Monday, January 29, 2007

On profits and margins of music industry.

The Global music industry trade body said a few weeks ago that:

”Global online music sales nearly doubled in 2006 to about $2 billion, or 10 percent of all sales, but failed to compensate for an overall decline in sales of CDs”.

The fact that online is the fastest growing sales channel is no news, everybody knows that CD is taking its’ last breaths. CD may not die next year, but the signs are clear, like we have blogged here before. But instead what is not so well known is the fact that the record companies must be making better profit distributing music via web than the oldskool way. I mean, take a look at the value chain. In the offline world they had to pay billions for manufacturing, storing, logistics, and resale costs. To simplify a bit: in the online world the webstore is the only player between the record company and the customer, am I right? And once the record company is the webstore, you're actually getting your music straight with no middle men. Ok, the real problem seems to be that the volumes of (legal) online music are still quite low, but hey, that side of the industry is still young.

They keep whining that the total sales are declining, but they don’t admit that their business is actually getting healthier and better once they move online. If you have any info on this matter, I’d like to know. e.g. what is the estimated profit margin on cd’s vs. online music, let me know.

There is one more dark cloud hanging over record companies: albums might be a thing of the past soon. It could easily be all about singles, peeps don't wanna pay for songs they don't wanna listen to. What comes around comes around, the big industry was based on singles and if was only in the 60's when albums became a standard.

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