Good News, Bad News for Music Industry

According to a recent Nielsen survey, file sharing (both legal and illegal) is not a primary source for either discovering or acquiring new music.  That's good news for the music industry, in the sense that it suggests that file-sharing and piracy are not widespread and seem to have limited impact on music buying decisions..  But that's also bad news (and should be a wake-up call) for an industry that has blamed file-sharing and piracy for industry declines over the last couple of decades.  It also undercuts industry claims of rampant piracy used to support increasingly intrusive anti-copying legislative efforts.
  Some of the other results of the recent Nielsen Music 360 Study confirm that the U.S. music market is in a major transition.

• Respondents indicated that radio remained the top source for discovering new music (43%), followed by friends and relatives (13%) and music videos on YouTube (8%)
• The most cited influences for purchasing music were recommendations from friends (57%), music blogs and chat rooms (27%)
• More people considered digital albums and tracks a good value (62% for albums, 61% for individual tracks), than considered physical CDs a good value (56%)
• More than half (56%) of smartphone owners had music player apps on their devices - 44% have radio apps, and 28% had music store apps.
• About a third of younger consumers will purchase a digital track or album within a week of its release

All of these results reflect the growing role of digital in the music industry.  While traditional sources still remain dominant, digital sources are gaining prominence, particularly in consumer listening devices, and consumers increasingly value the flexibility of digital.  The music industry needs to recognize and embrace the digital sector, and perhaps develop and more fully exploit the opportunities and options that the digital network economy presents.
  On the other hand, other studies suggest that digital revenues have not fully replaced the decline in physical delivery forms.  In a sense, they don't need to, as the cost of digital is significantly less than the cost of those physical formats.  Still, the industry tends to blame digital markets and piracy for their declining revenue base.  Two other findings from the Nielsen Music 360 Study suggest that there are more likely factors contributing to the decline in revenues.

• Large numbers of consumers indicate that the recession has reduced their spending on music "to a large degree) - 40% of those 55 or older, 38% of those 45-54, and 26% of the 25-34 age group
• Consumer's spending on media entertainment has splintered as new options emerge.  The Nielsen study found that monthly spending averaged $83.30 on TV packages, $36.60 on video games, and only $22.70 for music. 

That last finding reflects the fact that consumers have alternatives for their entertainment dollars (that there are strong substitutes).  In addition, a lot of those alternatives, TV packages in particular, have seen price increases (combined with increased content offerings) over the last 20 years, and are considered more of a necessity than new music, whose purchases can be delayed if necessary.  In recessions, or other times when incomes are static and the state of the economy is uncertain, music purchasing are likely to be among the hardest hit.  In other words, the growth of competitive substitutes and a weak economy may well be more significant factors contributing to the decline in music industry revenues.  

Source -  Friends' tips, radio still drive musical choices,  USAToday