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Music sales are waning but don’t blame the pirates

Fact: worldwide sales of recorded music have declined significantly over the last decade. Fact: there has also been an increase in the use of P2P file-sharing technologies over the last decade. While there…

Music sales have been falling for some time, but this should not attributed to piracy alone. Tracey Nearmy/AAP Image

Fact: worldwide sales of recorded music have declined significantly over the last decade. Fact: there has also been an increase in the use of P2P file-sharing technologies over the last decade.

While there is an obvious correlation here, the question which should be addressed is whether there is causation as well. One of the first lessons in microeconomics is that correlation does not imply causation, or put simply, just because two variables are observed to move together (positively or negatively), this doesn’t imply one is causing the other to move.

While it is somewhat obvious that illegal downloading could reduce sales, we also need to keep in mind that, with certain assumptions in place, downloading could actually increase sales. Consumers could sample music before proceeding to make legitimate purchases, for example. Or maybe downloading could create a buzz which ultimately generates higher sales than in the absence of this induced demand. Theoretically speaking, the effect downloading has on sales could be in either direction.

Therefore the question about which effect prevails becomes an empirical one. To date, however, statistical analyses have failed to reach a consensus on this question. A seminal Harvard study that appeared in the prestigious Journal of Political Economy found no evidence of sales displacement effects from music downloading using US data over a 17 week window in late 2002.

Of course the time-frame of analysis of the Harvard study was only 17 weeks and the unit of analysis was specific songs/albums. So while there might be inconclusive evidence of sales displacement at the micro-level (i.e. downloads of song/album vs. sales of song/album), overall levels of downloading might still very well have displaced the overall level of sales.

This is an entirely reasonable proposition but when considering the ‘bigger picture’ there are a number of other important factors which also enter into the (statistical) equation and need to be addressed before definitive statements can be made.

When considering declining sales over the last 10 to 15 years, we need to recognise that much has changed about the way people consume music, mainly due to the internet. Since the arrival of iTunes in 2002, consumers now have the ability to easily purchase individual songs rather than complete albums, which may have reduced revenues if consumers were only ever interested in one or two songs on an album.

Another reason for the decline in sales might be related to the arrival and adoption of subscription-based streaming services like Spotify and Pandora. Of course, YouTube also offers another means by which to consume music which doesn’t require any payment, per se, and is paid for with advertising revenues.

Listeners are spending less on purchasing music, but more on attending concerts and festivals. AndreiC/Shutterstock

Beyond simply changing music consumption habits, the internet also provides a myriad of substitute activities for the act of listening to music itself. Social networking and online gaming would be two examples but there are countless other activities which could also substitute music consumption. The point is that there may have been a fundamental shift in “tastes” for how music is consumed and a shift away from purchased music consumption in the more global sense.

Even if people are purchasing less music due to downloading, the effect on artists’ incomes and the incentives for musicians to create music would seem the most fundamental questions to address in this debate. First year economics teaches us that if marginal costs are close to zero (as is arguably the case with the digital distribution of music), price reductions increase overall welfare.

However, the flip side of the argument is that there is now less incentive for artists to create. But has this actually been proven to be the case? There is emerging evidence that the answer is no. Moreover, live performance incomes appear to be increasing and there is evidence that increased downloading has been the driver of this.

Perhaps the most important consideration of the consumer in the debate is the issue of music pricing – particularly in Australia where the so-called “Australia tax” sees consumers paying an average of 50% more than their US counterparts.

If demand has actually dropped for whatever reason, prices should fall to reflect this. Instead they have been maintained at high levels which are not likely to be profit/revenue maximising. Hence, the music industry’s attempt to hold onto unrealistic pricing points may also have led to the declining sales in many respects.


This is the first of our five-part series looking at the contemporary music industry. Click the links below to read the others:

Music streaming revenue structures stacked against artists

Spotify: merging music with social media

“Doing things” with music: the newest arm of the industry

Rage against the machine: music TV still important for the Australian industry

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41 Comments sorted by

  1. Jonathan Powles

    Associate Professor and Director, Academic Skills at the University of Canberra at University of Canberra

    A provocative analysis. I look for ward to the rest of the series.

