David RD Gratton

The Death of DRM and Music CD Sales on Verge of Collapse

January 26, 2007

I have been flooded by phone and the e-mail with people informing me of the impending collapse of music DRM. "David, have you read this news? You're right music DRM is collapsing."

Anyone who has followed my blog or heard me speak - knows for years that I have been stating without hesitation that:
DRM is desperate,
DRM is wrong,
as Doctorow points out DRM will collapse
DRM stands in the way of understanding our music future.

As recent as last fall when I attended the Vancouver Angel Forum, music industry investors were still telling me that no one (meaning industry) will accept a solution that has no DRM as part of the solution. So I walked them through the logic:

  • Have you downloaded music via P2P networks? Yes. (100% of them by the way.)
  • When was the last time you downloaded a song via P2P? Most within the the last week.
  • When was the last time you bought a CD? Don't remember or last month or last year.
  • In the last year have you consumed more free (legal or illegal) music from the Internet or purchased music via CDs or iTunes et al.? More free music.
  • Are present P2P technologies going away or going to be sued out of existence? No.
  • Are present P2P technologies and Internet sites making it easy to download music for free? Yes.
  • Can we therefore conclude that DRM is irrelevant? NO.

NO? When confronted with the facts that they readily accept, they still say "NO!?" There is a word for this: "DELUSION". These people gave me a new appreciation for religious zealots.

Well it's satisfying to see the industry finally accepting that DRM is dead. It is Dead. Whew.

CD Sales to Fall by 30-50% in 12 to 18 month.

Here is another soon to become reality fact. CD Sales are about to collapse in the next 12 - 18 months. I don't mean by 5 or 15% (which is bad enough) they are going to utterly collapse. They are going to get destroyed. There will be a 30-50% collapse in music sales in less than 18 months. No I am not kidding. Go through the logic above and ask 1 more question:

If P2P networks are not going away, and if it is becoming easier and easier to acquire music from the Net. Where is the price of music files going? Up or Down? You know the answer is DOWN. Price pressure is down. Music Prices WILL collapse on average in the next 18 months. iTunes et al. will come nowhere near the sales to make up for the CD shortfall.

The Worst year for hits since 1990. Check out the top 10 albums of 2006. The numbers are abysmal and two of them are compilation albums. Logic tells me that 2007 will have more compilations albums (filtered singles) in the top 10 with even less overall sales to make it to the top 10.

For all intense and purposes, 2007/2008 will mark the end of the Music CD sales as a viable economic model for music distribution and consumption. Music is going to be priced at the margins. What are the margins? The cost of delivery: plain and simple. Let's not keep denying this like we denied DRM's eventual collapse. Let's embrace this reality that will be firmly entrenched in the next 18 months. Only then can we address solutions.

Just as simple logic and common sense predicts the collapse of DRM and music prices, simple logic tells us that music is not going away. There must be economic models that will evolve to sustain a vibrant Music industry. And it is an industry - if you think the answer to music's troubles is simply as an add-on for a movie/TV/ad licenses, or as piped in (water) background noise for your local Starbucks, you too are delusional. Music is an industry worthy of respect and it will transform itself into the trailblazer for the new ditial economy. Film and TV are just starting to feel the pain of a transformation that music has been under for 7 years.

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