Legal Downloads Fail To Save Music Industry As Annual iTunes Downloads Dip To Only 15 Tracks Per IPod

Yesterday P2P Grokster shut it’s doors as part of the settlement after loosing their Supreme Court battle.  But their software and more importantly free P2P file sharing lives on with online trading levels even or trending slightly upward depending on who you listen to.

Some in the music industry have hoped that the growing popularity of the iPod, iTunes and other download music devices and services would help stem this tide which is washing red ink across the major label landscape.  But a careful look at the figures show cause for less optimism.

In America annual downloads per iPod dropped from a mere 25 per player to a dismal 15 in the last year Fulcrum Global Partners said in an October report. Most iPods are being filled with CD’s ripped from the owners collection or shared with friends. Global CD sales fell 6.7 percent to $12.4 billion in the first half of 2005, according to the UK based IFPI (International Federation of the Phonographic Industry). Or to look at it another way, according to Nielson Soundscan, U.S. consumers downloaded only 11.3 million albums this year through mid-October out of 436.1 million albums sold.

"There’s been a lot of download activity from what’s known as the early adopters,” Russ Crupnick, a music industry analyst at New York-based market-research firm NPD Group told Bloomberg.com recently.  "The challenge is: how do you maintain this? The industry has to do a stronger job of reaching out to more mainstream consumers.” He added that downloads may get a boost from Christmas sales of iPods, as occurred last year. (Read the full Bloomberg article here.)

Unless the major labels face up to the current realities of the marketplace they seem doomed to extinction. 

No one can predict the future, but embracing  rather than fighting the rushing tide may keep some major lables from going under.  The music industry must embrace P2P and try to monetize it via affordable subscriptions or cheap variable pricing.  They should force variable pricing at iTunes and all of the download services perhaps with hit product costing a bit more, but older product should cost much less.  Why not encourage the subscription services like Yahoo!Music Unlimited and music recommendation schemes like Passalong. 

Start thinking like the DVD producers and lower prices on physical CD’s (particularly on new artists) to $10 while also offering value-added content via CD Plus, a bonus DVD or "a free with purchase" download that includes lyrics, liner notes "making of" videos and other content so that consumers feel they are getting something for their money. Can you remember turning an album cover and insert over and over again reading every word while you listen to a new record.  How much have marketers and musicians lost by falling to provide that connection from artist to fan – even if it’s done digitally? 

And what about making going to the music store a positive and worthwhile experience again? Visit an Amoeba Records store or Newbury Comics and you feel part of a private club of music lovers. Visit a Tower Records or even worse a Best Buy or mall store like Warehouse and your likely to come away annoyed and frustrated. 

And why doesn’t the music industry finally embrace the only people who still willingly buy CD’s – adults?  Adults have more money than time to spend chasing free downloads, but the music industry treats them like an afterthought.

Lawsuits and invasive encryption technologies alienate your core customer base and drives them further underground.  And now we know that downloads won’t save you anytime soon.