    A couple of additional bits of food for thought:

    1) While there is indeed emerging evidence that the fall in music sales has not led to a decline in music creation, it probably points up a growing de-professionalisation of the music industry. Reducing production costs and the ability to create high production values with less expensive equipment and training is probably a factor here. But I suspect there's also an underlying…

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    1. Mike Swinbourne

      logged in via Facebook

      In reply to Jonathan Powles

      I think your final paragraph sums up the situation nicely Jonathan.

      Claims that 'piracy' costs the recording industry billions of dollars are nonsensical, as many of the people 'pirating' music wouldn't have bought the music anyway.

      The only people who are really losing out of this are the record companies, who are seeing their business model challenged. Music fans are not losing anything, and musicians who are employing more innovative business models are doing quite well. Many of these give away their records on-line for free in order to generate a fan base who will then go to concerts and buy merchandise.

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    2. Dean Frenkel

      logged in via Facebook

      In reply to Mike Swinbourne

      I'd go even further and suggest that the vast majority of potential money lost to piracy corresponds with the most profitable music. In other words the music companies and acts enjoying the biggest profits are most subject to piracy. This means that the piracy doesn't really matter. The focus should instead divert to more pressing issues such as improving the plight of artists.

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    3. Robert Tony Brklje
      Robert Tony Brklje is a Friend of The Conversation.

      retired

      In reply to Jonathan Powles

      The nature of the music industry reflects the two basic styles of musical expression, live versus dead (recorded).
      Sales are dropping for dead music because it has to compete with a century of dead music ie this years music has to compete for sales with 99 years of other music. That 99 years worth has already been sold and out in the market place, some of it public domain and freely accessible.
      As time goes on so inevitably will the dead music marketplace suffer as it has to compete with a bigger and bigger library of existing music.

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    4. Gil Hardwick

      anthropologist, historian, novelist, editor and publisher at eBooks West

      In reply to Robert Tony Brklje

      Your idea of 'dead music' is intriguing, Tony. My eldest son was heavily into Metal for a long time, and bringing his iPod over plugged it into my sound system and played it.

      Turned out to be Rammstein's 'Mutter' album, yet he was astonished that I liked it and asked him to turn it up.

      He said, "Did, I thought you didn't like Metal," to which I replied, "Good music is good music, and that's GREAT!"

      'Spieluhr' is one of the greatest tracks ever recorded.

      But then I asked him, "Want to hear some really good music, something different, not just metal all the time?" He was intrigued, a 13 year-old.

      So I put on some Frank Sinatra. Before I knew it I had 5 boys standing around listening, mouths agape, wanting to hear more. At work these days they play Sinatra.

      Dead music? Nah!

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    5. Dean Frenkel

      logged in via Facebook

      In reply to Robert Tony Brklje

      I believe that Robert's quote; "The nature of the music industry reflects the two basic styles of musical expression, live versus dead (recorded)," is utter nonsense. He only arrives at this conclusion because of linguistic convenience. The word 'live' music was created to differentiate from recorded music yet in the broader world the opposite of 'live' is dead. It's like saying there are only two colours - black or white. Robert's logic taken further would consider that only acoustic unplugged music is alive. What about those that perform live with drum machines or sampled music? I really don't think that there are many live presentations of cover songs that are alive.

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    6. Geoffrey Harold Sherrington

      Boss

      In reply to Gil Hardwick

      We were having a garage sale of mother-in-law's goods ay Woy Woy. There was a pile of 33 vinyls with Sinatra on top. A local woman snapped it up for a dollar. I told here there was more going cheap, like Mantovani, the next cover in the pile. "Oh, No, " she said. "I'm not into that heavy stuff."
      ..........
      I suppose the message is that sales go to a vey diverse market and it is hard to make a general market satisfaction model. Which is nothing new.

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    7. Robert Tony Brklje
      Robert Tony Brklje is a Friend of The Conversation.

      retired

      In reply to Dean Frenkel

      Don't be so literal. Dead music as in it is not a 'Live Performance', where the artist and the audience share in the creation of music. So it is live performances versus recorded music and the reason recorded is dead (figuratively speaking) because in comparison to a live performance being there and sharing it with others both the artist and others in the audience makes it far engaging and entertaining.
      So hate to be blunt but your whole comment is, well, 'Utter Nonsense', aimed at vapour.
      Many artists already give the music away free as sales promotion to get people to attend their live performances and 'join in the party'.

