June 24, 2008

If You Can't Beat 'Em, Join 'Em

Posted by Suemedha Sood at 3:00PM

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Music sales dropped this year to their lowest point since 1985. Album sales, including paid-for downloads, are down 11 percent from $2.9 billion. (In the compact disc's heyday, music sales peaked at $3.4 billion.)

With the demise of records stores across the country, free downloads and piracy, it's not too surprising that CD sales are down. But the numbers aren't exactly as they seem.

As blogger Stan Schroeder points out, digital sales are climbing at a pretty fast pace. In 2007, CD and DVD sales fell 13 percent, while sales of downloads (including ringtones) went up by 34 percent. Although the rise in online music sales hasn't been enough to offset losses -- in fact, revenues dropped by 8 percent -- those numbers hint at something really important.

In time, digital sales will get back up. But if the music industry wants to help that process along, there are a few things it needs to do.

Record companies need to learn how to adapt to a changing market. Instead of the RIAA stubbornly sticking to its own ways and investing abundant resources in going after piracy perpetrators, it needs to get with the proverbial program. Illegal activity has long had its place in the market -- think ticket scalping, made stronger than ever by online sources like Craigslist. Once music companies abandon old ways of thinking and figure out how to use new technologies and online resources to their advantage, they'll be able to innovate, compete and get back to making "obscene amounts of money," as Schroeder puts it.

Since illegal downloading isn't easy to police, the music industry would do well to view the phenomenon as a viable competitor. Right now, that competitor is pleasing consumers through ingenious means (BitTorrents, invite-only downloading sites, etc.). Record companies just need to figure out how to give customers what they want.

It's pretty telling that when Radiohead allowed fans the option to choose their own price for its album Rainbows -- at first released only digitally -- consumers did actually pay for the album. In the U.S., the digital download made about $8 an album. It just goes to show, people are willing to pay for quality, even if they have the option not to.

Once the RIAA realizes it can't edge illegal downloading out of the market as easily as it can edge out small, independent labels, music sales might start to go back up.