Music Clubs
BMG Direct and Columbia House are building profit centers in expanding markets for Christian, gospel and Latin music. BMG acquired its “Sound and Spirit” Christian music club from World Entertainment Inc., while Columbia House developed new Christian music club categories from its regular membership base.
Today’s hot music trends may pale in significance compared with the next wave of music industry changes coming via the Internet. The British music magazine Q predicts the business as we know it today will no longer exist in about 10 years. Among other things, Q speculates that music retail stores will disappear entirely.
Music club behemoths BMG and Columbia House already generate data from electronic catalogs accessible through the Internet, but the information gathered is closely held. “The Internet is still very new to the music industry and I don’t see [the clubs] making [Internet-generated] lists available for rental in the near future,” says Lori Magill-Cook, vice president of database management at American List Counsel Inc., which manages BMG’s mailing lists.
Online orders are still being fulfilled by mail, but the potential is there for electronic distribution. Some artists already distribute their own prerecorded music using Web sites and bypass recording companies altogether.
The greatest perceived marketing strength of the Internet is the capacity to use databases to target promotions for new markets or narrow niches such as jazz. DR clubs typically generate 5% to 30% of music sales, depending on the artist and product.
Electronic order fulfillment is anticipated to dramatically reduce costs in the music industry. However, major changes in distribution patterns likely would affect the delicate relationships that recording companies have with retailers, not to mention music club marketers. The way the system works today, retailers get first access to new music releases. Direct marketers typically have to wait at least 90 days to offer new releases.
Before electronic fulfillment becomes a mass-marketing reality, key technical issues must be resolved. One perceived problem is the lengthy time required to download prerecorded music, given present bandwidth limitations for Internet traffic. Q magazine reports that no one has downloaded a CD in less than 15 minutes.
* Americans spend nearly $12 billion annually on prerecorded music-the most of any market in the world. Nearly a third of all music purchases are made by Americans. U.S. sales roughly equal the combined sales of the next four largest markets (Japan, Germany, the United Kingdom and France).
* Music sales are increasing worldwide. The global music market is worth approximately $40 billion, with 4.2 billion units sold annually. Worldwide music sales rose 5% over the first half of the year while the number of units sold went up 3%.
* Compact disc sales continue to grow at the expense of cassettes and vinyl recordings. During the first two quarters of 1998, CD sales climbed 7% to almost 1 billion units. By comparison, cassette sales dropped 17% to 259 million units and vinyl LP sales were off 5% to 7 million units.
* U.S. growth in music sales outperforms the rest of the world. Prerecorded music sales in the United States grew 12% to $5.7 billion for the first half of the year, while the number of units sold rose 8%.
* Japan-the world’s second-largest music market-generated $2.8 billion in music sales, reflecting 4% growth for the first half. Per-unit sales in Japan were up 6%. (Japanese statistics are based on shipments rather than actual sales.)
* Music sales in the U.K. grew 3% to $1.1 billion, with unit sales up 6% during the first half.
* Music sales are in recession in several major markets. Germany saw a 7% decline for the first two quarters. Sales are also down 1% in France.
* Latin American music sales dropped by 1%, with steep declines in some markets offset by gains in others. Brazilian sales were off 16% during the first half of 1998, while sales rose 13% in Mexico and 20% in Argentina. The region accounts for 40% of worldwide sales growth in the music market.
Source: International Federation of the Phonographic Industry
