Recorded music - Who benefits from digital?

July 1, 2008 — Over the last decade the media industry has seen the “digital boom” that affected consumers, artists and record companies and ultimately transformed the economics of the industry as a whole. Specialists from PricewaterhouseCoopers prepared an insight of media industry “Recorded Music — Who benefits from digital? ” and reviewed economic changes that took place due to the development of recorded music new technologies.

The study notes that for past years of technological progress in the media sector many record-labels experienced considerable financial losses. Contrary to well-accepted opinion, the music consumption level continues to grow. Digital technologies opened new opportunities for music records distribution. Music addicts now has no limitations either in time or space.

According to PricewaterhouseCoopers’ specialists, the music consumption growth has not stimulated the sales level, moreover, it breaches the previously existed “replacement cycle” of physical carriers. The possibility of side-loading of vast CD collections onto computers for transferring onto digital MP3 players or another higher quality digital format means that with the development of digital technologies the “replacement cycle” was completely disrupted.

Prior to this “digital revolution” music majors held certain powers, selecting and promoting artists and exercising immense influence over what became popular. Similarly, in retails certain policies set by merchandising and retail also strongly influenced which products were available for purchase.

Currently record companies suffer losses through a high level of piracy and a wide range of music resources in the Internet. Digital distribution of music is more profitable than physical distribution as a result of lower retailing and manufacturing costs. However, revenues of online distributors have recently declined significantly as the music consumers prefer to purchase certain singles instead of the whole album.

Despite the fact that some experts predict the decline in media industry, new players appear in the market, among which are online portals, mobile operators, independent labels, as well as online radio. Resources representing a diversity of music for mobile phones generate half of profits of the global digital music market.

The study done by PricewaterhouseCoopers mentions those for whom the development of digital technologies is profitable, in the first place, they are:

• consumers: retailers have greatly reduced the price of CDs, while online resources offer more informed range of products by prices lower than for physical products;
• artists benefitting from the growth and range of new distribution channels for both recorded and live performances.

1. Digital music production and sale process development has changed the traditional structure of media industry.
2. The appearance of the digital format has drastically changed the approach to the consumption of music records that affected the cost of products and the profitability of music companies.
3. It is not enough for large record companies to use such traditional marketing tools as TV and radio to maintain the stable profit. Under new market conditions they need to perform a wider range of activities.
4. For adequate existence in prevailing conditions of competitive environment major market players need to use new business models unaffected by music sales levels on physical carriers, for instance:
   • licensing of artists’ tours together with promoters;
   • use of new music distribution channels: mobile phones, portable devices and online record players.
5. Specialists predict the growth of music products consumption through Internet and mobile communications by 2012 when global revenues from digital music sales will amount to USD15–35 billion.
6. In the near future the formation of less profitable but more flexible industry focused on obtaining additional benefits in new market conditions is expected.

1. For additional information and comments please contact Vera Totskaya, PR Senior Manager, or Anna Kogossova, PR Assistant Manager.
2. Download a copy of the Review of media industry “Recorded Music — Who benefits from digital?”, prepared by PricewaterhouseCoopers in 2008, and its audit version.