The Music Business Is Doomed, Even If Digital Sales Keep Improving (AAPL)(WMG)

Print Email

Over the last few years, the reporting of revenue from commercial music sales has been a "good news, bad news" deal. Digital downloads of albums and songs keep rising. CD sales keep falling.

Since sales of CDs are more profitable than the digital business, the sum of these parts undermines the music industry’s ability to stay financially viable

According to The Wall Street Journal, CD sales dropped "from to 360.6 million in 2008, from 449.2 million a year earlier," a 20% plunge.  Including digital downloads, album sales only fell only 14%. Both numbers are bad enough to continue to destroy the value of music content companies such as Warner Music. Its shares trade at $3, down from almost $24 two years ago.

The movement of music consumption from CDs to devices like the Apple (AAPL) iPod will never solve the industry’s core problem. Even Warner could negotiate better royalty deals with its digital download partners, that would not save the company.

The typical consumer of music in the US, and most other countries, will cheat artists and music labels until they are bled out. Piracy is such a tremendous problem that it cannot be overcome by restructuring fees inside the music business. The real enemy is the lack of ethics among consumers who appear to think they have a God-given right to free albums and songs.

The irony of the industry’s problem is that, once it has lost too much money to be viable, consumers will begin to see labels and some artists reach the point where they can no longer make and deliver content. The leaches will have killed the host.

The music industry is doomed and with that the variety of content will begin to disappear as the profits come out of the business of making albums.

Douglas A. McIntyre