Shhhhhh, here’s a little secret you might not fully appreciate in the iTunes age: record stores still exist, still sell great music, and are still places to look, feel, and thumb through albums and their accompanying artwork. In fact, this Saturday is the fifth annual Record Store Day – a collective effort of founders and organizers, artists spanning a number of genres and regions, 1,700 participating retailers in the United States and abroad, and many indie and major music labels.
As part of Record Store Day festivities, visitors to neighborhood music shops across the country can expect to find day-of exclusives like promotional giveaways, live performances, and roughly 300 limited-edition releases, more than 90 percent of which are on vinyl. Vinyl and Record Store Day, after all, have a recent track record of success. Sales of vinyl albums more than doubled their typical week’s volumes during last year’s event week, according to Nielsen SoundScan. Vinyl singles, too, sold 13 times more than during a typical week.
While Record Store Day marks a great opportunity for fans to reconnect with local stores and their favorite artists, vinyl sales growth has hardly been limited to one day a year. According to the Recording Industry Association of America’s (RIAA’s) annual shipment numbers, which track total recorded music industry sales in the United States dating back to 1973, vinyl has enjoyed remarkable staying power amid the many formats now available for accessing music. While LP/EP record sales peaked in 1977 (see some fun photos of from old record stores here) and declined in the 1980’s and 1990’s, they have grown for the past five years. Most recently in 2011, more than five million vinyl albums were shipped, the highest level since 1990. Music labels have continued to put out vinyl versions of both new release and catalog music to satisfy that demand, even bundling digital download codes with vinyl record purchases.
But it’s not just about vinyl. Just as digital music services continue to evolve and give fans access to a variety of bands anytime and anywhere, music companies and their retail partners continue to explore rejuvenated physical product offerings that fans connect with, and collect, differently than digital. According to our 2011 shipment numbers, CDs remained the largest category of music sales, with 241 million albums sold. There was a modest decline last year in physical sales, the smallest drop in several years.
So whether or not you have a turntable in your home, get out and help celebrate Record Store Day and support your favorite artists this Saturday. More and more acts are catching the vinyl bug, with this year’s exclusive event releases hailing from longtime band favorites to today’s hit makers like Arcade Fire, Arctic Monkeys, The Black Keys, Bruno Mars, Coldplay, Common, Dale Earnhardt Jr. Jr., Eric Clapton, The Flaming Lips, Florence + the Machine, Fun., Grace Potter and the Nocturnals, Katy Perry, Metallica, Noel Gallagher, Paul McCartney, Phish, Red Hot Chili Peppers, Sex Pistols, The White Stripes, Widespread Panic, Wilco, and more!
Joshua P. Friedlander
Vice President, Strategic Data Analysis, Recording Industry Association of America (RIAA)
Time and again, we pointed out the importance of anti-piracy efforts to building a sustainable and healthy legal music marketplace (see here, here, here, and here). Although the impact of anti-piracy efforts often seem self evident to us, it’s important to see the real world effects, and we’re happy to see two new studies illustrating the value of these efforts in the marketplace.
Professor Brett Danaher (an Economist at Wellesley College) and colleagues recently did a study on the effects of a copyright alert system similar to the one announced in the United States last summer, that has been operating since 2010 in France (generally referred to as “HADOPI”, see here, here, and here). Using data on iTunes sales in France, and other major European markets as comparisons, the study estimated that digital sales improved 22.5% for tracks and 25% for albums due to the enactment of and publicity surrounding the HADOPI graduated response anti-piracy laws. Further, the study found that sales increased even more strongly among the genres of music that were most often pirated (see Professor Danaher presenting his results here).
What could this mean for the legal market? The HADOPI study findings implied a sales improvement of €13.8 million ($18.6 million) for the digital market in France. However, the French digital download market is far smaller than the U.S. digital market. If sales gains of the same percentage occurred in the United States, that would imply an increase of hundreds of millions of dollars in sales of digital tracks and albums.
The passage of time since the shutdown of Limewire in late 2010 has given us another opportunity to examine the effects of anti-piracy measures. The RIAA used Nielsen Netview data to look at music related website and application usage for people who used Limewire in September of 2010 (prior to the shutdown). Those patterns were compared with the same people one year later, in September of 2011. There were almost 2,800 people in the cohort, and the panel included data from about 50 music related websites and apps (including authorized services like iTunes, Pandora and Spotify, as well as sources of illegal content such as Limewire, Frostwire, Megaupload, The Pirate Bay, and many others).
