After more than a decade of online piracy, record-store closings, major-label layoffs and superstar artists abruptly turning independent, the record industry may have finally hit bottom this summer. At the end of July, U.S. albums sold just 4.68 million copies, the lowest weekly total since Nielsen SoundScan began keeping track in 1991, and for the first time ever, labels sold fewer than 5 million albums in each of five straight weeks. The dismal sales strongly suggest growing streaming services such as Spotify, Pandora and YouTube have begun to cut into CDs and download sales. "We're in a transition," says Daniel Glass, president of Glassnote Records, home of Mumford & Sons, Phoenix and others. "Streaming is up. The economic model is not there today, but it will be there."
Some in the music business have blamed the poor recent sales on factors outside of Spotify and other streaming services, with which they've made multimillion-dollar content deals in recent years. These factors include low catalog sales, a reluctance to price more titles at $5 or lower and a lack of hot new albums this summer. ("Blaming the release schedule is like blaming the weather," rebuts Carl Mello, a senior buyer for New England music chain Newbury Comics. "There are always records connecting. There are always songs of the summer.") But Jim Caparro, former president of Island Def Jam Records, is one of many who believe streaming services are cannibalizing digital sales via iTunes, Amazon and other online stores. "The idea of unlimited access to everything for one fee a month is a very attractive proposition, and the subscription services are doing a good job," he says. "The record companies have to re-engineer themselves [around subscription services] to continue to be relevant and profitable."
It's perhaps no coincidence that the downbeat record-business news comes in the same summer that rock stars have ripped on Spotify and Pandora for not providing enough compensation. Last month, Radiohead's Thom Yorke and producer Nigel Godrich pulled their Atoms for Peace album Amok from Spotify, citing unfairly low revenues. "If people had been listening to Spotify instead of buying records in 1973, I doubt very much if [Pink Floyd's] Dark Side [of the Moon] would have been made," Godrich said. "It would just be too expensive." A Spotify executive, however, predicted artists and label payments would grow from $500 million to $1 billion by the end of 2013.
The record industry has been struggling to "compete with free" since the late Nineties, when Napster emerged to show music fans a different way to consumer music than buying it on expensive CDs. Spotify's free-with-ads and $10-monthly-premium models show one method of doing this; super-cheap Amazon deals such as the recent one-day, 99-cent sale of Katy Perry's Teenage Dream album show another; and Jay Z's Magna Carta . . . Holy Grail giveaway for Samsung smartphone customers last month point to a new model for superstar artists.
"I'm from the school of embracing the technology to find that wider audience," says Glass, whose band, Mumford & Sons, streamed 8 million copies of Babel and sold 600,000 copies in its first week last fall. "Our business is up. Ticket sales are great. Our groups are thriving. We can't afford to have a dying model."