Declining consumer spend on physical music has forced the demise of many traditional bricks and mortar record stores. For the music industry, question marks remain about how, and even whether, the revenue generated by digital music can offset this loss. Rather than fighting this, the music industry first needs to ensure that the remaining retail consumers don’t drop out of its customer base altogether.

High street closures

The first album I bought was Happy Nation by Ace of Base. Yeah, I know. The format I bought it on – cassette – hasn’t aged any better than their distinctive (and, some would argue, inimitable…) brand of Swedish pop-reggae. And now, it looks like the record shop I purchased it from might be taking a similar slide into the field of “ha, remember them?” obscurity.

HMV currently enjoys a relative monopoly on UK high streets, though it can claim little responsibility for the factors that have accounted for all its key competitors in recent years. Furthermore, with store closures of their own announced at the turn of the year [1], they seem more likely to succumb to the current marketplace than profit by it.

Indeed, it’s hard to say who’s had it tougher over the last few years, high street retailers or the music industry, so it should come as no surprise that so few of those involved in both categories remain standing. For the latter (in the short-term at least), ensuring that the revenues previously provided by the former are replaced by other channels will be paramount. While these revenues may be significantly less than at the turn of the century, when the hugely profitable CD was in its heyday [2], they remain a significant prop for an industry still struggling to transition to a digital economy.

What the future holds

Research conducted by GfK NOP suggests that around a third (34%) of UK adults have purchased music from high street shops within the last three months [3]. While we can assume the Christmas period will have inflated these figures, and taking into account the fact that the majority (66%) of these purchasers spent less than £25 in total, this still constitutes significant revenue.

So, let’s imagine this revenue dried up tomorrow. If the drawn out demise of music retailing on UK high streets came to a more abrupt end, and its remaining customers had to shop elsewhere for their music, how much of that revenue is likely to stay in the industry?

The good news: less than one in ten (8%) anticipate they would spend nothing.

The bad news: for those who anticipate continuing to spend, revenue will be lost as part of their transition to other channels.

It’s important to bear in mind that few of these consumers are single-channel (just 19% of them only purchase via high street stores). While these consumers may still have some trepidation about switching to alternative channels, the remainder are likely to be well versed in the multitude of ways to access music. Unfortunately for the industry, our data indicates that very few of these multi-channel consumers would expect to increase their spend on these alternative channels if the high street became unavailable. Certainly not enough to offset the initial drop in revenue.

Furthermore, with supermarkets becoming an increasingly important sales channel, and therefore able to demand increasingly favourable trading conditions for themselves [4], it’s fair to assume many of these consumers won’t switch to digital-only consumption overnight. The alternative, taking advantage of the better prices available to them while doing their weekly shop, can only further devalue music. Not good news for the longer-term future of physical or digital formats.

Conclusion

The pattern of decreased spend (but not necessarily decreased consumption) is a familiar one for the industry. As consumers continue to move from traditional to digital channels, whether through iTunes or Spotify (who recently hit one million paying subscribers [5]), decreasing revenue seems almost inevitable.

In this context, the majority of high street music consumers telling us they expect to continue spending on music should offer some encouragement, even if the amount they’re willing to spend does not. The priority for record companies, at least in the short term, should be ensuring they’re able to do so easily and in whichever way best suits their needs (such as full catalogue availability for the aforementioned Spotify). Revenue aside, in the current climate further decline of the customer base simply isn’t an option.

Footnotes:

[1] http://www.bbc.co.uk/news/business-12117510

[2] http://www.thefuturesagency.com/post/3444202056/chart-of-the-day-the-death-of-the-music-industry

[3] Online research was conducted by GfK NOP among a sample of internet users in the UK (960). Fieldwork was conducted during February 2011

[4] http://www.ft.com/cms/s/0/616759dc-4831-11e0-b323-00144feab49a.html#axzz1GHSPlFj8

[5] http://www.guardian.co.uk/technology/2011/mar/08/spotify-hits-1-million-paying-subscribers

Related posts:

1. Music Downloading: Is The Law The Answer to Music Piracy?

Tags: Digital, Digital Music, Downloads, Music, Piracy, Record Labels, Retailers, Revenue, Streaming