Part One - Part Two - Part Three - Part Four
3: There is always an easy solution to every problem — neat, plausible and wrong
I'm going to depart from the meat of U2's manager's speech for a bit to get into the alternatives to the assumptions that are the basis of Mr. McGuinness' assertions: that the music business has been ruined by illegal file sharing.
One part of this is the question of just how badly the industry is doing - indeed whether they are doing badly at all. Although it references only one player in the Australian industry, this opinion piece suggested that industry’s gloomy pronouncements were hiding all-time high sales. While they may bemoan the state of the industry when discussing the impact of file sharing, when discussing their position as publicly traded companies the picture that’s painted tends to be more optimistic. All this can be confusing stuff. There are sales, and then again there are revenues, and then again there are profits. And what the hell is a “margin”?
In general though, since I’m no economist I have to go by the trends in reporting and it seems pretty clear that there is a consensus that the business of selling mainstream CDs is in trouble, revenues have tumbled sharply over the last decade, many retail stores dedicated solely or primarily to music have gone out of business, and the stocks of the publicly traded companies have taken major hits. You’d be hard pressed to find an analysis that suggest that the record business as a whole is doing anything but worse. And while projections are just that, they suggest that the decline will continue and that to the degree digital downloads counter declining CD sales, they won't completely make up for these declines.
Far more uncertain is a core argument at the center of McGuinness’ speech: that the blame, or at least the majority of the blame, for these declining fortunes can be laid at the feet of illegal file sharing. Certainly for an industry insider to hold this position is not surprising. It has been pushed hard by industry representative groups like the RIAA and the IFPI. You can find plenty of research that supports the position (of course, you have to consider the source: SafeMedia is selling technology that purports to remove illicit copyrighted materials from P2P traffic. Nevertheless, many of the cited articles are legitimately argued by relatively unbiased sources). Personally, I think that an important and largely undiscussed element in the prevalence of this argument is that it is driven by uncomplicated causal logic. Napster hit, file sharing became a phenomenon, record sales declined. Do the math, right?
I reviewed a fair amount of both primary research and media interpretations of the situation. My own unsatisfying conclusion is that I’m not equipped to make a particularly sophisticated judgment of the primary research, a situation that makes the scientist in me very leery of coming to conclusions that “happen” to support my personal biases. I think it is fair to say, however, that there is honest disagreement between the better-equipped and less biased researchers on the topic of the role and extent of of filesharing’s impact on the CD business. So I’m not going to argue my own specious conclusion on the subject. Instead, as food for thought I hope I can shine some light on just how complex and ambiguous the situation is.
That file sharing of unauthorized copies of copyrighted songs is occurring at a large scale isn’t a subject of dispute. The essential question - the one that is almost never addressed or indeed acknowledged by the record industry, is the degree to which file sharing is displacing sales. The logic contrary to the party line is simple: the fact that someone will download a song for free does not imply that they would necessarily purchase the song legally if it weren’t otherwise accessible. A trivial demonstration is that an individual could easily download free music worth, if it were purchased legally, far more than the individual has available to spend. Preventing the downloads couldn’t possibly generate the supposed revenue selling them would have generated: the money simply isn’t available.
There are a variety of different approaches to researching the attachment of music revenue losses to illegal file sharing. Data on overall file sharing volumes over time, specific files being shared, and demographics of individuals engaged in file sharing can be compared to similar data for revenue from conventional sales. Furthermore, individuals can be surveyed about their habits and beliefs about how their file sharing and music purchasing intersect.
The problems with this data are numerous. By its nature, illegal file sharing is not exhaustively or accurately tracked. Any specific data on file sharing statistics must involve a significant amount of assumption, and it is not much of a stretch to suggest that the bias of the observer will affect what sorts of assumptions are made (it is fair to point out that the issue of bias cuts both ways - plenty of biased analysis is made to argue that file sharing does not impact conventional music revenues).
Even going directly to the consumer for information provides uncertain conclusions. If individuals projected their own purchasing decisions with absolute accuracy no well-funded movie would ever bomb and no major product would ever fail. The decisions that people make with their wallets in actual consumer venues are notoriously difficult to predict. Frankly, a possible conclusion that merits greater attention is that the impact of file sharing on CD sales cannot be accurately determined.
If the case for a cause and effect relationship yields uncertain conclusions, is is only sensible to look for alternative explanations. In the case of declining music revenues there are many potential causes that have gone largely unexamined by the record industry.
