Stop claiming <insert mature technology here> is dead

There. Does this graph seem to represent a dying format? Yup, I don't think so. Stop saying cassette tapes are dead. You did the same for vinyl, and now you're calling names to yourself...

Update: By popular demand, I started updated this graphic once in a while...

Updated graph, still according to the data available on Discogs, at the 2nd of February 2012:

Updated in 19/07/2013:

The Impact of Illegal Downloads On Total Sales

One frequent rant of mine is the fact that there's no credible study about the impact of "illegal downloads" (not my wording) on total sales, and that, yet, there are lots of policies being made based on plain wrong "studies".

Lately, many things are happening (including arguments behind the approval of the Gallo Report) around Tera Consultants' "Study on the impacts of digital piracy on the EU's creative industries" (March 2010). If we carefully read the report (yes, reading more than just the abstract), thou, we find lots of interesting things. For instance, the fact that the study didn't research the "impact of illegal downloads on total sales", but, instead, decided to have a non-scientific approach to find some kinds of "average values" from the eight "relevant studies" on the issue. Well, in fact, they used the summary from those eight relevant studies presented on Oberholzer-Gee & Strumpf (2009 - a working draft). And here, I have a couple of things to highlight:

1) Instead of using Oberholzer-Gee & Strumpf latest release paper, they decided to use a working draft;
2) Instead of using Oberholzer-Gee & Strumpf conclusions (that can be summed up as "file sharing can be blamed for part of recorded music revenue declines, [but] that hasn’t eliminated artists’ incentive to create and consumers have benefited from increased choice"), they decided to use only a decontextualized table from that report;
3) Many flaws were pointed to the Oberholzer-Gee & Strumpf research, but let me talk about one: while in their 2005 paper, where they found no negative impact of illegal downloads on total sales, they used their own data, in this new paper - guess what - they used the same as Tera Consultants: a non-scientific approach to find some kinds of "average values" from the eight "relevant studies" on the issue.

So, let's look to those eight "relevant studies":

• Hui and Png (2003) - If you actually read the article you see that the authors acknowledge that:
  
  • their data is completely dependent of the piracy numbers provided by the IFPI (mind you, the most interested party)
  • they acknowledge that they ignored the need to research the demand-side externalities positive impact of piracy on sales (as proven to be needed in Conner and Rumelt (1991); Nascimento and Vanhonacker (1988); Shy and Thisse (1999); Takeyama (1994))
  • in the same way, they didn't estimate the positive impact of piracy on sales thanks to means of more effective price discrimination (as proven to be needed in Bakos et al. 1999; Besen and Kirby 1989; Jacob and Ben-Shahar 2002; Liebowitz 1985; Takeyama 1997; Varian 2000)
  • Last, and yet the most important (in my opinion), their study only analyses data until 1998 (that's right, 12 years ago!), and they highlight that this is all data "before Napster" (dare I say, now, "before p2p", "before torrents", "before pirate bay", "before web 2.0", "before social music services", ...), and that's a really important behavioural shift, that probably changed all the ecosystem of illegal downloads and their impact on total sales
  In other words, this study should not be considered;
• Peitz and Waelbroeck (2003, 2004)
  
  • they use as data source the IFPI World Report of 2003 that provides industry data from 1998 to 2002. As pointed before, IFPI is the most interested party in influencing the results, so the validity can be argued;
  • they assume, because they don't know how to estimate, that the quality of music (which englobes que quality of the music release - compare, for instance, a signed limited edtion 12'' 2LP with the album in DRM-encumbered 128K digital file...) has no influence in buying habits (assuming, thus, that the number of people who use "piracy" to "try before buy" is zero, which is obviously wrong - simply ask your friends);
  • they assume that each "act of piracy" is equivalent to the loss of a CD sale (which is obviously wrong), and then...
  • they assume that you can do a direct correlation between the rise of usage of p2p networks and the fall in music sales, just because they saw a bigger fall in sales at the same time they saw a fall in music sales
  • They state that with broadband, non-piracy times can be spent doing a number of "replacement activities" other then enjoying music, and so people have less time - thus attention - to the music market. Yet, they fail to try to correlate attention-shift with loss of sales
  • In the "Discussion" section, they point out several flaws on their model (like the fact that they don't measure "intensity" in piracy activities, or that they aren't considering the non-renewal factor (the industry failed - at least until 2004, where the study focus - to keep their renewal cycle, when people were buying the same album in a different format, cassette replacing the vinyl record, CD replacing the cassette or vinyl, we just weren't seeing people buying the album in a DRM-encumbered digital format after having it on CD or a "previous" format) as a cause of loss of sales). Yet, they decide to ignore those observations on their conclusion...
  In other words, this study should not be considered;
• Zentner (2006) - Now, this is actually an interesting study, it just isn't a good study to taking a conclusion on our particular issue. In fact, as the origin dataset did neither contain information on quantities of music purchased nor on intensities of music downloads, he assumed that it was not directly possible to calculate the impact on record sales, and thus, for that specific part, he decided to assume things (and that's stated quite obviously on the article): "if 15 percent of the population downloads music, if downloaders are twice as likely to buy music than nondownloaders, and if – conditional on buying – downloaders and nondownloaders buy the same quantity of units". Notice that he didn't get inspiration for this assumptions in any study at all.
• Michel (2006)
  
