Excerpts from the Trend Analysis Report "Why the Audio CD Is Dying... And What Will Replace it"

Introduction

Sales of music CDs are painfully predictable in their steady decline: for several years now, every year has been worse than the previous in terms of sales, and it seems extremely unlikely that this tendency will reverse any time soon. In the meantime, legally downloaded music is increasing significantly, but not enough to make up for the lost business from CD sales.

It is tempting in this situation to go for a simplistic analysis of current music-use and blame illegal downloads for the woes that are befalling the record industry. We believe that this approach is insufficient: the problems the music industry as a whole is facing are significantly more complex than most analysts indicate.

The problem of the CD

While the CD was a giant leap forward in sound quality and portability, it was also a step backwards in terms of physical attraction of the product. The audio CD was a compromise: a product where physical attractiveness was set aside (in most cases) for sheer convenience. In addition, the music industry used the high production costs for early CDs as an excuse for significantly raising its price over vinyl records.

Blame the shopping experience

Today, the brick-and-mortar CD store is possibly the worst shopping experience on can have: Rows and rows of identical looking, tightly sealed plastic boxes that show very little information about the product itself. Finding a specific record in a record store is laborious, sampling the music is difficult if not impossible. Browsing and discovering new records is awkward at best. By comparison, even shopping for detergent seems like fun. No wonder the iTunes Music Store is a big success.

The materialization of music is changing

Music is the most intangible of the arts, yet the materialization or physical representation plays an enormous role in our relationship with music. The fact that we are buying fewer and fewer CDs does not mean we have lost the need for materialization of music in general, nor that the need of material storage of music is coming to an end.

We need symbols of ownership

Our relationship with music is manifold and complex, and our attitude to owning/paying for music reflects this complexity (see chart on page 7 of the full report). The stronger we feel about music (or any other form of content, like a book or a movie), the stronger will be our need to own it, and also the desire to have tangible proof of ownership. Apple’s iTunes Music Store owes part of its success to the fact that it was the first to recognize the need to own, even when we are dealing with digital data. (See also: Think About It: Digital Ownership, Pfeiffer Report on Emerging Trends and Technologies, 2003)

Digitization decreases perceived value

The perceived value of digital content has a tendency to approach zero. This applies to music, but also to other content, such as photos, videos. We have great difficulty in perceiving value in immaterial file that can be duplicated at will without degradation.

Physical qualities sell

Subconsciously, we associated tactile qualities with value. A paperback book with an embossed text or metallic imprint is perceived as more attractive than plain four-color printing. Book-publishers have been using these tactile qualities for decades to make their offerings stand out, and while some attempts to do this with Audio CDs exist, the vast majority of music CDs are anonymous looking jewel boxes.

Ubiquity breeds a need for scarcity and exclusivity

As digital content becomes increasingly prevalent, its ubiquity is the single most important factor to decrease perceived value. Once the first excitement of being able to access any song in a music library subsides, it quickly becomes the new status quo: it’s no longer an exceptional possibility, but a convenience we take for granted.

What can be done?

Downloading music is extremely convenient, and it will not go away. But that does not mean that it covers all the needs relted to music. Reinvent the music store. Reinvent music merchandise. Rethink the business model.

For detailed recommendations, please refer to the Trend Analysis Report "Why the Audio CD Is Dying… And What Will Replace it"

Andreas Pfeiffer
(posted May 4, 2007)