back-catalogues are practically worthless.
Not so long ago, David Bowie was able raise cash on the royalties of his back catalogue. This is called securitisation and the idea is that there will always be people buying Bowie CDs, the income from which can be used to pay back interest on a bond and David Bowie who sold the bond, made a huge amount of cash. Bowie, as he was all throughout the seventies, was miles ahead of the pack.
How all this has changed and even the biggest bands would find it difficult to put a price on their work. Once the music is released, it becomes worthless. This might be why we are seeing an explosion in festivals, concerts and smaller gigs. The industry is foisting the artists on the public in an effort to get cash back on their original investment.
But apart from stuffing us with gigs, can the music industry recover? The market for digital downloads in the US was close to $1bn (â‚¬0.73bn) last year. However, there is little doubt that this won’t offset the losses in the industry cash cow that was the album or CD.
In economic terms we have seen all this before. When Henry Ford came in and streamlined production of the Model T, he slashed the cost of making cars, which had up to then been seen as a luxury item.
It is not that the album was ever seen as a luxury, rather it was a necessary piece of a teenagers’ identity. Either way, the era of record companies milking their customers is over. Now the promoters not the producers are in control.
If you doubt that look at the back of any paper today at the listings page and you will see hundreds of gigs with all the big names playing in Ireland over the course of the next few months.
One of the biggest promoters told me that the most surprising thing was the lack of any real price ceiling on gigs. People will pay anything to see their favourite band.
On balance therefore, what is interesting is not that the price of CDs has fallen but that they have not fallen far enough. In the years ahead expect the price of music to fall further as the downloading becomes ubiquitous. For music fans all around the world this can only be good news.