The hardest to prove one way or another, while ironically the most important to correct if it is a serious factor, is the charge that the record industry basically screwed up its product. Critics point out that the major labels have progressively issued fewer new releases, in essence cutting variety and consumer choice. While essentially impossible to quantify, many have pointed to a fundamental decline in the quality of mainstream recorded music, as the age of the video favored image over substance. An interesting corollary to the quality argument is the issue of independently produced music. It is possible that the declines in major label CD sales are being displaced to a greater degree than is commonly recognized by independent music sales. Arguing an increased relevance of independent music meshes well with the Long Tail concept, which asserts that while the traditional media retail model of stock carrying costs and shelf space discourage catering to niche markets, online retail and particularly the sale of digital information via download thrives on them - virtual shelf space is infinite, and carrying “stock” of digital information is virtually costless.
Whether from truly independent self-publishers or independent labels ranging from basement startups to major-minors like Matador and Sub Pop, the true numbers on independent music can be hard to pin down, since not all are tracked by SoundScan, the major music industry data tracker run by Nielsen (of television ratings fame). Even lacking concrete numbers, it can’t be discounted that independent champions like CD Baby and eMusic have quietly risen into the top tiers of online sales of CDs as well as digital downloads. Indeed, there could be no clearer testimony to the increasing importance of this market than the fact that SoundScan is tracking more of these markets - CD Baby recently arranged for artists to have the ability to have their sales tracked, while SoundScan started tracking eMusic’s downloads in 2006, three years after they started tracking legal downloads at all. As the data on these alternative sources of music come together we might seem some very interesting and different presentations of the state of the music business. Already certain aspects of the independent markets are suggestive: eMusic, for example, places the median age of its users in the upper thirties, an underrepresented demographic in mainstream music, and gains more revenue from full album downloads than from singles.
The state of the single is a topic in itself. The CD single experienced some of the earliest and most precipitous drops in sales, and was one of the first and least contested areas where blame was placed at the feet of file sharing. But it isn’t quite so clear cut, since at the same time the industry itself attracted blame for hindering the singles market for its own purposes - namely, because it would prefer to sell more expensive full albums, regardless of whether listeners want the rest of the songs on them or not. So you could argue that the record industry actually drove file sharing trends by restricting access to legitimate singles. The fact that the largest mainstream market in legitimate digital downloads, iTunes, is driven by singles rather than albums purchases supports a common quality argument about mainstream music: that the record industry is frequently selling albums with a few hits padded by filler. And while legal digital downloads may be picking up some of the slack of declining CD sales, the fact that the digital marketplace has made virtually every song available as a single would certainly be consistent with the failure of digital download sales to make up declining CD revenues. People may be literally buying less music because they never wanted all the songs they were compelled to buy for anything that was only available as a full CD in the first place.
Another argument is that the driving force behind declining record sales is that they are being displaced by other media purchases - primarily DVDs and video games. While proving it gets into very similar kinds of complexities as equating file sharing with lost CD revenue, it is a straightforward fact that DVD and gaming revenues have been climbing. If we can assume that consumer entertainment spending has been relatively flat (an assertion I haven’t yet found a good citation for) then it is certainly consistent that declining CD sales would necessarily follow. This is an interesting argument because it again raises the question of whether it would make any difference if file sharing could be prevented. If the money isn’t available it isn’t available, and arguably the cash-strapped file sharer would simply eschew recorded music in favor of their preferred media and seek access to free music through other avenues: in this context it might be considered constructive that the top feature consumers would like in an MP3 player is an FM radio receiver - and that this desire is stronger in the 12-24 age group than it is for those 25 and over. The fact may be that, no matter how much an anathema to the record industry, people - and especially kids - may consider “free” music to be a simple necessity for their entertainment budget - and one that they will find, one way or another.
What’s interesting, and important, about these alternative causes of major label sales declines are that for the most part they suggest realistic solutions - and that these solutions uniformly have to do with acknowledging consumer expectations and desires and responding to them by offering consumers more variety, more options and better values.
But in the next installment we’ll be returning to the alternate universe inhabited by U2’s Mr. McGuinness and take another look at the solutions he’s pinning his hopes on. You’ll find they sum up quite a bit differently. And then hopefully to soon wrap this up with a little coda about whither the Record Industry, and whether I care, and then back to reviews, hurrah!
It’s important that I acknowledge the intelligent input I received from this question I asked in Ask Metafilter - a great resource (and Metafilter has a neat area for members to post their musical creations also - well worth the $5 membership fee).
Part One - Part Two - Part Three - Part Four
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