The actual cost of physical CDs
Alright, it’s about time we address the issue about releasing CDs (for the record, we are using RIAA information so all figures are for the U.S.). We keep getting inquiries regarding the pricing of those things and our reply is always the same: “Why bother?” Fact is that CDs, despite having the greatest market share, are going down while digital downloads are going up. The pie charts say all there is to say really. In 2006, CDs held 85.6% of the market and dropped to 77.8% in two years while digital downloads when from 6.7% to 12.8% – doubling! Now why is that?
Anyone old enough to remember the LPs and cassettes will fully understand what is going on here. Those too young to know what all that was all about, no worries. The era of the mix tape reached its peak in the 80s when people bought or borrowed LPs only to pick the tunes they liked and transferring them to tape (this is actually why the CD became so successful – it removed the noise of the LPs caused by dust and scratches). Today, the exact same process is happening, except this time around, people pick tunes online (or rip CDs), transfer them to iTunes or the iPods and so weed the good out. How many out there that actually buy CDs rip them to do just that?
So, artists thinking in terms of physical CDs might do well reconsidering their strategies. Why spend money on something that is on the way out instead of spending it on where everything’s happening – online distribution and effective marketing? Fine, the cost of producing CDs has gone down, but that actually proves the point that demand is less than supply. Why bother with physical CDs when there is absolutely no need for them? The cost of making the damn thing is far better spent on production (mixing, mastering etc.) and promotional activities such as getting your web up with social media networks enabled. Making a physical CD today is the same as making a vinyl LP ten years ago (market share of vinyl the year 2000 was 0.5%).
Now then, there are exceptions to this that must be considered, but overall, don’t go for physical CDs unless you can afford to do that while getting your online promotional machine running. If you can’t do both and opt for the CD, you will end up losing time and money and will face a real danger of losing in this highly competitive environment. The cost therefore becomes far greater than just that of the CDs themselves; it’s your future as an artist at stake.
Age and gender consumer profile changes
That said, who do you think is buying your material? Men, women, young people, old people? This is something you have to know or your marketing will misfire. Your perception of the target audience may or may not give any indication as to from what direction your revenue stream will come from. Those that listen to your music may not be the ones that actually buy it, strange as that may sound.
In 2005, 48.2% of music consumers were women. In 2008, this rate had gone to 51.5%. This indicator is best used with historical data, for we see the same pattern 1999 and 2001. A possible explanation may be that right before and during economic downswings, women buy more music than men. This is also when divorce rates rise and women show a greater tendency toward connecting more to music than men. Given the state of the world economies, we expect these rates (women buying more than men) to hold until 2012.
Is you music for women? The answer to that depends on a lot of variables and is impossible to answer without engaging in extensive market research and test marketing. Again, this you can afford if you don’t spend money on physical CDs unless you have the financial strength to do both.
In 1999, the age group 10-14 bought 8.5% of all music available. In 2007, this ratio had risen to 11.5% which is a 10-year record. By 2006, when the financial system collapsed, it dropped to 7.3%. This corresponds to household finances; the greater the residual income, the more kids spend on music. There is no indication that spending patterns move between age groups to any greater extent. Now, when kids stop spending, the spending of the age group 40-44 increases in weight. In 1999, this group weighed 9.3% of total music expenditure, in 2006 9.2%, but in 2008 it rose to 11.0%. How likely is this age group to have kids in the age group 10-14? Quite likely. It can therefore be inferred that parents are cutting down on allowances in order to buy music themselves.
This becomes far more prominent when the age group 45+ (which is really a far too big a range to make any sense) is studied. In 1999, this group contributed to 24.7% of all sales and in 2006, 24.8%. Enters the economic situation of 2008 and the group leaps up to 33.7%. Artists that cater to women aged 40 or above will do better than artists catering to men – or boys – aged 10 – 19. This will change once the economies of the world recover which will not happen anytime soon.
Sales channel changes
Artists still dreaming about having their own CDs out there, think again! In order to sell a CD, you need an outlet. Usually, this outlet is a record store. In 1999, record store sales amounted to 44.5% of all music sales; today, they amount to 30.0%. Anyone that expects this to rise again is advised to enter a record store and check out the ratio of music CDs versus games and movies (DVDs). The CD department will have shrunk considerably which should be a wake-up call. Many major record stores have shut down as well for lack of business! Other stores show a similar trend, going from 38.3% 1999 to 28.4% by 2008.
Internet sales were 2.4% in 1999 and have risen to 14.6%. Still want to make that CD? RIAA began tracking online downloads in 2005 and the first market share indicator puts these at 6.0% of total sales volume. Has this doubled in four years? No, it has gone up by 1.25! Online downloads went to 6.8% in 2006, 12.0% in 2007, and 13.5% in 2008. We expect 2009 to have brought this market share to over 15.0% and record stores below 25.0%.
So for those of you out there that really want that CD, ask yourself if it’s worth betting on a dying technology or whether your resources could be put to better use elsewhere.
