Music Download Revolution

Music consumers around the world have spoken - and they no longer want to purchase compact discs (CD) but instead crave the convenience of music downloads. The CD became available on the market in 1982 and remains the standard physical medium for commercial audio recordings as of 2007 (Compact Disc - Wkipedia, the free encyclopedia, 2007). Recently however, technology has afforded music lovers a new way to enjoy their music with the introduction of music downloads via the internet. This new technology poses a threat to CD sales as the demand for CDs continues to decline. The steady decline in CD sales coupled with an increase in music downloads indicate that music consumers are steadily reaping the benefits of music downloads such as cost, immediacy of downloads, and the freedom to "cherry pick" their favorite songs. According to Jane Weaver (2006), Downloading music from the Internet will reach $2 billion in sales or 17% of the music business in 2007. In addition, "more than 40 million people in the United States have downloaded music at least once from one of the numerous file-sharing services such as KaZaA, according to industry research" (Weaver, 2006). In an article on MSNBC.com titled "Study: Downloads to save music biz," Weaver describes the decline of CD sales, the increase of music downloads, and what the recording industry is doing about the loss of CD sales. In this paper, I will examine why changes occurred in supply, demand, and price for CDs and determine what can be done to thwart the market loss.

Supply and Demand

The demand for the compact disc has continued to dwindle due in part to the availability of music downloads via the internet. Music downloads provide consumers with the ability to be selective when it comes to music. When a recording artist releases an album, there may be between 11 and 15 songs on the album. The fact is that most people purchase that entire album for $10 - $20 just to enjoy a few of the songs that are their favorites. Music downloads give consumers the ability to purchase only the few songs that they enjoy for $1 - $2 per song. It makes more sense to some people to download the few songs that are their favorites than to purchase an entire album. This is one reason the demand for CDs has continued to drop; another reason is the economy.

For the past few years, the US economy has been in a recession. This could affect the sales for CDs because CDs are not a necessity. When people have to monitor their spending and live on a budget, they are most likely not going to rush to the local music store to purchase the latest album release. Conversely, when the economy is good, people have the means to indulge in hobbies or leisure activities, which for many people is music. This could explain why CD sales have dropped over the past few years. While CD sales have continued to decline, the price has not.

Price

On BestBuy.com, the average retail price for a newly released CD is between $14 and $20 (New Releases, 2007). As the demand for CDs slows, the prices tend to rise as in accordance with the law of demand: "the quantity of a good demanded is inversely related to the good's price" (Colander, 2004). Since the demand for CDs has declined, consumers have not seen a reduction in the price for CDs even though CDs have become less expensive to manufacture. This has become a vicious cycle because consumers now have alternative ways of getting the music they want via the internet; consequently, when CD prices are too high, people may turn to those alternative ways to obtain their music causing the decline in the demand for CDs, which causes higher prices for CDs. What consumers may not realize is that the price of a CD involves much more than just the manufacturing of the CD.

According to Mike Wiser (2004), "while the cost of physically producing a CD has dropped dramatically over two decades, the costs of marketing that album have grown tremendously." Record labels spend a great deal on marketing an album including producing music videos, print and television advertising, and radio advertising. Not only does the price of the CD help cover marketing, "it is also subsidizing releases by other artists that will never sell enough to