Revisiting Some Conventional Wisdom [4:16 pm]
IN MUSIC, HARDWARE RULES In 2007, album sales fell 15.3 percent, compared with 2006, itself a slow year. Even if sales of 10 singles are counted as one album, sales were still down 9.5 percent.
Economists hadn’t known whether digitization would help or hurt music markets; many thought that greater exposure to music and the ease of online access might lead people to buy more. But in 2007 the outcome became clear: people tend to buy their favorite song from an album, online, rather than buy the whole album. More digital singles are being sold, but that doesn’t mean higher profits for the artists or the music companies. There are lower prices for music (99 cents a song on iTunes) and more of the profits are captured by the makers of hardware, most of all Apple with its iPod.
When it comes to piracy, illegal file-sharing on computer networks is not the main problem; instead, computer users, especially teenagers, burn CDs for one another. The music companies don’t have a good business model for making money from this.
Music company profits may not recover until other hardware manufacturers compete more successfully with Apple, which is selling songs very cheaply, knowing that the music will fuel demand for iPods. A more competitive hardware market would mean lower prices for the music players and eventually higher prices for music, as Apple would be less keen to sell the music so cheaply.