Business Models, Recessions, & Digital Piracy

28 05 2010

Yesterday, I attended the quarterly comScore State of the U.S. Online Retail Economy webinar for Q1 2010.  First the good news, after a poor 2009 the online retail business in the U.S. is rebounding nicely.

  • Q1 online U.S. retail sales were up 10% Y/Y in the first quarter.
  • This was a nice recovery from negative 2% for the full year in 2009.
  • It’s also worth noting that while online retail declined in 2009, the decline percentage was less than the overall decline in retail.

Compared to the same quarter a year ago all but two segments of the 14 online retail segments comScore covered were showing strong  or moderate growth.  The two segments that actually declined were:

  • Event tickets
  • Computer software

Clearly, these two segments are suffering from more than just the normal effects of the economic cycle.  Both of these segments also are dealing with the issue of digital piracy.  Let’s take a look at Live Events.

It’s no secret that the sales of music CDs have been declining for several years.

Recorded music sales

Source: Enders Analysis

The increase in digital sales has not offset the loss in physical sales.  In the music business, artists have been fighting back by employing new business models to offset the loss of revenue in recorded CDs.  See NYT article.

  • First, they increased ticket prices at live events.  In 1996 the average price of a Top 100 tour ticket was $26.  Today it is $63, up 140%
  • Some of this increase is straight ticket price increases.
  • Much more of this increase is due to VIP packages where fans pay more for premium seats, band collectables, and even band member access.

For a time, this approach worked.  During 2009, while revenues were down in most industries and very negative in recorded music, the live music industry actually managed to eke out a slight revenue increase.  It looks like this will not be the case in 2010. In addition to the comScore numbers we are seeing signs of weakness in other areas.  See NYT article.

  • U2 is delaying their summer tour.  They have a good excuse – Bono is recovering from back surgery.
  • Cristina Aguilers has put off 20 shows, claiming “a busy schedule.”
  • Rolling Stone reports weak sales for Tom Petty, and Lilith, Rihanna.
  • The Eagles, traditionally a big draw, have had to cancel some dates.
  • Several other sources tell of cancelled shows and re-jiggered schedules.

The net of all this is that the new business models being employed by artists seem to be coming into conflict with the realities of the current recession and levels of unemployment in the U.S.  No matter how much fans want to attend these live events, they just can’t afford it.

The revenue damage will not be limited to the music business.  Similar things are happening in the other category that declined in Q1, computer software.  The next business to be hit will be Book Publishing.  Now that book content is available as bits over the Internet, they will be subject to exactly the same economic and cultural forces that are driving down revenue for music and software.  People in the book publishing industry had better be looking hard at new business models to offset the inevitable revenue declines to come.

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17 02 2011
17 02 2011
Digital Piracy « All communication will be posted under CONTACT

[…] Yesterday, I attended the quarterly comScore State of the U.S. Online Retail Economy webinar for Q1 2010.  First the good news, after a poor 2009 the online retail business in the U.S. is rebounding nicely. Q1 online U.S. retail sales were up 10% Y/Y in the first quarter. This was a nice recovery from negative 2% for the full year in 2009. It’s also worth noting that while online retail declined in 2009, the decline percentage was less than the o … Read More […]

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