Unless you’re Amazon and the market takes your lack of interest in making a profit with good-hearted cheer, this is a tough time to be selling goods in the music industry. It’s even harder if those “goods” happen to be music files. Having knocked the majority of record stores around the world out of business, it appears it’s now the turn of the digital download shops.
iTunes – which established year-over-year sales records for a decade – saw sales drop 14% last year. And that was even before the introduction of the Apple Music streaming service, which is expected to further cannibalize sales of mp3 files.
iTunes isn’t going into bankruptcy. For a bit of perspective on who the boss is here, the entire music industry in the US earned $12 billion in revenue in 2014, which is less than 25% of what Apple earned in profits. Apple Music, like iTunes before it, exists to sell Apple’s iThings. But not everybody has such deep pockets.
When Beatport announced it would be late in making payouts to labels earlier this month, it was explained that this was a complication of SFX founder Robert Sillerman’s (now failed) attempt to take its parent company private. Now there are reports that the company is burning through its remaining cash and the flop of Beatport’s streaming service has made the cash crisis even worse. Reports from a source inside the company have stated that Beatport is up for grabs to a seller, as SFX no longer has the capital to market what is now described as a streaming service to gain elusive users. (Despite making the Beatport streaming app free forever and now even removing the need to create a free account, Google’s Play store reports fewer than 500,000 installs on Android.)
When A Company Dies
Beatport’s shaky future is its own story, but it’s hard not to see this in the wider context of the fundamental weakness of the digital download business. People just aren’t buying as many MP3s anymore, and the DJ-centered dance music market is not immune to the downturn.
On May 1 2015, Stompy became the largest DJ-centered digital download seller to shut down. They will not be the last. Stompy had long-standing connections in the industry (the company began as promoters during the first flower of rave culture in San Francisco) and had even carved out a kind of specialized niche in Jackin’ House, which seems to be common among non-Beatport download shops. But it wasn’t enough.
Recently I’ve been hearing from labels and producers complaining that Stompy has been slow to make final payouts, and asked me to look into the matter.
I was told that Stompy’s personnel are “still in the process of shutting down the business and all that it entails,” according to Stompy’s Deron Delgado, and “have been in contact with vendors as all account matters are finalized.”
I also heard from sources who claimed that labels using Paradise Distribution (who Delgado currently works for) were “taken care of” before Stompy went out of business as some kind of slight-of-hand.
“100% false,” Delgado told me. “Paradise is still owed their final statement and payment from Stompy. Paradise has absolutely nothing to do with Stompy or its business and never has.”
These sort of rumors are rife in any distressed market. And make no mistake: selling mp3s in 2015 is now selling to a “distressed market.”
Of course, if you’ve got any time in this business you’ve been down this road before. When print distributors were going broke in the late 1990s, observers noted that at the end of their lifespan they functioned similar to a Ponzi scheme: sales of new products paid for old ones, and vendors with accounts past due were encouraged to keep shipping inventory so the imperiled distributor would have something to sell and eventually pay everyone.
It never worked. Vendors put themselves further in the hole than if they had just cut off the distributor and let them go bankrupt. And when businesses go kaput, there’s rarely a perfectly balanced ledger of revenue and debts (which it appears some of the labels owed money by Stompy seem to believe). When a distributor or a retailer goes underwater, their vendors take a bath with them. There’s virtually no business on earth in which this isn’t true.
The implosion was far more extravagant when it happened to distributors in the music industry a few years later. File sharing fired the initial shot but it was the emergence of a digital market for mp3s and digital shops to service it like iTunes, Beatport, Traxsource and Stompy that delivered the staggering blow to many record stores.
And now it’s happening again, this time with those same digital shops, and with streaming companies and their techno-utopian zealots ridiculing the “dinosaurs” who based their business model on expecting people to pay $2.99 for a bunch of 1s and 0s.
Price Target Zero
I’d heard it said as recently as a year ago that a DJ-centered market would be protected from the massive shift in consumer expectations driven by streaming, to a world in which every sound ever committed to tape can be listened to for free. This is clearly not the case. After all, it was once claimed that DJs would always have a “need” for vinyl, too.
Unlike iTunes, Beatport was reputedly never profitable – not even when it was a private company – and has certainly never been a cash machine inside SFX, the company’s 10-Q filings show. And now the service appears to be in serious trouble. There are alternatives (one less, obviously, with the demise of Stompy) but the wider trend here is inescapable: selling mp3s, as a business, is at best a very low-margin proposition. Maybe you can make some money at it, but probably not enough to build an empire.
And for the future, all of the arrows are pointing in the wrong direction.
This is a bitter pill for people with some skin in the game, who look and see a larger market for music than has ever existed before. There are also more DJs now than at any time in history, but selling that market on a product with zero duplication costs and unlimited supply has been a tough racket.
Recorded music was once the foundation of billion dollar corporations – corporations which were largely gutted by sexy tech start-ups that could do everything better… except turn a profit.
Now we’re entering the next stage, in which the business of selling “records” (however you want to define that) is simply too low-margin to attract the big, dumb money of a Robert Sillerman. The precise shape of that next stage of the recorded music industry is unclear but one would like to imagine it characterized by artist-centered services like Bandcamp (and now Baboom) existing in the shadow of the streaming services – a business big enough for you or me or a guy doing this out of his bedroom or a bigroom but too small for the lumbering giants to bother with.
That’s a very small future for selling music, but so far it sure looks better than the alternatives.