Earlier this year I raised the question of whether the music industry was going the way of the newspaper industry, whether its core audience was aging, stuck on its physical format while the younger generation feasted on free content. It is becoming increasingly clear to me that this dynamic is arguably the most sizeable challenge facing the recorded music industry. Product innovation (my hobby horse) is of course crucial, but its remit will be drastically reduced unless the ‘CD Problem’ is fixed in tandem. Indeed, the two are intertwined.
The CD is polarizing the music buying marketplace
The importance of the CD is at serious risk of becoming a hindrance to innovation, particularly as its core customer base becomes more entrenched:
- The CD as fossil fuel. I have often argued that the CD is the record labels’ heroin, a habit which they simply cannot kick and which is hindering their ability to move on in life. The analogy is probably a little unfair, as it implies the relationship is a purely destructive one. A fairer metaphor is the world’s dependency on fossil fuels: we all know that they should run out some time in the not so distant future. But we also know that we have been hearing about their imminent depletion for decades and yet they are still here, thus far at least.
- Digital is creating a fault line across the music buyer landscape. With all of focus on digital strategy it is sometimes easy to forget that the CD is still the beating heart of music revenues and the most widespread music purchasing behavior, even in the US, that most digital of western music markets (see figure one). What is of concern is that a very large proportion of those CD buyers only buy CDs and what is more, they buy them offline in high street shops, malls and supermarkets. The industry used to view these consumers as the next wave of digital customers, the buyers who would naturally transition to digital. Unfortunately it is becoming increasingly clear that many of these consumers are better viewed as ‘Digital Refusniks’, consumers who have either actively chosen not to go digital (e.g. vinyl junkies) or see no appeal (mass market middle America, Mr Main Street, Mondeo Man etc). But these consumers are getting older (see figure one) and unless a transition strategy is implemented they will just carry on getting older until they are with us no longer, just as is happening with newspaper readers.
- CDs work fine while we all still have CD players. The problem with CDs is that you need somewhere to play them. That might not feel like a problem now but it is going to become one. Technology expenditure in the living room has shifted from audio to video. Our TVs have got bigger, as has the size of the piles of boxes underneath them (which for some reason are still called ‘set-top’ boxes even though most TVs don’t actually have ‘tops’ anymore). Meanwhile the Hi-Fi has become the second class citizen of the living room. People used to change their Hi-Fi’s simply because manufacturers changed the colour they made them in, now the average living room either has a dusty old midi system or an iPod docking station. For the Digital Refusniks – most of whom of course don’t have docking stations – there will come a time, not so far from now, when that dusty old Hi-Fi looks just too old and will be put away in storage. At which point the CD will have disappeared out of the living room and there will be little reason for buying CDs anymore, which will actually mean just not buying music anymore for these consumers. The TV, radio and the CD player in the car –as long as there still is one – will sate their music appetites instead.
A physical-to-digital transition strategy must start with a keener understanding of what makes CD buyers tick
The Digital Refusniks need bringing into the digital realm with hybrid physical-digital products before they simply fall out of the music buying population. The case for a physical-to-digital transition product strategy is clear, but it needs basing upon a clear understanding of why people value CDs. Across the music industry, consumer research projects must create a detailed and nuanced picture of CD buyers’ wants and needs.
To this end, but in an entirely non-scientific, not statistically significant and largely subjective manner, I yesterday canvassed my Twitter followers with this question: Do you still buy CDs, and if so why? The results, as long as they are considered in a purely directional and illustrative sense, present some interesting trends (see figure two):
- 77% of my tech-savvy music aficionado skewed base of Twitter followers still buy CDs
- A fifth of those CD buyers also buy vinyl
- Ownership, supporting favourite artists and artwork are the top three reasons for buying CDs
- Just over a fifth only buy CDs for ‘special’ albums and just under a fifth only buy CDs rarely
- 14% said they had either stopped buying CDs altogether or were buying fewer because of streaming music (in most cases they were paying for 9.99 subscriptions)
- 12% buy CDs because they are scared of their PC and / or cloud services crashing and losing all their music
Say hello to a new music buyer segment: the Charitable Collector
The broad picture is one of the CD as a hybrid of a collector’s item and an honesty box: people buying CDs to support their favourite artists and to own something tangiable and visual. Perhaps the best label for describing this very specific group of conscientious CD Buyers is Charitable Collectors. Of course the music industry cannot afford for the CD to become relegated to a role as the picture disc of the 21st century. Also artists should be working out ways to deliver much greater value to their dedicated fans than just a plastic disc which they often don’t even see much income from. But challenges aside, there is a rich seam of value for music product strategy to tap and to test.
It is important to consider that my Twitter followers skew towards tech-savvy music aficionados so this is more of an insight into the minds of digital music fans who also still value CDs rather than the Digital Refusniks. Nonetheless there are some key learnings here which translate across both groups and which, if nothing else, provide some solid foundations for exploring just what the industry should be asking about to truly understand the diverse priorities of CD buyers.
Without fixing the CD problem revenues will decline in the long run
Finally, the revenue case for a physical-to-digital transition product strategy is simple: unless it happens music revenues will decline. Figure three shows a scenario forecast for global music sales that assumes that things stay the same as they are now i.e. that digital growth remains around the 7 to 8 percent mark and that CD revenue decline slows, as sales consolidate around the hardcore of Digital Refusniks and Charitable Collectors. In this scenario we will most likely see some modest growth by 2012 and 2013 but after that the market will enter steady decline despite continued digital growth. The reason for this is twofold:
- Digital needs a new generation of music formats to drive stronger growth (see my D.I.S.C. post for more on this)
- CD revenues will start to decline at a steady CAGR of 5% or so due to natural wastage among the remaining CD buyers due to all the various reasons highlighted above
The CD remains one of the music industry’s most valuable assets, second only to those consumers who are still its loyal buyers. Now those consumers need a new generation of music products that meet their needs in a way that downloads and streams clearly do not.