Twisted Statistics by George Ziemann — October 17, 2010 This week, Tunecore co-founder Jeff Price is using Nielsen SoundScan statistics exactly the same way Nielsen does — to manipulate the truth and misrepresent facts. My criticism at the page on which the offense occurred has been erased, so it's time to shine a brighter light. The story actually goes back to at least 2006, maybe even earlier. Nielsen Music 2006 Year-End Music Industry Report 2006 U.S. Music Purchases Exceed 1 Billion Sales * Growth In Overall Music Sales Exceeds 19% over 2005 The Nielsen Company 2008 Year-End Music Industry Report 2008 U.S. Music Purchases Exceed 1.5 Billion * Growth in Overall Music Purchases Exceeds 10% over 2007 There are more links in Price's article at Tunecore's blog, which is titled, "The State of The Music Industry & the Delegitimization of Artists." I have to say upfront that I actually like Jeff Price. I've been using Tunecore for distribution for a few years now, have no complaints about their service, think that what they are trying to do for independent artists is admirable. But Jeff and I have discussed the current point of contention in the past, which I call bullshit statistics. Jeff does not agree with me and is echoing what Nielsen says every year. "To summarize: In the four years of 2006 to 2009, music purchases increased from a record starting point of 1 billion purchases to the new record point of 1.5 billion music purchases. These specific figures do not include the sales and other income streams Nielsen does not track or disregards." Price almost touches on the truth, but he skirts around the heart of the issue. "Seeing that the Nielsen stats are readily accessible and accepted as legitimate, why then are we left with the impression that music sales and revenue are down? The simple answer is album sales and overall gross revenue from music sales (CD and downloads) are down. The increase in music purchases comes from the people buying individual songs. The decrease in revenue comes from a $0.99 song costing less than a $16.98 physical album as well as fewer purchases of physical CDs." There is also a page of video responses from Price. In one of them (it was at the bottom of the page, but the page has changed more than once already), he asks a question to the effect of, "Why does it make a difference if an artist is selling albums or singles or ringtones?" I've already discussed this in length, but apparently it needs to be said again, in clear and simple terms. First of all, let's forget the $16.98 physical CD. Last year, the major record labels sold fewer physical CDs at retail than they sent to record clubs to be distributed for almost free ("13 CDs for 1 cent!") in 2000 (link to data). So let's use the iTunes' $9.99 album and 99-cent single as a reference. And to make it even easier, I'm going to round up one penny on each one. Albums are $10, a single song is $1. You're going to have to be really damned picky to think this is a misrepresentation, and as we shall see, it's nowhere near as skewed as the Nielsen "music purchases" line of thought is. If you sold 500 albums in 2005, the gross revenue was $5000. If you sold 2000 singles in 2009, the gross revenue was $2000. Nielsen (and Price) are going to tell you that your "music purchases" are up 400 percent. But the total revenue from those purchases are down 60 percent. "Why does it make a difference if an artist is selling albums or singles or ringtones?" Because unless you're selling 10 times as many songs as you used to sell albums, you're making less money. Keying on this ridiculous "music purchases" label doesn't change the truth. Which makes his next statement even more bizarre. "The impact of this is fascinating. • First, music fans are buying more music from a wider spectrum of artists." Music fans may very well be buying music from a wider spectrum of artists, but they are NOT buying more music. If they were, overall gross revenue from music purchases would be rising. Music fans are making more purchases, but they are making $1 purchases instead of $10 (or $16.98) purchases. To use Price's own words, "The simple answer is album sales and overall gross revenue from music sales (CD and downloads) are down." The next part is not quite as straighforward and simple, but it's not all that complicated, either. According to Nielsen's numbers, in 2000, approximately 730 million full length albums were sold, taking all formats (CD, cassette, vinyl, etc.) into consideration. At an average of 10 songs per album, that adds up to somewhere around 7.3 billion songs. Add in another 35 million in singles, and we're up to 7.33 billion songs. Now let's look at the 2009 numbers: Total album sales (all formats combined) — 373.9 million (3.739 billion songs) Total digital track sales — 1.159 billion Sticking with 10 songs per album, that gives us a total of 4.898 billion songs sold in 2009, which is 66.8 percent (two-thirds) of what was sold in 2000. Price is quick to point out that there are additional revenue sources out there that didn'texist before like Napster, Rhapsody and "DMCA compliant" sources like webcasting. But he can only make this add up to a half billion dollars, which still leaves us about $2 billion short, without taking into consideration the fact that a song costs a whole lot less in 2009 than it did in 2000. Music fans are NOT buying more music. And they are paying less than ever for what they DO buy. There is a second area of discussion that Price's article takes which I almost agree with, except that he has twisted the truth just enough to make them false statements. "• Second, despite the cost going down to purchase music, the net revenue for a self-distributing artist is up as compared to what an artist traditionally earned via a label. It would have been accurate to say that the percentage of revenue is higher for a self-distributing artist compared to a signed artist under contract to a label. If I sell an album through iTunes, I make $7. If Tom Petty sells an album through iTunes, he's probably lucky if he makes $2, and it's probably closer to $1.70. My net revenue is higher for one sale. But Tom Petty is going to sell a helluva lot more albums than I will. Over the course of a year, his net revenue is going to make mine look like a joke. Price's argument only holds up if you're talking about Radiohead or Nine Inch Nails. Those are the acts that are going to see a significant improvement in their net revenue. But the average band does not have the sales volume to even make such a comparison. • Third, the entire financial model of the labels (well, at least post 1960) was built around selling a full-length physical album. Due to this, it is the record label (and those artists signed to them) that net less money off the sale of the music." Even in the case of Radiohead, this is only necessarily true the first year they break from their contract and start pulling in the entire label share of sales. But what happens in year two or three? If music fans continue to buy less music, no matter what your financial model is, there is less money to be divided up among the overall pool of artists. If Price is correct that fans are buying music from a wider spectrum of artists, and we accept the obvious fact that less money is being spent, that means what is being spent has to be diverted from from the established acts. Even if they are self-distributing, like Radiohead or NIN, the things that Price is saying do not hold up when you take a realistic look at the market for recorded music. Record sales are sucking wind right now, and you can twist the numbers all day long to point a rosy picture, but it doesn't change the facts. That doesn't mean that it's all gloom and doom. Artists have never made money from record sales. Record contracts and questionable accounting practices have always been in place to make sure the artists stay in debt to their record label. Concert ticket sales are up. There is still money to be made from live performances, which was the only place most acts ever made money, even when the record business was healthy. So in that respect not much has changed. Beware of people that try to tell you that artists are making more money from record sales than before. They're not. What we're seeing is simply a redistribution of the total revenue. Sure, it's possible for artists who never had access to distribution to get into the game now, and that is definitely a good thing. For some of them, Price's article may have the ring of truth to it. After all, they weren't making any money at all from record sales before and now they might be making some. And if you used to be signed to a recording contract and are now independent, you might be seeing a significant uptick in how much money lands in your bank account that used to go to a record label. But can they maintain it? Can they make more money next year than this year? Only if they can steal someone else's sales and outdo the competition. The fact is that there is less money being spent on recorded music every year. Using a skewed perspective to paint an unrealistic picture does no one any good. But that's how the music business has always worked.