5 August 2009 • 7:00 am

Technology Happens – And An Industry Collapses

(Copyright 2009 The New York Times Company)

(Copyright 2009 The New York Times Company)

Those of you reading Monday’s post about the mystery industry whose distribution methods kept evolving and cannibalizing older versions can now view the rest of the story. As presented in an op-ed piece by columnist Charles M. Blow in last Saturday’s New York Times, the graphic shows the demise of the traditional recorded music industry in ‘graphic’ detail. It’s another example of the power of thoughtful graphic design.

When the chart begins, in 1973, sales of vinyl LP records and 8-track tapes dominated the pre-recorded music industry, but by 1988, cassette tapes had made 8-tracks completely obsolete, and had all but eliminated sales of LPs. In the decade from 1978 to 1988, the two dominant formats had been completely replaced by a new one, and only 11 years later had been replaced yet again, this time by CDs. By 1999, total sales of CDs was about $17 billion. Independent of the format transition, the industry had enjoyed modest growth from about $11 billion in 1973. This was where the chart ended in the earlier post.

So in 1999, a music industry strategist might have concluded that the CD format would be effectively obsolete in another 10 years or so (true), and that total industry sales would continue their modest growth (not true). Since 1999, inflation-adjusted sales of recorded music have dropped by more than half – 1999 was the beginning of what columnist Blow called the industry’s deathwatch.

Each of distribution methods in the story had advantages over those it replaced – 8-tracks were effectively sealed and could be played in automobiles, cassettes were far smaller and easier to store than either LPs or 8-tracks, and CDs offered further size reduction, much greater durability and capacity, and effortless and instant access to a desired track.

But CDs were the first format in which the music was encoded digitally (as a stream of effectively ones and zeros) instead of an analog representation of the sound of the music itself. And therein lay the industry’s downfall. Digitally encoded music could be easily and quickly copied, shared, transmitted over the internet, and ultimately shared for free on public websites. Napster, the first of such services to gain national attention, reached its peak in 2001, before its business was eroded by competitors and eventually destroyed by the record industry’s legal efforts.

Napster’s music came from CDs owned by its subscribers. But the technology for digital encoding of music has enabled artists and consumers of music to substantially disintermediate (a fancy economics term that means “you lose”) record publishers, distributors, and retailers.

In my lifetime, technological advances have rendered obsolete such one-time innovations as the typewriter, pay phone, slide rule, phonograph, teletype, VCR, and countless others. While the recorded music industry was putting its time and effort into defending the status quo, technology happened. Take a look at the DVD player you likely have in your home, and think about the sad history of the recorded music industry. Technology is happening again.

And technology will inevitably happen to your industry. Will your organization be ready?

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