The analysis showed that the vast majority (almost 90%) of those who used Limewire in September 2010 did not use it in September 2011. Further, about 65% of those who stopped using Limewire did not use or visit any of the applications and sites in the panel that primarily provide illegal downloads. Broadening that to total audience with the regular panel weightings, of the 14 million U.S. Limewire users represented by the group in September 2010, 9.5 million did not use any of the unauthorized sites monitored one year later.
The effect was not just limited to one site. The Limewire shutdown affected the overall numbers of users of illegal content sources. The overall number of U.S. users of the illegal sites in September 2010 was 28 million, but that fell to 19 million by September 2011. These data points are consistent with recent statistics published by the NPD Group (here and here) showing a decrease in usage of P2P for acquiring music, and an increase in the number of people purchasing legally. According to NPD, the number of digital purchasers grew 14% to 45 million people, and the number of people using legal online radio services like Slacker and Pandora grew faster than any other music listening options.
Combined with an ever growing body of academic literature (see here for example), these findings again confirm the connection between illegal downloading and displacement of the legitimate music market.
Despite this progress, it’s worth noting that, still, some 13% of Internet-connected users, according to NPD, use file-sharing services to acquire music. Combine that with the fact that NPD further reports that more than half of all music was acquired illegally (also counting hard driving swapping, CD burning, file sharing hubs like Megaupload), and we still see a significant digital theft landscape that inhibits the potential of the legal services and compromises the music industry’s ability to invest in new bands.
Our work is far from done, but the data does collectively show that anti-piracy measures can have real effects on the legal marketplace. In 2011 we saw a stronger music market than we have in recent years, with growth in digital sales and more legal options available.
The single most important anti-piracy strategy remains innovation, experimentation and working with our technology partners to offer fans an array of legal music experiences. Results like these show, though, show that strategic enforcement is also necessary and do make a difference.
Joshua P. Friedlander
Vice President, Strategic Data Analysis, RIAA
The music industry's transition to digital continues to be robust. In 2011, digital sales grew to more than 50% of the US music market by value, and for the first time over 100 million digital albums were sold in a year.
But we've all read about how licensing requirements can provide challenges both to established companies and start-ups desiring to offer consumers new music models. Labels and music publishers recognized this challenge early on and have been working to simplify the process. Back in 2001, when new on-demand subscription services like Rhapsody wanted to launch, labels and publishers reached an agreement that navigated thorny legal issues and allowed these services to obtain licenses for the reproduction of musical works (that is, the composition found in a recording). In industry parlance, these are called "mechanical" licenses, a moniker from the days of player pianos. (That tells you something about how little had changed between 1909 and 2001.) But our 2001 agreement helped to launch on-demand streaming subscription services, a business model that now boasts almost two million paying subscribers.
We built on that agreement in 2008 by reaching a settlement on rates for those services as well. That agreement created a percentage rate for a mechanical license for the first time ever in the United States. It also provided unprecedented certainty for these services because the rate netted out performance royalties paid to performing rights societies. This might sound like a no-brainer, but it was a big deal just a few years ago. That's because in the past services either needed a performance license or a reproduction license, and so they went for one or the other. On-demand streaming services needed both (I won't bore you with those legal details), and this agreement provided a way for those services to know the total amount owed. We presented this 2008 agreement to the Copyright Royalty Board (CRB), which oversees rates for mechanical licenses.
We get a chance to revisit and create industry-wide mechanical rates for new business models once every five years. This year, 2012, is that magic fifth year. We all know how much can change online or with habits for consuming music in five years. So when negotiations began last year, record labels' top priority was to set rates for as many new models as possible.
Today, after fifteen months of discussions with music publishers and digital music services, we submitted a new agreement to the CRB proposing rates for five new business models. The models include some you've heard of and some that may not be familiar. For example, one category is for paid locker services, subscription-based lockers like iTunes Match. Another category allows locker functionality without a subscription for music that is purchased.
We also created categories so that digital music services can offer music bundled together with other music or products in response to consumer demand. Want a service that bundles music with your broadband? How about bundling music with a device like a mobile phone? How do you feel about a download bundled with a pack of chewing gum? A music download bundled with a CD? Industry-wide mechanical rates for all these are now a reality.
Finally, there is a new category for subscription streaming services that offer more than radio but less than full catalog, on-demand. We agreed that many people may want a bite or two, but not the full meal. For example, on-demand streaming for certain genres or playlists. The new rate agreement permits these more limited offerings at lower price points.
We realize we can't predict every new idea for using music in the next five years (nor would the owners of the rights want to guess about things completely untested in the market), but we think we've covered a lot of ground. We are proud to have worked with our partners to reach this agreement, and hope that it paves the way forward for many great new and existing companies to offer music to consumers.
Steven M. Marks, Executive Vice President and General Counsel, RIAA