  • The author states that "a possible problem with this approach is that computer owners who did not engage in file sharing may have decreased their music purchases for reasons unrelated to file sharing (yet inherent to owning a computer)", which is not considered in this study. As stated previously, it is fair to assume that there is an (unaccounted) percentage of non-sales directly related to this fact;
  • An analysis in this study's "Table 1" suggests that trends and influences greatly vary year by year, possibly in a two-years basis. This is actually why the researcher has data from 1995 until 2003, and yet can only assume a relation between file sharing and CD sales in 2002-2003. Also, in "Table 4" analysis, the author concludes that "the relationship between computer ownership and CD expenditures [, the only relationship being studied in this paper,] weakened from 1998 to 2003. In III.B), the author identifies other four reasons why this paper might not be valid, but the really important thing to quote is in the conclusions section, when the author state, above all, that "results should be used carefully when predicting the long-term viability of the music industry in an environment where record labels (or artists) compete directly with free file-sharing services". While it is arguable what the author means with "long-term", with the previous data we can assume that a) we can identify 2 year cycles, b) in 5 years the relationship weakened, so, if that trend is maintained (which is arguable, but wasn't in Mars' report) nowadays, 7 years later, the relationship might be completely dissipated, so...
  ...taking the previous items in consideration, it is fair conclude from the article data itself that this study can't be considered valid nowadays;
• Montoro-Pons and Cuadrado-Garcia (2006) - This study doesn't appear anymore in the table in the final version of Oberholzer-Gee & Strumpf's paper;
• Hong (2004, 2008) - This study was centred only and exclusively on the impact of Napster in 2000. As stated before, and shown by the other papers, we can't infer the current correlation between "piracy" and music sales from some event that happened a decade ago;
• Leibowitz (2008) - the conclusion of this paper, and on Oberholzer-Gee & Strumpf's paper, is quite different from what's presented by Mars' study: in fact it concludes that if we consider all markets (where the universe was 89 different US markets), we cannot relate internet usage with changes in music sales;
• Leung (2009) - This is a nice study made by using data from college students of seven different undergraduate classes (from the tone of the paper, I'm assuming this is on USA, but I'm not sure). We're talking about heavy music consumers with no money (they buy four or five digital tracks per month, and one CD every two months). The study implicitly also shows, while it's not its focus, that those students would buy more if they had more money (or if the cost of CDs, iTunes tracks and iPods was less than it is). So, I'll argue that this is a nice study but only representative of a small subset of the global "pirate" reality, specially different from the EU reality, where we have differences like the fact that more than 40% of our countries don't have access to the iTunes music store. Actually, I can go ever further, and tell you my belief (no, I don't have any study showing I'm right or wrong, that's the real issue on this blog post...) that, since you can see that this college students consume nowadays much more music than others (for instance, people with 15 more years than them, even if those others have a lot more money) that it was the setting in which they live - including the cultural influences made by the existence of "digital piracy" - that made them such music fans, and when they grow to have more money, they will be better consumers than they are nowadays. In other words, this is a nice study, but one that only proves that there are lots of dimensions to the problem which need to be researched until we can take any scientific conclusion regarding the impact of piracy in music sales.

So, what I have to say about Tera Consultants' study, and everything else that uses it as a base to take a conclusion or decision? Only that I'm really ashamed, as an European citizen, that we pay blind attention to any study, specially studies commissioned by entities like ICC, whose body of members include three of the four major labels.

New-Rap: a new generation

From my whole collection of music, I don't have one Rap or Hip-Hop song at all - not that I recall of, at least. Sure, I have some music, mainly experimental, that uses lots of rap-style elements, but that's all. I don't think I like Rap or Hip-Hop. I can see the difference from good rap to bad rap, I understand its art and value, but... It's just not for me, I guess.

