The Music Industry Is About To Change, And Apple And U2 Are Just The Beginning

Tech Crunch reports:

Let’s start by taking a look at the music industry. According to the IFPI (International Federation of the Phonographic Industry) revenue peaked at $38bn worldwide in 1999, collapsed down to $16 billion (2011), edged up somewhat the year after, only to fall back down again to $15 billion last year (2013). The transition from analogue to digital played an important role in all of this: it made music piracy easy for the casual music fan. Piracy is real and doesn’t need further explanation. The industry, however, makes it the scapegoat, conveniently forgetting some other (often self-inflicted) wounds.

For starters, the $38 billion peak was artificial, and not a reflection of “steady or ongoing” music purchases. In the run-up to 1999, a lot of people replaced their LPs with CDs, often buying the same album twice. What goes up (higher) must come down (faster/further). Secondly, packaging changed.

We used to buy albums, or a bundle of songs. That means that the casual fan typically ended up paying 3x to 4x more to get the few songs they really wanted. Today, we can buy tracks piecemeal, spending minimal dollars. And thirdly, record labels (still) get it wrong on pricing. Recording executives have the tendency to target diehard fans with steep prices; they misjudge the pricing elasticity of music (as David Pakman explained in a recent blog post).

It’s not inconceivable that Spotify would land 5x more paying subscribers if the price-point were $3/mo (currently set at $10/mo). A lower price point beats the inconvenience of piracy, makes it more appealing to casual fans, and potentially opens up developing countries.

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