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No. Quite the opposite. I’ll tell you a secret: Revenue is not really down at all.
In 2005, album sales were 618 million units. In 2006 they dropped to 588 million. A 5% drop. Not 30%. Not even 10%. Extremely negligible, and better than other industries (like computer and automobiles) that have experienced bigger reductions in gross revenue. Okay. I hear you out there reading this. You’re saying, “But Moses, 5% a year adds up. Doesn’t that mean they’ve lost money and isn’t that a bad thing?” No, because that 5% is more than made up for. The Warner Music Group said in their annual report that recorded music sales for the fiscal year 2006 rose almost 3%, to $3 billion, and that digital revenue had more than offset the drop from CDs.
Let me tell you a few secrets about what the RIAA doesn’t include in “lost sales.”
n They don’t include CD sales of independent artists, only a decline in sales of titles on major labels. Indie sales make up about as much market share as all of Warner Music Group, which is about 20%. So they are not including album sales equivalent to all of WMG in their calculations of “lost sales.”
n They don’t include the approximately two billion legally paid for downloads from iTunes, Yahoo e-Music, and many others. These are not CDs, technically, so they don’t count them in “reduced album sales” even though record companies are getting tens of millions in new revenue from these sales. Also worth noting is that there has been a 71% increase for these types of sales. (2005: 353 million units; 2006: 582 million units.)
n They don’t include the fact that the licensing fees for getting a hit song in a soundtrack has increased 1,000% since 1995 (climbing from about $80,000 to about $1,000,000) with no additional hard costs to the label.
n They ignore the tens of millions of ringtones that have generated about $90,000,000 in new revenue for labels in the past three years (and due to a new ruling in the copyright office, rates will increase in the coming years).
n They are omitting the fact that downloaded music doesn’t require manufacturing costs, nor is there any returned or damaged merchandise (with rare exceptions). The bottom line is that record companies make substantially higher profit margins on newer sales.
So, when record executives give interviews that bemoan the pending death of the music business, to me they just sound like old school types, trying to crawl back into some decomposing chrysalis.
Quoted from "EQ" magazine
author Moses Avalon