[Dixielandjazz] The new world of recorded music

[Stephen G Barbone]

While total Warner Music Group sales were 27% digital for the 4th  
quarter of their year, one label, Atlantic" reported 51% of its music  
sales as digital. Total industry sales are still about 2/3rds CD, so  
Atlantic's figures are startling
Meanwhile, recorded music sales in any format are still declining and  
I'm guessing that OKOM bands are experiencing the same trend.
Cheers,
Steve Barbone
www.myspace.com/barbonestreetjazzband

NY TIMES - November 26, 2008 - By Tim Arango
Digital Sales Surpass CDs at Atlantic

Since MP3s first became popular a decade ago, music industry  
executives have obsessed over this question: when would digital music  
revenue finally surpass compact disc sales?
For Atlantic Records, the label that in years past has delivered  
artists like Ray Charles, John Coltrane and Led Zeppelin, that time,  
apparently, is now.

Atlantic, a unit of Warner Music Group, says it has reached a  
milestone that no other major record label has hit: more than half of  
its music sales in the United States are now from digital products,  
like downloads on iTunes and ring tones for cellphones.

“We’re like a college basketball team on an 18-2 run,” said Craig  
Kallman, Atlantic’s chairman and chief executive.

At the Warner Music Group, Atlantic’s parent company, digital  
represented 27 percent of its American recorded-music revenue during  
the fourth quarter. (Warner does not break out financial data for its  
labels, but Atlantic said that digital sales accounted for about 51  
percent of its revenue.)

With the milestone comes a sobering reality already familiar to  
newspapers and television producers. While digital delivery is  
becoming a bigger slice of the pie, the overall pie is shrinking fast.  
Analysts at Forrester Research estimate that music sales in the United  
States will decline to $9.2 billion in 2013, from $10.1 billion this  
year. That compares with $14.6 billion in 1999, according to the  
Recording Industry Association of America.

As a result, the hope that digital revenue will eventually compensate  
for declining sales of CDs — and usher in overall growth — have  
largely been dashed.

“It’s not at all clear that digital economics can make up for the drop  
in physical,” said John Rose, a former executive at EMI, the British  
music company, who is now a senior partner at the Boston Consulting  
Group.

Instead, the music industry is now hoping to find growth from a  
variety of other revenue streams it has not always had access to, like  
concert ticket sales and merchandise from artist tours. “The real  
question,” Mr. Rose said, “is how does the record industry change its  
rights structure so it captures a fairer percent of the value it  
creates in funding, marketing and managing the launch of artists?”

Ever since 1999, when the popular file-swapping service Napster was  
created, the music industry’s fate has been closely watched by other  
media companies — television, film and print publications like  
newspapers — whose traditional businesses are also under siege.

In virtually all these corners of the media world, executives are  
fighting to hold onto as much of their old business as possible while  
transitioning to digital — a difficult process that NBC Universal’s  
chief executive, Jeff Zucker, has described as “trading analog dollars  
for digital pennies.”

In each of these sectors, digital remains a small piece of the  
business. NBC has said it expects $1 billion in digital revenue by  
2009; over all, the company’s revenue last year was more than $15  
billion. Time Inc., the largest magazine publisher, with publications  
like Sports Illustrated, People and Fortune, said that about 9 percent  
of its $2.2 billion revenue in the first half of this year was derived  
from digital. In October, The New York Times Company said that online  
revenue accounted for 12.4 percent of its overall revenue.

On Tuesday, the Warner Music Group reported that digital revenue for  
the full fiscal year rose 39 percent, to $639 million, or 18 percent  
of the company’s total revenue. Over all, the company topped the  
expectations of Wall Street analysts — who on average were forecasting  
a small loss, according to Reuters — by reporting a net profit of $6  
million in the fourth quarter. Revenue fell 1 percent, to $854 million.

Atlantic, whose artists include the Southern rapper T. I., the rock  
band Death Cab for Cutie and Kid Rock, appears to be the first of the  
major labels to claim that most of its revenue is coming from digital  
sales — and it says it has done so without seeing as steep a decline  
in compact disc sales as the rest of the industry.

This performance is sharply at odds with the trends in the music  
industry over all, where data show that sales of compact discs still  
account for more than two-thirds of music sales. Forrester Research  
does not expect digital music to reach 50 percent of the overall pie  
until 2011.

Analysts said they were surprised that Atlantic — with the highest  
overall market share in the industry this year — had such a high  
percentage of digital revenue.

“That’s a lot,” said David Card, a digital music analyst at Forrester  
Research. “That’s very high. No one is near that.”

The question, then, is whether Atlantic’s performance is an outlier or  
a signal that the music industry is reaching a pivot point as it moves  
toward a new business model.

“I think we’ve figured it out,” said Julie Greenwald, president of  
Atlantic Records. “It used to be that you could connect five dots and  
sell a million records. Now there are 20 dots you can connect to sell  
a million records.”

In making that transition to a digital business, the music business  
has become immeasurably more complicated. Replacing compact disc sales  
are small bits of revenue from many sources: Atlantic Records’ digital  
sales include ring tones, ringbacks, satellite radio, iTunes sales and  
subscription services. At the same time, record labels — Atlantic  
included — are spending less money to market artists. In the pre- 
Internet days, said Ms. Greenwald, “we were so flush, we did  
everything in the name of promotion.” Among the cutbacks are less  
spending to produce videos and to support publicity tours when a new  
album is released.

“Today you have to be like Leonard Bernstein,” said Mr. Kallman,  
“making sure everyone is hitting the right notes at just the right  
millisecond. The tipping point, if you will, is when everything  
converges and your timing with everything is impeccable.”