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No one making money on digital music? Give me a break
by Dennis Sellers
It’s ironic seeing Apple as the 800-pound gorilla these days. Not in computer sales, alas, but in the digital music biz. In fact, some folks are saying that Jobs & Company are the reason that no one is making money in the downloadable tunes industry.
In a columnfor the The Street, senior writer Troy Wolverton posits this question:the online music business is booming, but is anybody making real money at it? Competition, marketing expenses, a faulty business model, slow-changing consumer attitudes and the use by some companies of music as a lure to sell other goods and services have all conspired to keep the business largely in the red, he says. And that’s not likely to change due to Apple’s dominance of the digital music market, Wolverton says.
“It’s a long-haul business right now,” Aram Sinnreich, managing partner of Radar Research, a Los Angeles-based consulting firm, told The Street. “It will be at least three years before anyone can make a serious profit selling digital music,” largely because of the hold that Apple has on the market. And even then, Sinnreich says, making money will require some serious changes in the way consumers are buying online music.
“Nobody will ever make money from selling 99-cent downloads” as Apple does through iTunes, he says. “There’s not a margin in it.”
Regardless, companies are certainly seeing huge growth in digital music sales, as Wolverton notes. The Recording Industry Association of America, for instance, estimates that the U.S. retail market for digital downloaded songs and albums grew to $503.6 million in 2005 from $183.4 million in 2004. The RIAA estimated that U.S. consumers spent another $421.6 million on ring tones and other mobile music content last year and some $149.2 million on music subscription services. This boom has contrasted sharply with the overall music industry, where retail sales fell about 0.6% last year to $12.27 billion.
Many analysts see subscription services as the long-term future for the business, because they offer greater margins and recurring revenue. Chris Gorog, Napster’s CEO, estimates that the margins for subscription services are “four times” greater than those for individual downloads. But the iPod’s success is holding back subscription services “to a tremendous degree at this point,” Sinnreich told Wolverton.
As I’ve mentioned before, I personally don’t think subscription services will work in the long run. n the U.S. (and I can’t speak for other parts of the world), we’re used to “owning” our music. That’s a paradigm that won’t change any time soon. Let me explain what I mean by “own.” I realize that the songs on the varied albums in my collection (which range from the Statler Brothers to Elton John to Green Day) were created and truly belong to those artists, I own the physical media on which I purchased those albums and the rights to play the music on them. That is, the CDs are mine, as are any songs I buy at the iTunes Music Store. Since I own them, in this aspect, I can listen to the music on any device I wish: my iPod, my Mac, a CD player, etc. Though the music subscription approach has grown somewhat in recent years, most music fans have chosen to buy songs by the track or the album.
And, like it or not, Apple is selling LOTS of songs and albums via the iTunes Music Store. As CEO Steve Jobs noted in celebrating the fact that the iTMS had sold a billion songs: “I hope that every customer, artist and music company executive takes a moment today to reflect on what we’ve achieved together during the past three years. Over one billion songs have now been legally purchased and downloaded around the globe, representing a major force against music piracy and the future of music distribution as we move away from CDs to the Internet.”
I don’t expect CDs to disappear anytime soon, but digital music is obviously booming. A billion songs sold and no one is making money? C’mon, that’s hard to believe. Maybe some parties aren’t making as much money as they’d like, but if songs are selling and piracy is indeed being diluted, then it’s a win-win situation for everyone.
Thoughts? Write me at daseller at earthlink.net
