Music Biz Blues

A year-end report by Nielsen SoundScan, which tracks retail activity, states that compact disc sales through December 22, 2002, were off 9.3% compared to the same period the previous year, with 624.2 million units sold compared to 688.2 sold in 2001. Of all recorded music sold, 94% of it was on CD, the remainder on cassette tape and vinyl records. An insignificant amount of music was sold as legitimate downloads from industry-sponsored music sites. SoundScan did not expect the last week of December to impact the year's total.

2002 was the second straight year for declining music sales in the US. The International Federation of the Phonographic Industry (IFPI) reported a global slide of 5% for 2001, and has yet to release figures for 2002. The US saw a 2.8% decline in total album sales in 2001 (as opposed to total CD sales, some of which were singles or extended-play releases); in 2002, the slide accelerated, with total CD album sales down 8.7%.

Winners and Losers
Rap is still huge, country is making a comeback, and New Age music is on its way out. Universal Music Group's The Eminem Show was the biggest-selling album of the year, with 7.6 million copies sold in the US. Runner-up, with 4.9 million units, was rapper Nelly's Nellyville. Pop chanteuse Avril Lavigne's Let Go grabbed third place, with 4.1 million; and the Dixie Chicks' Home was fourth, with 3.7 million. Eminem also scored big with the soundtrack album for the film 8 Mile, in which he starred. The CD was the year's fifth-highest seller through December 22, with 3.5 million.

Nielsen BDS, which monitors airplay, noted that none of the top five albums of the year had songs that made the top five most-played radio songs. That fact could provoke doubts about the music industry's longstanding article of faith: that radio play drives album sales.

Other big hits were Pink's Missundaztood (3.1 million), Ashanti's self-titled release (3.09 million), Alan Jackson's Drive (3.05 million), Shania Twain's Up! (2.9 million), and the film soundtrack O Brother, Where Art Thou? (2.7 million). Country music was the only genre to enjoy an increase in album sales in 2002, with totals up by 11%, driven primarily by such female stars as the Dixie Chicks, Faith Hill, and Shania Twain. A 42% drop in New Age sales is a serious indicator that that fad may be nearing its end.

UMG, the only one of the music industry's "Big Five" to report a profit in 2001, claimed the lion's share of CD album sales in 2002, with 29% of the total. Warner Music Group was second with 15.86%, Sony Music third with 15.6%, BMG fourth with 14.8%, and EMI fifth with 8.4%. All other labels combined accounted for the remaining 15.33% of the total. Universal actually increased its market share by more than 10% during 2002, having claimed 26% of total sales in 2001.

Records vs Concerts
Last year, music-lovers preferred to go out rather than stay home. While overall sales of recorded music were in decline for the year, concert-ticket sales were up, according to Pollstar, which tracks the concert industry. The top 100 tours sold a total of 35.1 million tickets in the US in 2002, a 2% rise from the 34.4 million sold in 2001. Ticket revenues jumped by an astounding 20% to $2.1 billion, from $1.75 billion last year, due to higher prices for the largest-drawing acts. In 2002, the average concert-ticket price was $46.56, a 3% rise from the previous year and a 56% rise from the average ticket price of $29.81 in 1997. Paul McCartney was the year's highest-grossing tour, with $103.3 million in revenue based on an average ticket price of $129.92. This was followed by the Rolling Stones, with an $87.9 million gross from tickets averaging $119.20. Clear Channel Entertainment, a division of the radio-broadcasting conglomerate, was the most successful concert promoter, with 30.2 million tickets sold worldwide.

Expect the winter months leading up to the Grammy Awards to be peppered with regular statements from the music industry blaming CD burners and downloading for the continuing slide in sales, and with calls for more regulation. The real culprits may be much closer to home: the sister industries of DVD movies and video games.

In 2002, while CD sales declined, DVD continued to soar. On December 30, Internet retailer reported its busiest winter-holiday season ever, with 56 million items ordered worldwide from November 1 through December 23. Amazon's five best-selling items were DVD movies: The Lord of the Rings: The Fellowship of the Ring; Star Wars: Episode II—Attack of the Clones; Band of Brothers; Spider-Man; and The Lord of the Rings: The Fellowship of the Ring: Platinum Series Extended Edition. Amazon's best-selling consumer-electronics product was the $119.99 Toshiba SD2805, a 5-disc DVD/CD carousel changer. Approximately 50 million DVD players are now in American homes.

In early January, online DVD rental service Netflix Inc. reported an 87.9% increase in subscribers for 2002, with 857,000 subscribers vs 456,000 in 2001. For a flat fee of $20, Netflix offers subscribers a choice of more than 12,000 DVD titles—three at a time—with no set return dates and no late fees. (Netflix has no music industry equivalent.) And, as reported last week, the video game industry surged last year, with a 38% increase in sales for the third quarter.

As many respondents to our weekly polls have noted, high CD prices keep music fans from buying. In one of the most desperate strategies ever launched by any industry, record label executives chose to raise prices in the face of declining sales as a way to maintain revenue. CD prices are now two or three dollars more per title than they were when the sales slump began more than two years ago. It's an inexplicable move when the music industry is facing supremely tough competition for the consumer's entertainment dollar.