THE LEFSETZ LETTER: Marginalization

I was having lunch with a retailer at the NAMM show (National Association of Music Merchants) on Saturday and he told me in SIX
MONTHS last year his catalog sales went from far in excess of fifty percent of his non-store business to twenty. Yes, instead of purchasing via paper catalog, most of those not entering his store
now buy ONLINE!

This is a very important statistic. Focus on the RAPIDITY of the shift. The retailer was just going about his business, publishing multiple editions of his paper catalog, and the Net came in and wiped that business out. Turns out, he barely NEEDS a paper catalog.

And that people have no fear of ordering on the Net, they see it as EASIER, and MORE CONVENIENT!


Bob Lefsetz, Santa Monica-based industry legend, is the author of the e-mail newsletter, "The Lefsetz Letter". Famous for being beholden to no one, and speaking the truth, Lefsetz addresses the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself.

His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to music business honchos like Michael Rapino, Randy Phillips, Don Ienner, Cliff Burnstein, Irving Azoff and Tom Freston.

Never boring, always entertaining, Mr. Lefsetz's insights are fueled by his stint as an entertainment business attorney, majordomo of Sanctuary Music's American division and consultancies to major labels.

Bob has been a weekly contributor to CelebrityAccess and Encore since 2001, and we plan many more years of partnership with him. While we here at CelebrityAccess and Encore do not necessarily agree with all of Bob's opinions, we are proud to help share them with you.

Sound like the recorded music business? If it doesn't, you're just not paying attention. It's going to happen the same way. With over fifty percent broadband penetration in the home, and the proliferation of iPods, in the not-so-distant future, CDs are going to take a sales nosedive that will blow your mind. Like the death of the vinyl record, BUT MUCH WORSE!

But the major labels state they're prepared. They've got DIGITAL SALES! At the iTunes Music Store.

But, the iTunes Music Store is guaranteed to put them out of business. Because they're replacing an ALBUM business with a SINGLES business!

Focus on the above example. The old paradigm is going to be eviscerated in the blink of an eye. It won't be a parallel market. It won't be digital tracks existing alongside major album/CD sales. It's going to be ALL SINGLES ALL THE TIME!

So, instead of making ONE decision to purchase an ALBUM! At ten dollars or more! You're going to make one decision to buy a SINGLE at a BUCK! Or, even if they succeed in raising the price, what, at most, $2.99?

It just doesn't add up. In order to work, the labels need to REPLACE the revenue of CD sales. But this goes against human nature. It's much tougher to get someone to make MULTIPLE decisions than individual ones. Which is why car manufacturers sell options in PACKAGES! You want the sunroof? Then you must get the sport package, with a beefier suspension and 17" wheels… Then there's the cold weather package. And the safety package. Never mind that the item you're building upon, the automobile, is an expensive, profitable item TO BEGIN WITH! In other words, the options are FROSTING! But there's no CAKE in the recorded music business world.

Yes, we've seen John Kennedy of IFPI trumpet the ascent of digital tracks. But most of the press is too stupid to analyze the facts. But you know you're in trouble when even ROLLING STONE reveals the truth (1/26/06-page 14).

Take Click Five for example. They sold 400,000 digital copies of "Just The Girl", but only 268,000 copies of their album, "Greetings From Imrie House". In the old days, let's just say 100,000 of those singles buyers would have purchased the album. The label would have gotten A MILLION DOLLARS IN REVENUE! Whereas at the approximately sixty cent payment for digital tracks at the iTMS, for 400,000 UNITS, they're going to get $240,000. That SUCKS!

We've got Weezer selling 972,000 copies of their album "Make Believe" and 962,000 digital singles of "Beverly Hills". Do you think everybody who purchased a single then went out and bought the album? It's SELF-EVIDENT that this didn't happen.

Then we've got the "New York Times" revealing the strange case of "Laffy Taffy". The number one record by D4L has sold TWICE AS MANY digital singles as albums, and the album isn't even GOLD YET! (NY Times Article)

This is DEATH!

From now on, when a record label breaks an act, getting it all over TV and radio, they're going to sell SINGLES! (Hell, why should I buy an album, the act isn't real and the album SUCKS!) And make essentially ONE-TENTH of what they used to! Believe me, this doesn't sustain a private jet lifestyle. This forces you to lay off employees, accelerating the downward spiral into marginalization.

The label HAS GOT to sell the album, or its equivalent.

Just think about it. When the CD dies, the labels GO OUT OF BUSINESS!

Yet, there's John Kennedy and the rest of the business leaders going on record they've been SAVED! NOTHING could be further from the truth.

The labels' ONLY hope is to license P2P. I mean ONLY! If they can't find a way to get vast quantities of music to MANY people at a fair price, they just can't stay in business.

Oh, they talk about today's subscription services.

But there's a problem. Even if the songs are available, and they're not, and the software works, and it doesn't, NOBODY HAS GOT A PLAYER! Because iPods dominate the market! And the iPod is about OWNERSHIP, not RENTAL!

Then there's cell phones. They TOO are a singles market, just at a more exorbitant price that most people won't PAY! Sure, you could start a subscription service with THEM, but you'd have to be able to play the music on your computer, at home, elsewhere, and the cell companies are loath to give up ANY control.

But there's ALREADY a subscription service. It's called P2P. THAT'S where people get their music.

EVERYBODY who has an Internet account should pay a music fee.

Or, at least sell trading licenses, so people who don't want to get sued won't.

More people will acquire more music and it will drive not only the sale of music, but ticket and merchandise sales TOO!

Makes no difference to me. Right now, music is free. To EVERYBODY! It's the LABELS that are stupidly refusing to charge for the mass acquisition that is taking place.

And I'm no longer a voice in the wilderness. The mainstream press is starting to wake up, to the fact that there's something rotten in the labels' pronouncements.

This train is driving right for the cliff. It's almost like the dot com era all over again. The debate doesn't hit the salient point. Which is LESS music is being sold for LESS revenue! How can this be a key to success? Especially at the cost it takes to BREAK an act today!

Related Post