"The latest CD sales numbers are part of an increasingly bleak picture, with the first half of 2005 likely to be a big disappointment. Disc sales have been declining for years, that is nothing new, but now it appears that the bottom could be a long ways away. A quick and dirty analysis points to a format transition, with music consumers gradually moving away from the physical (CDs) towards the digital (downloads, subscription services, etc.) That is how disruptive market shifts work. But somehow, the reality is a bit more complicated. After all, the U.S. market is still estimated to be more than a $10 billion business, and people are still buying CDs from artists they love. Most of these consumers have easy access to free or paid downloads, subscription services, and other options like satellite radio. Perhaps it is in our consumer genes, the need to touch and own something tangible in exchange for our hard earned dollars. Whatever it is, the CD market has not been decimated, and it is not going away tomorrow.

But CD sales are only one part of a much larger picture. Sure, tremendous attention is paid to declining major labels, RIAA lawsuits, suffering retail chains, and lackluster IPOs. But that is all part of the record business, with the music business a much larger entity. Smart artists today think beyond the CD, incorporating merchandising, touring, publishing and sponsorships into a more well-rounded picture. Those other aspects of the business are not in a downward spiral, with customers often spending more than $150 in one evening for a concert ticket, parking, and a t-shirt or two. And no one has to ask those consumers twice – they are ready and willing to spend big bucks for the artists they love.

That larger picture has never been one that major labels have been able to capture. The story is a familiar one: artist signs with label, label invests and makes artist popular, artist reaps benefits of ancillary revenues without the label getting a cut. That is a scenario that has been repeated for decades, but now that non-diversification is starting to threaten the very existence of the big four. Meanwhile, movie studios have an entirely different business structure, reaping revenues from theaters, DVDs, television broadcasts, even stuffed animals and airline screenings. That, coupled with an entirely different consumer relationship, may make the digital disruption less severe in Hollywood. In the meantime, artists like Linkin Park and Coldplay could be the first of many flare-ups, with more artists starting to view themselves as small business units and not major label adjuncts."

From Paul Resnikoff, Editor Digital Music News