Now, today I'll talk you about something else - let's call it... er... new-rap. Probably this phenomenon is already known, studied and this new style has a name - another name. Just, it's something not known, and I don't know how to call it. As a matter of fact, the thing that makes this interesting is that - without purpose - this style is mainly unknown, specially from the music industry. But if they don't get this, they're dead.

Talking about new-rap is not talking about a music style - only. Talking about new-rap is talking about a new generation of people and how do they work, feel and deal with music.

Welcome to the world you usually avoid to see. They are young. They walk funny. They talk loud and in a strange dialect. They are everywhere on the streets and everyone knows, but usually don't think about them as a group - as a phenomenon. People are usually warry of them: from the "who's this funny guy" to the almost unconscious feeling that "this weird guy might steal me in a minute". As a matter of fact they probably walk with more money in their wallet than the one you would feel safe walking with, but you don't know that. They know they make you feel exactly how you do, but they don't give a shit. They're surprisingly friendly - to anyone. They talk really strange, but they usually don't curse, unless there's a specific curse-word that entered their dialect. They don't smoke. They don't take coffee. They don't do drugs. They only drink alcohol at parties. They drive a lot - and race - but they never do it in public places, they never drive after drinking alcohol, they all do safe sex. They're different.

They all have high-technology in their pockets: expensive cellphones. None of those cellphones have any software you ever seen. Really. They don't really have a concept for music, they live music. Sometimes while they're talking a cellphone just pops from their strange pockets and some loud music starts playing. They act as there's no music there - they just feel it and use it as to mark the rythm of their actions.

They all make music. All of them. Their lifes are basicly about three things: cars, parties and music. Not that they have a concept for music. They don't know what a composer is. It's really weird, but most of them don't know what a "band" means, they think that "a band" or "a CD" or "some sound" is the same thing. They don't have a clue about what intellectual property is. They make music, using voices, hardware and samples. They don't know that they make music. They don't know the difference between the music they composed and the music their friend did. For them, there are two types of music: the one they have and the one they still don't. They don't consider what you consider music as music. Not even well-known rappers. For them, those guys just make sounds. As they put it, "sounds are everywhere, but quality sound isn't in what you can record, is on what others recorded". What they mean with this is that, for them, a Bach 1 hour CD is the same as turning on TV in a random channel and recording (losslessly) one hour of the sound stream from that TV channel. As a matter of fact, they prefer the later, since they have more variety of sounds. Sounds are important for them: they all use them to make samples. I head a music that used a brilliant sample that I had to think about for several minutes until relating the result with the original: a 3 minutes or so kids song was reduced - in a brilliant way - to a 3 secs sample. They use everything. They mix and remix. "What? You're crazy, no one owns sounds!" It's their reaction to one comment. They were surprised, I was weird to them. They do AWSOME music. Really. They share it with everyone. It's the whole purpose of music - sharing thoughts, ideas. I listen an astonishing lenghly discussion about a 30 secs intro to a music someone they knew did. And I bet that if you buy 100 rap CD's from a CD store and mix those tracks with the new-rap thing they're doing, they'll naturaly call their tracks as music, the others as sound sources. It's a new style - a new generation.

Now, I know some other movements happening, for other music styles, for other kinds of kids. Not every have something in common with this. Many are different. The real question here is that, if you talk with this guys, you'll understand the way they live. You see beauty in some stuff. You don't see anything wrong. Then you go home, yet startled. And start thinking about what they do. They don't "record", they share. They don't buy music or sounds. They don't know what intellectual property is. According to our laws, I bet everyone of them "should" be in jail. They're happy. They aren't violent. They don't harm anyone. They share. They have true friends. They are humans. They live.

Who's wrong?

Music: what was 2007, what to have in 2008

Acording to http://hypebot.typepad.com/hypebot/2008/01/top-music-20-st.html, music sales in 2007 are expected to have dropped 15% or more in 2007 (relating to 2006). On the other hand, eMarketer's predictiongs for 2008 also talk about music, as we can see at http://www.mediafuturist.com/2008/01/emarketers-pred.html. The predictions include a further fade off of the CD but a rise of experimentations with new and emerging business models like ad-supported music, mobile music and music social networks. Also, DRM is going to drop further (in music, remember)...

I can hardly wait, let's make 2008!

The State of Music Business

Manuel Marino, who has a blog about music in its various aspects, invited me to wrote an article about the state of music business. For those who read this blog for a long time, you probably already know my position about it. But if you're not a reader for that long, or, in other hand, you want to have my thoughts about the state of the music business compiled in a somewhat small article that sums it up, then you might be interested in reading this article:
http://manuelmarino.com/the-state-of-music-business/

The music market is falling: who's to blame?

