Record Companies and Digital

The really doesn't sound like a sensible business strategy for the record companies faced with the digital revolution: Do nothing.

 

Record labels need the digital music market to take off. So why aren't they helping it any?

Physical CD sales have been in decline for the last five years, and according to various estimates are expected to fall another 15%-20% again this year. And while digital revenue is on the rise, it is not yet reversing the trend. Sony BMG global digital business president Thomas Hesse says that if physical revenue drops by 15%, digital revenue must rise by 60% to compensate. This year, he expects net revenue to fall.

So what are labels doing other than licensing their music to digital services that they hope will become successful? According to many service providers and industry analysts, the answer is -- nothing.

"There's no plan, no sense of direction," one digital retailer executive says. "They're just hoping somebody is going to figure all this out for them."

To date, that somebody has been Apple -- its iTunes store commands 70% of all digital music sales and the iPod around 80% of all digital music devices. Yet, record labels are the first to point out that Apple can't reverse their falling fortunes on its own. They need more services selling more music to more people. And although labels have tried to support potential competitors to iTunes, such as Microsoft's Zune bid, these services are merely limping along.

There's only one way this would make sense. Stop signing new artists altogether, slim the company right down and live off the residuals. Otherwise, they've got to find some way of dealing with it.