It's been more than 10 years since Napster, the online music file-sharing operation, first changed the way the music industry would function moving forward. At the time, it was deemed to be the death of mainstream record labels as we once knew them. But companies like Warner Music Group (NYSE: WMG), Sony's (NYSE: SNE) Music Entertainment and Universal Music have held on longer than we probably thought they could.
Unfortunately, now they are taking the final bow -- and sadly, it's going to be death by a thousand cuts.
Imminent disaster
It took years for the music industry to actually stop trying to sue their way out trouble, realizing that they actually needed to get hip to the digital era. But now that they've finally done it, trouble is brewing again.
Downloads of songs to iPods, computers, and other handheld devices grew by only 0.3% this year. The number of people using digital music stores like Apple's (Nasdaq: AAPL) iTunes and Amazon.com (Nasdaq: AMZN) has peaked around 40 million, according to researcher NPD Group. Domestic sales of recorded music in all formats are expected to fall to $7 billion by 2012, which is only a bit more than half the level since 2005.
More and more people are using streaming sites like Pandora, which ultimately means there will be fewer digital downloads. And it seems like everyone is getting in on the game. Microsoft (Nasdaq: MSFT) has launched its Bing Entertainment search hub, and Google (Nasdaq: GOOG) is planning on rolling out its own music service.
Even worse, ringtones -- which were a huge money maker for record labels -- peaked in 2007 at $714 million in sales and have since fallen by about 24%. The various avenues for actually generating revenue are shrinking fast, and the labels are doing anything they can to keep up.
The final straw
Universal Music and Sony are backing Vevo, an ad-supported streaming website. Warner is trying to enact what it calls "360 deals," which makes money from music, merchandise, and concert tickets. Last year, the bigs were even able to persuade Apple to increase the digital download cost for a single song from $0.99 to $1.29 for the newest tunes.
Unfortunately, as history continues to repeat itself, it seems as if music executives are too slow to react and not creative enough to be at the forefront of the next big change.
What do you think -- will the big four music labels even be around in five, 10 years?
Sound off in the comment section below!