It's known for regular readers that I don't believe that illegal file-sharing has an noteworthy impact in the rise or fall of music market profits: it's more an excuse than anything else. This article tries to find out what's causing this fall.

Even if I read some stuff about market dynamics over the years, I'm surely no expert on the matter. Also, this all issue is way to chaotic to find simple and obvious causes for this fall. So, I decided instead to point four points that surely have some major impact on music market. This doesn't mean that these are the most important issues - they probably aren't, but at least they are some real measurable causes.

The digital era

The music market never made an effort to understand the digital era. The most flagrant example of this is the well-worn Napster case. Yes, people were doing downloads of copyright material, and yes, the copyright owners weren't getting nothing from it. That's beyond the point. The point is that the music industry instead of trying to understand what was happening, decided to just sue them and shut it down. With that act, they also gave a statement: they don't care about the digital era, if it hurts them they'll fight to take it down. The problem here is that you can't take down the digital era, because that's no company, no infrastructure nor even a technology: the digital era is a mind set. People share files because they feel there's no wrong with it. Some people download digital music for free arguing that the real cost of a digital file is zero. It's this kind of social mind set that makes the digital era define the music market's future, and if the music industry keeps against it, or at least doesn't bother trying to comprehend it, then they're fighting against the future of the market they are, thus fighting themselves. Of course that some people got it, and used the digital era to make profit: Apple, for instance, created the iPod and iTunes, making huge profits in an empty market. But the profits are not only for retailers: I've seen musicians, labels and every other piece of chain in the music business benefit from the digital era, they just decided to understand it first. The best Portuguese music I got in 2007 came from a Portuguese label created this year, some other music labels I know are in frank expansion, some music stores too. We've seen new business models rising, from fans-funded recordings like what you can find on SellABand, or even bands making money by giving their music for free in sites like ReverbNation.

The purchasing power

There are also less music related issues that have an huge impact in the music business, and ignoring them is like forcing ourselves not to see the elephant in the room. One of them is the actual purchasing power for these kinds of goods in the so-called developed countries. I've done several parallels in the past: for instance in the 2006 Portuguese BarCamp I compared the music business with the coffee machines business. The fact is that businesses - each one of them - have to adapt to the overall market. If people start to consider some stuff as "luxury items", then maybe those items should be sold as such. If
people start thinking that some item is more valuable than other item - in a case where typically they'll choose upon one of the two - then the second one has naturally to be less expensive than the first one. Market laws apply to any market, but the music industry fails to understand that the music market follows the same rules than any other market.

The physical price

So, the digital era appeared and with it digital music, that feels like free. On the other hand, the purchasing power for the class of goods music is inserted in is being reduced in the last few years. The natural thing to have would be the price of CD's, more than any other physical format for music sales, to follow these two indicators and have their price falling. Plus, even if that wasn't case, people were already expecting the CD price to fall anyway: one of the things that were being said in the first times of the Compact Disc is that the high price they cost would soon fall with new technology arriving, and the consumers kept that in mind. The manufacturing cost sure fell, as we managed to see, for instance, in the price of blank CD-R's. Yet, the price of a music CD kept rising. Doing the math, what's expect to happen to music sales other then a fall?

How to measure quality?

One of the causes, at least in Europe and in the United States for the rise of the physical price is the way big retailers entered in the music market. Big stores had everything in one place, wanting to be your one-stop-choice. They managed (by quantity and scale) to practice such lower prices that they practically killed an huge amount of small music stores, or forced them to practice even bigger prices to deal with the dropping unit sales. When they were already controlling some markets like the music market, they were then free to practice the prices of their choice. Speaking of choice...

It would be stupid trying to measure music quality. But we measure related factors, like choice and diversity. Let me explain: if music quality is hard to define because each person have different musical tastes, then it's pretty obvious that if you have few choice and diversity, then few people would be interested in the music being released and available to the public, and fewer articles for their tastes. To aggravate this, if market diversity isn't accomplished than if you satisfy someone's tastes, that person only has the choice to buy way-too-similar music (which will lead him to buy less music) or not to buy it at all.

With the fall of investment on music from the music industry, and with the fact that the market reaches its physical public mainly via big retailers, came the standardisation of music. Only a few pre-determined music styles, known to be well consumed, have place in the market. The long tail of music was being completely ignored (and majorly found their place on a less controlled environment like the Internet, embracing the digital era).