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    8. Dean Frenkel

      logged in via Facebook

      In reply to Robert Tony Brklje

      Robert I suppose that simply disagreeing with you doesn't mean that your point was utter nonsense. But I do think that a lot of live music is dead and that much recorded music is very much alive. Music is intrinsically about energy and the amazing thing about recorded music is its immortality - it captures and retains the energy of the composer and musicians and continues to move listeners for time immemorial. In contrast I have rarely heard a cover band playing cover music that shouldn't be described as dead. Sensory abilities become relevant here. If a listener has developed a strong sense of aural tuning - it doesn't matter whether or not the music is presented in real time.

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  2. Stephen Ralph

    carer

    In my case I listen nearly exclusively to Pandora.

    It is a modest cost per month and allows me to access a broad range of music, but particularly my favourite, jazz.

    It has also allowed me to expand my knowledge of musicians considerably by providing "like" music in it's presentations.

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  3. Graham Walker

    IT Architect

    While I don't pirate music I do try to find the best bargain for the songs I want to listen to. iTunes bringing some of their prices down to $0.99 helps, although, as mentioned in the article, I find it extremely frustrating that a song might cost US$1.29 in the US iTunes store and the same song in Australia is AU$2.19.
    I have found a pretty good source of music that as far as I can tell is legitimate through searching the web to see if there were any articles about it being a "pirate" source. "Iomoio" (awkward name) is a site that offers music for $0.16 a song. At this price I happily buy a whole album even when I only want one of the songs, or I'll just purchase a song that I'm interested in just to have a listen. At 16c why would anyone bother trying to source and download pirate music. Admittedly their selection isn't as broad as iTunes or some other sources but they have enough to keep me going for a while.

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    1. Dingo Simon

      Owner, Durong Dingo Sanctuary Qld

      In reply to Graham Walker

      I have found I-Tunes to be a rip off. But I have also found I can get very affordable music from this site
      mp3million.com and when you are paying 9 cents for a song, you end up buying more music and of many more styles.
      I was told that if a CD sold for $30 the artist would only receive $1, so I feel the artist is ripped off big time, no wonder so many set up their own websites and sales.
      Somehow it always feels better to receive a CD from your Band from their Website and if they sell a DVD even better.

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  4. Dean Frenkel

    logged in via Facebook

    This is a good article and I look forward to the others in the series. I'm not surprised that declining music sales have been caused by more than music piracy. The biggest problem has been that the music industry, particularly record companies and retailers have profited at the expense of artists who have been under-paid and neglected by the system. With the exception of the most commercially successful artists, artists will be no richer or poorer regardless. The music industry might well scream but it should remember that it's the artists who should be looked after first.

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    1. Andris Dinsbergs

      Web designer/developer, artist at Loud Mountain

      In reply to Dean Frenkel

      I couldn't agree with Dean more and I believe it's important to define exactly in conversations such as this who the music 'industry' is.

      To add my opinion for what it's worth, if the 'industry' is the massive companies who use artists only if they are 'marketable' at the moment for the sole underlying reason of profit, irrespective of artistry, then I'm more than happy to see them fall. It's kind of like a false economy anyway.

      With the advent of ease of use of communication technology now, all the musicians I know are able to market themselves or as smaller groups. Which kind of makes it a bit more 'real' again.

      As a music lover, I looking forward to the rest of the series.

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  5. John Crest

    logged in via email @live.com.au

    "One of the first lessons in microeconomics is that correlation does not imply causation, or put simply, just because two variables are observed to move together (positively or negatively), this doesn’t imply one is causing the other to move."

    Actually, that's one of the first lessons in everything.

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  6. Meg Thornton

    Dilletante

    Might I offer a further alternative hypothesis to explain declining music sales, namely, demographic shift combined with external events. The really big music buying demographic was the Baby Boomers, who are now pretty much aged out of the music buying population (nobody's making new music aimed at the Boomers). Generation X is busy ageing out of that group as well (and very few people are making new music aimed at us either). So this leaves Generation Y as the main purchasing demographic... and…

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    1. Stephen Ralph

      carer

      In reply to Meg Thornton

      I always found I'd buy a new CD and listen to it for a few weeks and never play it much again. Not always the case but very often.

      Now I can get as much music as I like and not have to buy a CD.

