Despite revenue slump, RIAA still not getting the big picture

From: http://arstechnica.com/news.ars/post...g-picture.html

The Recording Industry Association of America has released its 2006 year-end shipment statistics, and they tell a familiar tale. Shipments of physical media such as CDs continue their decline while the number of downloads continues to soar. Overall revenues continue their slide, as revenues from the increased number of digital sales failed to make up for falling CD sales.

For 2006, the RIAA reports that manufacturers shipped 553.2 million "retail units." That number includes CDs, music videos, vinyl albums, and singles. That's down 12.8 percent from 2005's 634.8 million figure and is just over half of 2000's 1.08 billion shipments. It is not an unexpected trend—last week we noted a study that predicted a continued free-fall for the music industry at least through 2012.

Digital sales—which include downloads, kiosks, ringtones, subscriptions, and music videos—continue to be a success story for the music industry. The RIAA reported a 27.6 percent increase in digital sales versus 2005, and when mobile sales (e.g., ringtones and direct-to-phone downloads) are taken out of the picture, unit sales jumped 63.2 percent. It's a significant drop from last year's 166.2 percent year-over-year growth, but still something the industry should be pleased with.

The RIAA is pleased with how digital sales are performing. "Today's music marketplace has challenges but it also offers reason for hope and optimism," said RIAA chairman and CEO Mitch Bainwol. "The appetite for music is as strong as ever and a digital marketplace now worth nearly $2 billion has emerged virtually overnight."

Still unclear on the concept

Unfortunately, it appears that the music industry is still having trouble grasping the scope of the challenges it faces. Another quote from Bainwol reflects this: "Our continuing mission is to help level the playing field so retailers and legal services don't have to compete with piracy and to work for parity in a marketplace with increasing convergence between various music distribution and broadcast outlets."

Retailers and legal services will always have to compete with piracy, and no amount of file-sharing litigation is going to change it. File-sharing still goes on, with much of it pushed deeper into the recesses of darknets to evade detection. The music industry will always have to compete with "free," since it remains a viable alternative to millions of music fans, despite the record industry's best efforts to eradicate it.

Some influential figures in the music industry do grasp the necessity of competing with pirates. When he announced that music at the iTunes Store would remain at 99¢, Apple CEO Steve Jobs framed the decision in part by the need to compete with piracy. "If the price goes up, [consumers] will go back to piracy and everybody loses," said Jobs. And he's not the only one who understands it.

The unfortunate fact for the RIAA that Bainwol doesn't seem to grasp is that the game has fundamentally changed forever, and there's no going back to the days of year-over-year revenue growth, at least not for the next five years or so. CD sales are on a downward slope and they're taking the industry's revenues with them.

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