I risk to assume that if we consider the overall quality of the music available on music stores dependent of their diversity, by attracting each listener segment, then the overall quality of music has decreased in the last few years, which can then be related with the decrease of music sales.

Conclusion

If you still want to say that file-sharing is guilty of the decrease of music sales and overall profit on the music market, go ahead, I won't stop you, even if I don't buy it. But considering all the other factors that might affect its market, including those that surely are, please avoid making the same mistakes as Liebowitz is going to state in his upcoming paper, where he not only states that piracy is guilty of the decreasing of music sales, but that "file-sharing* appears to have caused the entire decline in the record sales and appears to have vitiated what otherwise would have been growth in the industry".

* - funilly, he measures "file-sharing" by measuring Internet penetration

The future of the music business

Take notice that this post talks about the future of the music business, and not of the music industry. History shows us that when companies are quickly falling, and those who constitute the actual music industry are, are quite imprevisible: it's a matter of when do they wake up. On the other hand it's pretty hard do conceive that in the next few years we'll stop having a music business...

I've been reading a lot of studies and reports lately about the music business, including the music industry in general or some of its companies in particular. At the same time, I've been discussing some of this matters in several communities and with several individuals. With that, I've formed a simplistic idea of what do people "feel" about this matter, and what researchers have to say about it.

Starting with the end

The overall music business (amount of profit per year) is going to decrease year after year at least until 2012.

Digital sales and Emergent business models

Digital sales will increase year after year, at least until 2012. By that time, digital sales aren't still bigger than the other ways of profit.

Revenue coming from emergent business models, like ring tones, ad-profits, subscription services and such, is going to increase, but it's total will still be irrelevant.

Compact Disc's, DVD's, Vinyl and Compact Cassette

CD and DVD sales will keep falling vertiginously, and that is going to be the cause for the overall decrease of profit (as it is right now), at least until 2012. Probably the fall of CD sales will keep further than that.

The Vinyl market is re-emerging, and will keep doing so, but in three or four years it will start to slow down and stagnate. This is a format that will not dye in the next couple of decades, and it is expected to survive longer than the Compact Disc.

The Compact Cassette survives for so long for a various amount of reasons. It's presence in every car player for so many years was probably the biggest longevity kick it had, and when audio books started the Compact Cassette was the best format since would give you more talk-time for less money. While some niche groups exist, the format is slowly falling and it will eventually dye. It will probably be sooner than the Compact Disc, but not so soon as the majority of people think: it is declining but slowly, and the latest trends slowed down even more that tendency.

Gigs, merch, the rest

Last but not least, gigs and related stuff is commonly seen as the "salvation" for this trends. It might be, in a more distant future, but the predictions tell us that the profits that they generate will maintain themselves, at least in the next five years

Piracy

Most people download music illegally, but at the same time most people think it is fundamentally wrong. Another wing says that a digital copy has no costs, so there's nothing immoral about doing such thing. But for the soon-to-be future, or at least until there isn't a collective position regarding it, what matters is that piracy is here and it's something that will not stop. So, more important than thinking about "right" or "wrong", let's take a look about the repercussions. Most people are convinced that piracy is the reason why the music business being less profitable day by day, probably induced by all the lies the general population has been consuming lately from the music industry. One other sign of that is that many people believe that "digital piracy" is theft, even if that's illogical if you see the definition of theft (I've wrote about this in the past).

What studies tells us is that the goal of measuring if the impact of piracy in the music business is positive or negative has never been reached. In its process, these sub-conclusions:

• piracy is directly related to music consumption, and in many cases piracy boosts music sales


• until now, no one managed to establish a relation between piracy and the decrease of sales

Good or bad? It really doesn't matter - even if its impact is proven to help the decrease of sales, it will never be in the order of magnitude of the decrease we're seeing in the last couple of years.

Stop!

What does this mean? Is the music business doomed? No!!!! Who should I blame? What can I do?

The funny part now: this doesn't mean really anything. As in any market, the music business has been inflated by the music industry for a long number of years, so it is now naturally deflating. The fall is aggravated by the fact that the music industry itself never knew how to adapt themselves, basicly living in their comfortable model and ignoring any other tendency. What happens to businesses that don't innovate? But you don't stand being a watcher? You feel the urge to help fix this whole mess? There aren't much choices but two things that can be done: first, buy music, buy a lot of music. Secondly, help define the new music industry, the new business models. Support the "good labels". Boycott the "bad labels". Act as people do in any aggressive market. This is an aggressive market, so if you want to influence it, don't be passive, be active.