Stick a fork in it?

Ann Midgette of the Washington Post writes about the current state of the classical CD business. It’s not good:

The dirty secret of the Billboard classical charts is that album sales figures are so low, the charts are almost meaningless. Sales of 200 or 300 units are enough to land an album in the top 10. Hahn’s No. 1 recording, after the sales spike resulting from her appearance on Conan, bolstered by blogs and press, sold 1,000 copies.

It’s not exactly news that album sales in all genres have been declining for years. Nor is it news that classical recordings are not top sellers. “The classical charts have always been looked at as in the 3-percenter club,” says Alex Miller, general manager of Sony Masterworks. “Three percent of total music sales are in classical music.”

The idea that the classical recording industry is on the rocks, a suggestion raised from time to time in part because of strikingly low sales figures, is generally countered by the assertion that there are more classical recordings available than ever before. And that might be the reason so few of them are selling well.

SoundScan, the company that provides sales data to Billboard, says it cannot officially release exact sales figures to journalists. Instead, all numbers are rounded to the nearest 1,000, so sales of 501 copies are reported as 1,000, and anything less than 500 is “under 1,000.” On last week’s traditional classical chart, only the top two recordings managed to sell “1,000” copies. Every other recording (including, in its second week, Hahn’s) sold “under 1,000.” The official total sales of the top 25 titles amounted to 5,000 copies, an average of 200 units a recording (sorry, “under 1,000”). And yes, that includes downloads…

If classical music can’t make money, it can’t stay alive. And it’s notable that recordings appear to do worse than concert ticket sales. If everyone who attended the National Symphony Orchestra on a given night bought a copy of the same album, that album would leap to the top of the classical charts every week.
Are the low sales figures a sign of the field’s decline or that the charts are outdated?

Probably neither. Publicly-available information on recording sales is hard to obtain, but there are two other recent data points worth noting. One is from CNN:

Total revenue from U.S. music sales and licensing plunged to $6.3 billion in 2009, according to Forrester Research. In 1999, that revenue figure topped $14.6 billion.

Although the Recording Industry Association of America will report its official figures in the early spring, the trend has been very clear: RIAA has reported declining revenue in nine of the past 10 years, with album sales falling an average of 8% each year. Last decade was the first ever in which sales were lower going out than coming in.

“There have been a lot of changes over the past 10 years,” said Joshua Friedlander, vice president of research at RIAA. “The industry is adapting to consumer’s demands of how they listen to music, when and where, and we’ve had some growing pains in terms of monetizing those changes.”

The two recessions during the decade certainly didn’t help music sales. It’s also a bit unfair to compare the 2000s with the 1990s, since the ’90s enjoyed an unnatural sales boost when consumers replaced their cassette tapes and vinyl records en masse with CDs.

But industry insiders and experts argue that the main culprit for the industry’s massive decline was the growing popularity of digital music.

“The digital music business has been a war of attrition that nobody seems to be winning,” said David Goldberg, the former head of Yahoo music. “The CD is still disappearing, and nothing is replacing it in entirety as a revenue generator.”

And why is that?

The battle for paying digital customers may have been lost before it had truly begun. In 1999, Napster, a free online file-sharing service, made its debut. Not only did Napster help change the way most people got music, it also lowered the price point from $14 for a CD to free.

Apple’s (AAPL, Fortune 500) iTunes is credited with finally getting people to pay for digital music, but it wasn’t unveiled until 2003.

In the time between Napster’s shuttering and iTunes’ debut, many of Napster’s 60 million users found other online file sharing techniques to get music for free. Even after iTunes got people buying music tracks for just 99 cents, it wasn’t as attractive as free.

“That four-year lag is where the music industry lost the battle,” said Sonal Gandhi, music analyst with Forrester Research. “They lost an opportunity to take consumers’ new behavior and really monetize it in a way that nipped the free music expectation in the bud.”

Now just 44% of U.S. Internet users and 64% of Americans who buy digital music think that that music is worth paying for, according to Forrester. The volume of unauthorized downloads continues to represent about 90% of the market, according to online download tracker BigChampagne Media Measurement.

But then there’s this:

The Chinese musician Lang Lang, 27, has signed for Sony Classical for $3 million, an executive familiar with the move at his old label Deutsche Grammophon told me. A Sony spokeswoman in London said that the company wouldn’t comment.

That’s a lot of money to spend if Sony didn’t think his recordings weren’t going to be profitable.

So what’s going on? I don’t think it’s simple. It’s certainly not been rigorously analyzed by anyone. So I (along with everyone else) am guessing. But here are my guesses.

1. Bits trump plastic. I’ve been saying this would happen for a long time; since the late 90s, in fact. Once Internet delivery of electronic media product became fast enough for enough people, CDs would be dead. CDs are simply too expensive to make, too hard to distribute, and too cumbersome to inventory by comparison with digital files, which cost virtually nothing to transfer to consumers and only have to be stored in one location as one file to be available to every person on the planet with an Internet connection.

2. Everyone can be their own record company. The history of the recording industry is one of gatekeepers minding increasingly irrelevant gates. Once upon a time the capacity to manufacture the physical recordings was very expensive. It was the same era during which recordings could only be sold through record stores, most of which (prior to the founding of Tower Records in California) were very small, with very limited shelf space.

As a consequence, the record companies controlled the business. They owned (or were able to provide full employment for) phonograph manufacturers. They controlled the market for middlemen. And they provided more than enough name-brand product for the retail outlets, who were then disinclined to give precious shelf-space to anything other than the products of the major record companies.

Compare that with now. All an artist has to do now to sell recordings is to make recordings and set up a website. No manufacturing costs, no middlemen, no record stores with limited shelf space.

So there’s lots and lots of new product on the market. That certainly could go some ways towards explaining why any particular new recording isn’t likely to sell well. But it doesn’t explain the rest.

To be continued...