CD's Going the Way of Book-Books?

If you substitute "books" for "CDs" in Ben Sisario's New York Times article Music Sales Fell in 2008, but Climbed on the Web, you'll see parallels both encouraging and disheartening, depending whether you're in the print books business (which I am) or the e-book business (which I am).

Though total sales of CD's in the year gone by were high - 361 million - they were down almost 20 percent from 2007. Adding full-album downloads to the charts raises the total to 428 million, but that too represents a 14% decline over the previous year. No matter how you cut it, the arrow pointed down in the year gone by. You can mark some of it down to the economic recession, but when you look at the arrow for sales of digital music, you know it's not "the economy, Stupid." Proof is that for the last eight years, when the economy was relatively strong until recently, album sales have been dropping. Between 2000 and 2008, they plummeted by 45%.

On the other hand, in 2008 more than one billion songs were downloaded, a 27 percent increase from 2007, according to Nielsen SoundScan. Five years ago, that figure was 19 million.

If you look at the bar graphs for the e-book business, you see the same dramatic growth. Though stats for all of 2008 aren't in yet, as of the end of the third quarter e-book revenue was up 57.7% over the same period the year before. Whether it's books or music, the plain truth is that retailers don't feel they can generate the same level of sales per square foot of store space (which is how most businesses calculate the profitability of any given product).

But now let's shift from plain truth to one that is emerging from dust at the crossroads where the hard-copy and digital businesses intersect, and that is the profitability of content purchased on web sites.

One reason that the traditional book and record companies cling to their hard-copy model, in the face of all the evidence that consumers are going in another direction, is that the digital model has not proven it can generate revenue on the same scale as the Old Way. Online advertising, secondary exploitation of content, and other revenue-producers have yet to step up to replace the same functions in world of tangible goods. One of the big causes is the Informaton Wants to Be Free mindset among online consumers, a gaping hole at the ship's water line that has not yet been sealed. To executives watching the stupdendous paradigm shift in the media, Free Downloader is just one four-letter word away from Freeloader.

According to the Times's Sisario, however, there is hope. Some record companies, he reports. "...say they are finally beginning to wring significant profits from music on Web sites like YouTube and MySpace." “As the digital side grows," he quotes a market research analyst, "you get a different business model, with more revenue streams.” Sisario cites videos and ring tones as kinds of revenues flowing into those streams. “We don’t focus anymore on total album sales or the sale of any one particular product as the metric of revenue or success,” says an executive VP for Universal Music Group's digital division. “We look at the total consolidated revenue from dozens of revenue lines behind a given artist or project, which include digital sales, the physical business, mobile sales and licensing income.”

Is there a concommitant revenue stream to be exploited by book, newspaper and magazine publishers looking for a bridge to the New World of Digital? I don't know what the book equivalents of ring tones and videos are, but it's imperative that publishers find them and find them fast.
RC