Declining Record Sales: Who Is to Blame?

The music recording industry is in trouble. For several years now, sales of new and popular music have steadily declined and show no sign of changing. The record companies are quick to blame the growing popularity of the Internet; music is being traded in a digital form online, often anonymously, with the use of file-sharing programs such as Morpheus, KaZaA, and Imesh, to name a few. The RIAA (Recording Industry Association of America) succeeded in disbanding the pioneer Internet file-sharing program, Napster, but is facing confrontation with similar programs that are escaping American copyright laws. While there is an obvious connection between declining popular music sales and increasing file sharing, there is more going on than the RIAA wants to admit. I will show that the recording companies are overpricing their products, and not sufficiently using the Internet as an opportunity to market and sell their products. I shall begin by describing in greater detail the problem that the recording companies are facing, as well as the growing epidemic of online music trading. From there, I will show the correlation between the two and describe the other factors affecting record sales, and how these trends could be turned around to help the industry.

"The Record Industry is in trouble," says Jann S. Wenner in an editorial appearing in a recent issue of Rolling Stone Magazine. "Album sales are now down almost 20% from two years ago, and the record business is facing the biggest retail slide since the Great Depression" (Wenner). People are buying less and less products released by the recording companies. "Nobody doubts that the music business is in trouble. Last year, global sales of CDs were down by 5% from 2000, the first fall since the format was launched" (NAPSTER R.I.P). The Nielsen SoundScan, used to report final sales to consumers, revealed some of its figures in a September 2002 issue of Billboard Magazine. "Nielsen SoundScan reports that overall music sales compared with the year before were off by 12.6%...while album sales were off by 9.8%. Total first-half units sold fell to 317.7 million units from 363.4 million; the number of albums sold slipped to 311.1 million units from 344.8 million - an 8.1% drop" (Garrity). Even the number of albums that become hits is decreasing. "At mid-year 2001, 37 titles had sold more than 1 million units each; halfway through this year, only 21 titles had sold that many, according to Nielsen SoundScan" (Garrity). Even sales figures for singles are down. "Sales are off by 63.9%...6.7 million units were sold in the first six months of 2002 vs. 18.6 million unites in the same period in 2001" (Garrity).

Not only are the companies themselves facing hard times, but the retail stores that sell music are also suffering their own losses. "Musicland Stores, the largest music retailer in the U.S. continues to report losses and declining sales...For the third quarter, the Minnetonka, Minn.-based company reports a new loss of $16.1 million, compared with a loss last year of $144.6 million" (Jeffrey). The company was even forced to close some of its stores. "At quarter's end, Musicland operated 1476 stores...During the quarter, the company closed the following: Nine Sam Goody/Musiclands, two Media plays, one On Cud, and on U.K. store" (Jeffrey). This problem hits home in Vermillion, South Dakota, where the local On Cue store, the only place to buy entertainment products like CDs and audiocassettes, was forced to close because of insufficient revenues. Inhabitants of Vermillion are now forced to travel anywhere from 30 to 60 miles away to purchase music offline. While this town obviously reflects a very small percentage of consumers, the lack of immediately available music products certainly will not help the declining record sales.

The stocks of music retailing companies are also falling. "Publicly owned music-retail chains have lost about $800 million in share-holder value over the past few years, as continuing price ward have caused investors to flee these stocks and drive down their value" (Jeffrey). This has had a much larger impact on retails than one may think. "Big discount chains like Wal-Mart and K-Mart have seen their stocks tumble or remain stagnant in recent years, while others, like Bradlees have filed for bankruptcy protection" (Jeffrey).

A recent article in Rolling Stone reviews the year 2002 in terms of the music business. "At the close of a dismal year for the music industry, sales were down thirteen percent, layoffs and roster cuts were imminent at many labels, and major record-store chains were struggling to survive" (Eliscu, 2002's Music, 11). The following graph from that article illustrates the difference in top selling albums of recent years.

2000 Top Selling Albums 2002 Top Selling Albums

'Nsync - No Strings Attached

9.9 million Eminem - The Eminem Show

7.4 million

Eminem - The Marshall Mathers LP

7.9 million Nelly - Nellyville

4.8 million

Britney Spears - Oops!...I Did it Again

7.9 million Avril Lavigne - Let Go

3.9 million

Creed - Human Clay

6.6 million Dixie Chicks - Home

3.4 million

The difference is evident. At the number one spot, Eminem sold 2 million less copies in 2002 than 'Nsync did in the same slot only two years earlier. Eminem's top selling album in 2002 was outsold by the top three selling albums of 2000, and the difference between the number one and the number two selling albums in 2002 is nearly 3 million, compared to 2000's top two spread of two million. This chart also exhibits an artist's staying power. Eminem is the only artist within the top four for both years shown. This illustrates how inconsistent the market is at creating good albums that consumers are willing to buy.

Why is the recording industry facing such hardships? The RIAA is quick to point its finger at the growing popularity of Internet file sharing.

What kind of music would people share online? Music enthusiasts would typically share CDs that were recently