Digital Music Futures and the Independent Music Industry

This is a topic I’ve been meaning to cover for a while, but I’ve been so mired in Actor Network theory (in one of my other, somewhat overlapping lives as a PhD student) that I’ve had no time to finish the story and get it out there. Until today.

What got me inspired to address these issues now was this report, notably its forecast about what it terms a coming “clash of the titans” in the commerce of digital music delivery, including delivery on mobile platforms (more on that subject later, like in another post). But what really caught my eye was a chapter with the provocative title “The threat to branded digital music from YouTube, MySpace and other user generated music (and content)”.

Wow. Intriguing, yes. Worth over 2000 euros? Yeah, right. It’s no wonder that the dominant music companies are worried, and I don’t need their report to confirm that they ought to be so. The combined growth of Myspace and Youtube might be viewed as a further complication (or extension?) of the mainstream companies’ loss of market share to independents in recent years. They’ve been losing market share to indies since digital distribution of music started, actually.

The independent share of the global music market has been steadily increasing over the past few years with the explosion of digital distribution. Below, I’ve compiled some figures that show how two different methodologies reveal an increase in market share for independents since digital distribution took off. Forgive me if my figures are inaccurate; it only took an hour to gather up these numbers, and I’m only repeating what I’ve found elsewhere:

Indie Music market share, global (International Federation of the
Phonographic Industry [IFPI])

2002: 25.3%
2003: 27.1%
2004: 28.4%
2005: ? (see note below)

Indie Music market share, global (Nielsen Soundscan)

2002: 16.36%
2003: 16.7%
2004: 17.3%
2005: 18.13%

As compared to the IFPI figures, Nielsen Soundscan underreports music sales by relying on conventional album units, according to the American Association of Independent Music (a2im), who concur more with the methodology and results obtained in IFPI studies. The RIAA (which relies on Soundscan) also reports on the basis of conventional “albums”, but clouding their figures further still is their reliance on shipments and not actual sales. According to the IFPI website, “the figures reported by the RIAA in the US will differ slightly from those reported (by us) because IFPI counts total units as album equivalents for global comparison (3 singles = 1 album). The RIAA does not apply this methodology.” Clearly the IFPI uses a methodology that is more sensitive to the effects of digital downloads, which are not driven by conventional album sales (and not muddled by returns and other vicissitudes of physical distribution chains).

The numbers show an increase in market share for indies, by whatever yardstick. So the perspective that the growth of “more indie than indie” music (facilitated by platforms like myspace, last.fm, youtube, and so on) is a threat to the major labels is not unfounded. With the increased ease of use of tools of music production, and the growth in amateur music practice in recent years, what’s to stop this trend of individuation, DIY media, and independence from traditional industrial frameworks from intensifying?

Furthermore, if digital distribution steadily breaks the music industry down into smaller units (smaller and smaller music niches, songs instead of albums, smaller bands, and increasingly nuanced, individuated taste profiles), then it’s quite likely the ability to predict consumer behaviour is going to become too complex for some companies, accustomed as they are to watching (and shepherding) masses instead of individuals.

To survive in a market where processes of individuation and independence like this are unleashed, major labels are going to have to buy into recommendation engines, social network platforms, and web analytics, big time. And indies will continue to break even. Hopefully, even more of them will start breaking even.

{Note: Of course, as has been observed elsewhere, market share figures from the IFPI have yet to be reported for 2005, in a conspicuous break from habit.}

Sources for market share figures:
IFPI website
Stereophile article
Business wire article
American Association of Independent Music website
Hollywood Reporter story
IT Facts digest (is that what we might call a “bot-gest” or a “di-bot”?)