Business Matters: Don't Bury the CD Just Yet -- Study Predicts a Slow, Graceful Demise
Business Matters: Don't Bury the CD Just Yet -- Study Predicts a Slow, Graceful Demise

Don't Bury the CD Just Yet…
-- Technology research firm Gartner forecasts global digital music spending (by end customers) will be up to $6.3 billion in 2011, from $5.9 billion last year, and the company's analysts see global digital music spending reaching $7.7 billion in 2015. But what the new figures really show is how Gartner has changed its tune over the last three years.

Gartner predicts that over the next five years, labels will continue to realign their business models to make up for declining physical revenues (almost all of which is comprised of CD sales). Subscription revenue will increase to $2.2 billion in 2015 from $532 million this year. Download revenue will grow modestly to $4.1 billion (which strikes me as conservative) from $3.6 billion this year. And Gartner believes subscription services and download stores will need to figure out how to include products such as ticket sales and merchandise.

So it appears Gartner has moved well beyond the "lose the CD" stance it took a few years ago. A 2008 Gartner report urged record labels to stop selling compact discs and fully invest in online distribution alternatives. Only by cutting the cord, so to speak, could labels take full advantage of the digital opportunities available to them: high broadband penetration, WiFi-enabled notebooks and rapidly improving media capabilities of smartphones.

But record labels have shown no desire to ditch the CD. The format still accounts for most sales revenue, and labels have been able to encourage the development of new digital business models while enjoying - not relying on - the considerable revenue CD sales provide. It hasn't been the prettiest process in the history of business, but letting the CD die a slow, graceful death has been preferable to premature euthanasia.

Contrary to a dubious report that was picked up by numerous blogs last week, there is no major label plan to abandon the CD format by the end of 2012. Such a doomsday scenario has frequently come up but has not materialized. History has proven labels and distributors are willing to work with retailers to keep them carrying music. Retailers may carry fewer titles and they pay less for them - which allows them to charge less - but they still carry CDs.

Back in 2008, my response to Gartner's report was the following advice: continue to sell CDs as demand declines, revamp and consolidate physical distribution and create new partnerships for digital products. All three have happened throughout the industry to create a scenario that is preferable to ditching $15 billion in annual revenue.

Gartner's numbers all but concede that CD revenue will continue well into the decade. The firm forecasts spending on physical product will drop to about $10 billion in 2015 from about $15 in 2010. After another four years of CD declines, Gartner's estimate for physical revenue will still be 30 percent higher than its estimate for digital revenue. Even with revenue growth related to multi-rights contracts (merchandise, touring, sponsorships), CD sales are an important part of the mix.

Besides, a major corporation isn't going to take such incredibly drastic measure. Can you imagine what the recorded music divisions of EMI or Warner Music Group would fetch if they stopped selling CDs? (Press release) Debuts New iPad App
-- debuted its new iPad app on Tuesday. The Amsterdam-based startup calls the app a "FlipPad for Music," drawing comparisons to the popular media publishing app that creates a personalized magazine based on a person's favorite social content. works in a similar way by grabbing content from a wide range of music blogs and using it to create Internet radio stations (for lack of a better term). "It's the world's first real audio magazine," the company explains, "one which compiles itself and changes by the hour, giving you the latest, hottest, newest music from around the globe."

In many ways, is the anti-Pandora. A personalized radio station like Pandora mixes some new music in with familiar artists or familiar songs. But puts an emphasis on discovery of new music. Because it sources songs from a host of music blogs, the service is most attractive to people who want to be ahead of the curve. After all, music blogs have a short attention span and are always posting the newest of the new. And so you can read while you listen, shows the listener to the blog page that posted the song being streamed. ( blog)

Schematic Labs Raises $4.75 Million in Funding

-- Schematic Labs, creator of the social music app Soundtracking, has raised $4.75 million in funding in a round led by Accel Partners that also included True Ventures and SoftBank Capital. Schematic says the money will be used for hiring staff and new product development. Accel has invested in Facebook, Spotify and StumbleUpon. True Ventures was the lead investor in Schematic Lab's first funding round.

Hear Schematic Lab founder and CEO Steve Jang at Billboard's FutureSound conference in San Francisco on November 17 and 18 Jang will appear on a November 18 keynote case study titled "SoundTracking, Twitter and the Socialization of Music" along with representatives from Twitte and FUSE. ( Press release)