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    2. Robert Smith

      retired

      In reply to Meg Thornton

      "Nobody's making new music aimed at the Boomers" and just what would that music be? I'm a Boomer, I listen to the likes of Xavier Rudd, John Butler, Mumford & Sons, Boy & Bear, plus a host of still active musos from my "era" and many others from the current generation, just not pop pap, but then I didn't listen to much pure pop music back in my teens and twenties either. After a working lifetime involved with music I can tell you that there a thousands of Boomers who buy new music, we aren't all…

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    3. Meg Thornton

      Dilletante

      In reply to Robert Smith

      Okay, late as usual (I gotta check my replies on this thing more often). First, to clarify a small point: I wasn't complaining about the lack of music being made for the Boomers or Gen X. I'm not as obsessively interested in music these days as I used to be (I'm getting older, my ears are wearing out, and this means I'm more comfortable with less noise around me rather than more). If I'm typical of my generation (which would, I'll admit, be a first) I'd expect there to be less music aimed at me due to simple market pressure. Not a complaint, an observation.

      My point was the US RIAA seems to be operating under the belief that the world owes them mega-profits, and they're throwing tantrums when they don't get them. Maybe the lack of mega-profits has more to do with external events influencing buyer choices than it does with music piracy. Okay?

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  7. Meg Thornton

    Dilletante

    Incidentally, as an adult I pirate a lot less music than I used to as a teenager. I can remember sitting around on a Saturday afternoon, with the radio tuned to a station I liked, and a tape in the recorder, recording songs I liked as they came up; most of my age peers did the same sort of thing. I probably still have some of those mid-to-late eighties mix tapes in amongst my collected gear even now. Haven't played 'em in years, because I'm pretty sure the actual tape (the physical medium) is a bit fragile and will probably fall to bits the moment I try and do so.

    These days, I buy CDs from stores, and make a copy to my computer. The CD then becomes the backup medium, while the PC copy is the one I listen to more often (because the PC copy is the one I synch with my music player).

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  8. George Michaelson

    Person

    A side observation that the rate of return to artists and performers from pandora, google, apple, grooveshark is said to be really abysmal. A shame, because there is certainly money in the system: it seems like its being hoovered up by different people, but alas not the actual musicians themselves.

    If the PRS were better organized, they would have recognized their time as agents of change implied breaking the A&R shackles with the recording companies and moving to real representation for their members.

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  9. Jonathan Powles

    Associate Professor and Director, Academic Skills at the University of Canberra at University of Canberra

    We also have to remember that the economics of music as a commodity are actually comparatively very new, and have been almost constantly changing. Throughout human history music has been made by people, and there is a long and varied history of valuing that skill and practice - troubadours, court musicians, church musicians, opera singers - these were all *people* who are *employed*, and if you wanted music you had to make it yourself, make it in your community, or pay someone to make it for you…

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  10. Sam Jandwich

    Policy Analyst

    Arrr matey! This article doesn't represent my personal experience at all - nor indeed that of anyone I know.

    I used to buy a at least one new CD pretty much every week until about 6-7 years ago. I stopped doing this however when I was working overseas for a year, in a country with few CD shops and fewer intellectual property laws, and so resorted to downloading (mostly illegally) and buying counterfeit CDs, which were readily available where I was living.

    Ever since then I baulk at paying…

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  11. David Vernon

    Network Engineer

    I find the whole "Record Companies are bad so I pirate with a clear conscience" attitude a real shame. Record Companies have performed an entirely legitimate function for years. They invested in talent and coached those with potential until they became popular or they didn't. If you were good enough to get signed you were given a shot at being a success. You were given time in a recording studio with professionals who could engineer and produce a superior sounding record. You had a marketing team…

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  12. Bob Constable

    logged in via Facebook

    with the piffling amount of the profits from music sales going to the music makers its not surprising that artists are doing it for themselves, good on them.

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  13. Robert Heal

    Botanist

    The whole way in which the music industry works, has changed. When I was young, there was "top 40" radio. And countdown. And it was all audio, basically nothing visual. Everybody listened to the same stuff.

    Now the videos are more interesting than the music. There is so much more stuff. New stuff, and the old stuff. The acts from the 70's are bigger than the new acts. There is much more fragmentation of the market.

    And there are so many other things to do, these days.

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  14. Craig Steel

    Miner

    'Consumers could sample music before proceeding to make legitimate purchases, for example.' -- Which is exactly what I do. If I don't like it, I delete it. If I do like it, I will buy it. In the decades before computers I would listen to records that friends and acquaintances had - and they would listen to mine - before deciding to buy - or not.
    It has also been a long time - years - since I have bought any music from an Australian store as they charge too much. I've found it's a lot cheaper to buy overseas and have it posted to me. Same with books.

