I found this story very interesting. Music retailers are having an increasingly hard time of it:
They’re dropping like flies.
Musicland, the parent company of several music retailing chains, has filed for bankruptcy. Its MediaPlay stores were shuttered last month. Earlier this week, its Sam Goody chain announced the closure of seven CD stores across Colorado and more than 340 similar stores across the nation.
West Coast indie legends such as Rhino Records and Aron’s recently have shut down. In Denver, Cheapo Discs has closed two stores.
Ironically, all this bad news follows reports that music sales in 2005 topped a billion units for the first time. But that figure counts every downloaded song with the same weight as a physical CD sale. So despite the record number of units, music industry revenues and CD sales are down.
But digital downloading of music off the Internet is exploding. In 2005, more than 350 million songs were downloaded, a 150 percent jump over 2004. Digital album sales soared by 194 percent.
Put simply: These are brutal days for many traditional music retailers.
In my view the real promise of Internet commerce has always been the potential to bring producers of goods and services directly into contact with their customers. A mass market without distribution.
It’s been a long time in coming, in my view because most producers don’t see their business model as selling to customers but as selling to middle-men. But in the music business one set of middle-men, the music retailers, are going by the wayside.
The next domino to fall in that industry will be the music publishers. In popular music at any rate the musicians themselves are already paying for production and promotion. So what role is there for the music publishers other than in controlling the path to the distribution network?
As the need for a distribution network vanishes only middle-men who actually provide a service for customers will survive. But that, of course, will mean that they’ll need to work for a living so expect considerable fall-out. And rent-seeking.
Apple is not a middle man? We’ve just traded one wioth brick and mortar for one with disks and modems.
Stay tuned. The day ain’t over yet.
The distribution arrangement that has prevailed in the music industry for quite some time now has been
Artists => Recording companies (e.g. Warner, Sony) => Wholesalers => Retailers
There are some other middlemen (various agents, etc.) in there, too.
Right now we’re seeing the wholesalers and bricks-and-mortar retailers being squeezed out of the system. The various agents and recording companies are doing darned little for what they’re receiving and I expect them to be squeezed out of the system, too, over time.
Note also that download agents like Apple never take possession of anything you can actually hold or touch.—just information. That takes transport companies like UPS out of the mix, too.