What Effect Does the MP3 Player Have on the Music Industry?by Ed Oswald
When the MP3 format exploded in popularity in the late 1990s, the traditional music industry was reluctant to go digital, fearing that piracy would cut into revenues. Consumers' buying habits forced the record industry to change, as MP3 players and smartphones became the primary way to discover and acquire music.
Physical vs. Digital Media
The MP3 player has sped the decline of physical media such as store-bought records and CDs. Consumers now purchase their music digitally so they can listen to them on their computers and MP3 players. Since 2011, revenue from sale of digital music has surpassed that from sales of CDs and other physical media. This is not bad news for the industry as distribution costs for digital music tracks are far less, making the venture much more profitable, and the surge in digital music purchases is allowing the industry as a whole to grow again.
While the tradition of trading music has existed since the days of vinyl and cassette tapes, digital music made piracy much more convenient and anonymous than it had previously been. File-sharing networks allow Internet users to trade digital music quite easily with anybody in the world. It is completely legal to make an MP3 copy of a CD that you own, but it is not legal to share those files with others. The Record Industry Association of America claims that piracy costs the industry millions per year.
When music was only available on physical media like records, cassettes and CDs, there was a bigger focus on the album versus the individual song. Digital music sales are more singles-based, and consumers can pick and choose what songs they like without having to purchase the entire album. Thus, sales revenue in digital music singles is a much bigger percentage of overall digital music sales when compared to sales of singles on physical media.
Previous to the advent of digital music, music subscription services like BMG and Columbia House allowed music listeners to purchase music they liked by giving consumers the opportunity to buy several CDs at a discount, then agree to buy a set number of albums over a period of time at full price. This business model peaked in the mid-1990s, with subscription services accounting for over 15 percent of all CD sales. Today, the spiritual successors to such subscription services are online services like Spotify, Slacker Radio and Rhapsody. Instead of a gimmick to get you to purchase early on, these sites provide access to their entire music catalog at a set monthly price.
- IFPI: Digital Music Report 2012
- RIAA: What is Online Piracy?
- Billboard: Album Sales Down in 2012, But Digital Shows a Healthy Boost
- Nielsen: The Nielsen Company & Billboard’s 2011 Music Industry
- Seeking Alpha: Will Music Sales Be Profitable for Record Companies in Ten Years?
- NYTimes.com: Music Industry Sales Rise, and Digital Revenue Gets the Credit
- Funding Universe: Columbia House Company History