Tuesday, July 17, 2007

The Product Life Cycle of the Music Industry

Despite my comments earlier about the viability of a community built around data, I have been playing a bit on Swivel and discovered some fun stuff (although my original position hasn't changed).

This is a graph I came across on the Blogged links on the Swivel home page. Schiing had a good post on how this graph looks very similar to the Product Life Cycle (PLC) in economics - and it does!

U.S. Music Sales, 1975-2005: Vinyl, cassettes, and CDs

Of course, the data is not complete without the rise of digital downloading - but those figures are hard to come by given the recent rocky history of widespread litigation by the music industry (someone tried to do a graph of ipod sales versus the above, but that's not really a good comparison - ipod demand does not equal 'song' demand, it's very different to buying a CD).

The real question is, when looking at this data, why did the music czars decide to litigate against the emerging technology? Obviously they got scared. And with good reason. The progression from vinyl to cassettes and cassettes to CDs involved a similar economic model. With digital downloads, not only did the marginal cost of production fall incredibly fast, the means of distribution became frictionless - yeah, you could copy a CD and give it to some friends, but a digital song on a peer-to-peer network is accessible to thousands/millions of people, at NO cost!

I guess the point I am trying to make is that if you added digital downloads to the above graph and just looked at the data, it would seem business as usual - digital songs are the natural progression, record companies should embrace them and move on. When in actual fact, the digital age represents a seismic shift in the business model - something the nice smooth graph of CD sales decline and digital growth is not going to tell you.

In fact, given what we know about the change in the demand and supply mechanics, I'd argue that the historical, perfect PLC curves in this industry are meaningless to its future. And that we can learn almost nothing from the historical data in this graph that is applicable to the future of it.

It's a good example of data not telling the whole story. And that in the absence of knowledge about the mechanics of the process, you could come to very wrong conclusions. Something that has plagued the Global Warming debate for years.

PS: yes, I do believe in global warming.

PPS: This argument is getting updated in recent posts regarding FREE - the new business reality of the music industry and other digital (and non-digital) products.

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Max Babi said...

Good crisp writing Paul.
You are absolutely right about the scare that caused the mogul knee jerk reaction. I see a different scenario when jazz has percolated free down to the most humble user of a computer in deep Africa or China... music revival will happen and selling CDs may not be the only option, you are right.
I too believe in global warming.
We are behaving like lemmings.
Keep writing...

Paul Soldera said...

Thanks for the kind words Max. Appreciate it.

Katie said...

I love the graph! It really illustrates the PLC's for those three.


I saw a BBC documentary on global dimming (which explains the contraindicative stats about global warming). So, it turns out that the global warming problem may be worse than we thought!

Scary world...