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  15. Gil Hardwick

    anthropologist, historian, novelist, editor and publisher at eBooks West

    I'd like to add the fact that firstly the world via the Internet is literally flooded with music, and art and movies and games, which don't need to be either pirated or bought, and secondly that American-style industrial-scale music production as we saw it emerge especially during the late 20th century is now an anomaly.

    Hollywood is not quite the same yet, but it's getting there. In that respect the Los Angeles porn industry is bigger than the entire global computing and IT business combined…

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  16. Michael Block

    Idler

    There is a great irony at work here. The music industry operates on a 30 year cycle and it's historically regenerated demand by inventing a new music format every 30 years: Vinyl, CD, digital file. The irony is that we were told in 1980 that CDs were replacing Vinyl as too many LPs were being produced by pirate record stampers and the new format was so expensive to produce that it was pirate-proof. Of course that was the case for a few years and despite its poor sound quality, CDs flourished for a while. The sting in the irony tail now is that vinyl sales are now the most profitable format that the music industry has, and the only area with double digit sales growth figures.

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    1. Stephen Ralph

      carer

      In reply to Michael Block

      Far be it for me to question you, but are you sure vinyl is booming?
      I thought it was all retro vinyl being recycled.

      Are record companies pressing vinyl these days?

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    2. Michael Block

      Idler

      In reply to Stephen Ralph

      Yes, up 70% on last year.
      http://www.abc.net.au/news/2013-09-23/surge-in-sales-music-to-the-ears-of-vinyl-lovers/4975862

      Granted, vinyl sales are still small but the way both vinyl and CD sales are going, vinyl will overtake CD sales soon. It's a phenomenon that shouldn't be ignored by the industry, people pay for the experience, not just for the music. There is no 'experience' clicking the play button on your phone or computer and people pay accordingly. People are willing to pay for cover art that they can see, lyrics that they can read and the experience of playing a record as well as the more pleasing sound. Walk into any record shop these days, it isn't misty eyed boomers buying LPs, its people in their teens and twenties

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    3. Stephen Ralph

      carer

      In reply to Michael Block

      Back in the dim past I worked in music retail - I and a partner set up Central Station Records. In the early days a couple of shops in Melbourne. It coincided with the DISCO era and we were away on a magic carpet ride.

      I sold out, but my (ex) partner took it to other states and a booming business.

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  17. Geoffrey Harold Sherrington

    Boss

    Maybe music sales are declining because modern music is do dreadful.
    Not much of note has been composed since 1900. Gershwin & a few similar, perhaps, some Shostakovich.
    Where is the greatness of Beethoven, Mozart, Brahms & co? (Please don't nominate Beatles).

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    1. Stephen Ralph

      carer

      In reply to Geoffrey Harold Sherrington

      Au contraire GHS.......so much good music from the 60s onwards.

      And the 30s & 40s......Ellington, Benny Goodman and so many others....genius with a beat.

      Ignore the radio playing fodder, and listen to the music from the internet and elsewhere. So much going on that it is exhilarating.

      Don't limit yourself to the 18th & 19th centuries. Film music is the "new" classical music........Thomas Newman, James Newton Howard and so on.

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  18. Kenneth Mazzarol
    Kenneth Mazzarol is a Friend of The Conversation.

    Retired

    I am a classical music buff. I believe the decline in music/noise? acceptance has to do with a rejection of all the screaming and gross un-melodic twanging of out-of-tune instruments. X factor type contests conducted by tone-deaf, audience-led judges has also played a part in the decline. Eventually the tide/fashion will turn and we will once again be lulled with real music.

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    1. Stephen Ralph

      carer

      In reply to Kenneth Mazzarol

      You and GHS deny yourself a treasure trove of modern music......

      Forget X Factor and the rest........turn the TV off and explore the realms of music available to you.

      Get onto Windows media or I-Tunes and explore the hundreds of radio stations playing every type of music you can imagine.

      I love classical music - Mozart to me is the greatest of the greats, Telemann, Bach(s), Vivaldi etc....wonderful.

      But listen to the current crop of Swedish jazz, with music so ethereal and moody it makes you dizzy.

      Listen to the magic vocals of Emmy Lou Harris or Ella Fitzgerald.
      I could go on of course........but don't get stuck in that classical music is the only music for me rut.........

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