Music buyers have stopped buying CDs forcing retailers into drastic action. Fopp, for instance, has closed down all 105 of its High Street stores. At the same time, music giant HMV has seen its profits halve in the past 12 months. At the same time digital music sales have doubled in the past year and “file sharing” is proving immensely popular – and easy. Indeed, only yesterday the music industry pounced on a manufacturing plant where it was thought that a major music piracy scam was taking place.
Yet the demise of CDs appears to have taken the music industry by surprise. It is only in the last couple of years that they even realised they could make money online from selling music. Yet that was an obvious development out of the proposal made by Philips in 1991. It seems as though the music industry had its ears closed to the sounds coming out of the technology world. Now, they are in trouble.
But it’s only the retailers who have big problems. Traditionally most of the money you spent on a CD would actually go to the retailer – at least 50% of the price of a CD went to the retailer. Of the remainder, around 10% went on distribution, 15% on production costs, leaving 25% to be split between the record company and the artistes. The bands actually made most of their money from radio airplay and live gigs, CD sales were not that important in financial terms. For record companies, live concerts, TV and radio plays and all the other licensing deals were important sources of income as well. So for the producers of music, CD sales are not that important.
Retailers, however, seemed to think it was the record producers and artistes who should do something about falling CD sales – yet why should they as it was of little real financial concern to them. Music retailers have had a “head in the sand” or “it’s not our fault” kind of attitude for several years now. That’s why they are suffering; they only have themselves to blame.
It has happened right across a range of industries affected by the Internet. We saw book publishers and bookshops bleating about the “damage” being done by Amazon. We have seen the film industry moan like crazy about online film availability. Well guess what guys, the world has changed. What worked yesterday might not work tomorrow. The problem is that for many industries their systems have worked for decades; they are entrenched in old ways of thinking and cannot adapt to the new world opened up by the Internet. Yet, the online world changes rapidly and the audience moves quickly. If you have any kind of business and your online systems do not adapt and change at the same pace as the Internet does, you will lose out. In the coming years we will see online retailers complaining and suffering in the same way as CD stores now. These online businesses will not have adapted to the new ways of shopping and will suffer as a result. If you want to succeed online you must stay at the cutting edge. And unlike record retailers you must not allow developments made 16 years ago to sit unnoticed before you act.