Gloomy Forecast For Music Business
November 8, 2007 at 5:47 AM (PT)
WALL STREET is taking record labels to task for lackluster Web sales, spiraling CD revenue, and the defections of marquee acts such as MADONNA and RADIOHEAD, reports CNET NEWS. Two analysts downgraded WARNER MUSIC GROUP last week, leading to a sharp drop in the company's stock price. One of the analysts, RICHARD GREENFIELD of PALI RESEARCH, penned a gloomy report about why he thinks the sector is headed for even greater losses.
"No matter how many people the RIAA sues, no matter how many times music executives point to the growth of digital music, we believe an increasing majority of worldwide consumers simply view recorded music as free," GREENFIELD wrote.
Proof of this was provided last month by RADIOHEAD fans. The group offered the digital version of "In Rainbows," the band's latest album, for whatever fans wanted to pay. According to research firm COMSCORE, which conducted a study of the groundbreaking promotion, 62% of those who downloaded the album paid nothing.
The main cause for concern continues to be spiraling CD sales. Download revenues are growing -- but not fast enough to ease the pain. GREENFIELD expects CD revenue to drop 22% in the fourth quarter of 2007. He said retailers such as WAL-MART, TARGET and BEST BUY are rapidly reducing the floor space dedicated to discs.
How vulnerable is the music industry?
Consider that the sector generated revenues of $14.3 billion in 2000, according to the RIAA. This year, it's expected to report revenue of $10.3 billion. Had sales growth only kept pace with the U.S. economy, it now would be worth $17 billion, GREENFIELD wrote.