- The Washington Times - Thursday, January 5, 2006

News of 2005’s 7 percent decline in album sales, and an even more acutely lousy Christmas, has industry observers in a typically dour mood.

“A bleak holiday season at the end of a bleak year,” summed up Universal Music Group’s Jim Urie to the Wall Street Journal.

Relegated to secondary mentions in such stories was that sales of legal digital downloads through services such as Apple’s ITunes exploded last year, up a staggering 148 percent over 2004, according to Nielsen SoundScan. Moreover, Billboard magazine estimates that album sales were down less than 5 percent if single-track downloads are compiled into units of 10 and counted as albums.

Stiff competition for the entertainment dollar is a big cause of the industry’s problems, as is online piracy. The former situation isn’t likely to improve, what with popular new gadgets like Microsoft’s Xbox 360 video game platform entering the market each year, but the latter continues to show signs of a turnaround.

A survey by Public Opinion Strategies said that twice as many adults ages 18 to 54 paid to download music last year than in 2004. And, for the first time, the percentage of adults who paid for music online (13 percent) is now slightly higher than the number of illegal downloaders (12 percent), according to the same survey.

Given such survey data, plus projections of even more online growth this year, it stands to reason that industry losses eventually will bottom out, and trend upward once again.

Terrific news, right? A sign of consumers adjusting to a new paradigm, and of an industry modernizing itself for leaner, more dynamic times?

If you’re a fan of what the economist Joseph Schumpeter called “creative destruction” — the undirected process whereby progress weeds out the outdated, the inefficient and the irrational — the answer is yes. But if you’re an industry suit with barnacles on your derriere, no: Such sales figures give you peptic ulcers and teeth impressions on your fingernails.

Keeping track of music business fortunes lately has been a lot like watching the airline industry: The news is nearly always bad, and yet one has a fuzzy notion of what rock bottom might look like. Theoretically, the market never will disappear. Demand for this or that airline may wax and wane, but consumers will have a permanent need for airplanes and airports and pilots in a way they didn’t for, say, pet rocks.

So it is with music: We’ll always buy the stuff (assuming artists don’t, en masse, decide to provide their content for free). The question is what form we’ll buy it in.

Inevitably, there are winners and losers in such a Darwinian struggle.

Dean Ernst, director of Promo Only MPE, an Orlando-based company that digitally distributes content from record labels to radio stations, satellite networks and other music providers, says, “Everybody’s in a transition; it’s the new era of obtaining music immediately.”

Peer-to-peer services such as Napster “blindsided the industry,” Mr. Ernst says, “and they weren’t able to adapt very quickly to a model that made sense. Look how long that took — five years.”

Who draws the short straw?

Certainly not the major labels: Apple’s gains are theirs too. If anything, the Internet revolution has given labels yet another opportunity to sell us music we already own — the vinyl-to-compact-disc changeover, all over again. Only the names of the middlemen have been changed.

Big Music (Universal Music Group, Sony BMG Music Entertainment, Warner Music Group and EMI Group) is doing what it needs to do to survive as the digital market matures: consolidating, shedding dead weight, cutting distribution deals with online retailers, etc.

What of the artists themselves, whose albums we’re buying less of (at least in a physical format)? Most seem pleased with the emerging modus vivendi and the chance for exposure in a mushrooming medium.

Those of a radical persuasion, like Wilco’s Jeff Tweedy, see no threat from online downloads, even piracy. Mr. Tweedy has said artists are foolish to criminalize their audiences.

Even the most often cited losers of the digital era — bricks-and-mortar retailers — are finding ways of adapting. CD retailers such as Virgin Megastores and Sam Goody have diversified their product line to include clothes, magazines and musical instruments. Only 40 percent of their revenue comes from music, according to the Wall Street Journal.

This isn’t to say there aren’t genuine losers, however.

Mitch Bainwol, head of the Recording Industry Association of America, points to an “unseen, but deeply felt” cost of the music industry’s fiscal decline: Great, undiscovered artists remaining undiscovered.

“Professional music requires investment,” he says. “When sales go down, there’s a smaller investment pool for the next generation of art. The number of bands signed to labels is down by a third over the last five years. That gives you a sense of the cost.”

Mr. Ernst, meanwhile, identifies casualties on the music industry food chain that might not spring immediately to mind: the manufacturers of those pieces of vestigial plastic known as CDs and parcel carriers such as Federal Express and the U.S. Postal Service.

“Record labels don’t move the product through those distribution chains anymore,” he explains.

Maybe the moral of all this is that, if you insist on feeling sorry for someone as the music biz deals with technological upheaval, there’s always your mailman.

Hope you tipped him this Christmas: He may be an aspiring rock star.

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