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Off The Record

Music & Recording Industry News
Published October 2011
By Dan Daley

The demise of the Compact Disc as the dominant music-distribution format has been slow and inevitable. But what, if anything, will replace it?

Television viewers in Europe will soon get to experience Netflix, the low‑cost, home‑video delivery company whose subscription‑based business model has driven brick‑and‑mortar rental and retail businesses like Blockbusters into the ground. But what European consumers will see will not be the same as what American audiences signed up for way back in 1997. Instead, they will likely be offered the new choice that Netflix announced to US customers in July: one with significant implications for the optical disc in general, and the Compact Disc in particular.

For the last couple of years, Netflix have offered both mail‑delivered DVDs and streaming movies for the same $8‑a‑month package. In July, the company changed that policy: now customers can choose either a $7.99‑a‑month streaming‑only plan, or a $9.99 DVD‑by‑mail‑only plan. The more expensive fee for the DVD option reflects the higher cost of making, shipping and handling physical media, and now that the two formats are so distinctly delineated, it will likely hasten the death of optical discs, including CDs, as an entertainment‑distribution format.

To be sure, the CD was already a legacy. CD sales are half of what they were a decade ago, and continue to decline. But the decision by Netflix, which ships a million DVDs a day, will serve to further depress the optical‑disc manufacturing base, which has already seen global capacity for manufacturing decline precipitously. According to music‑sales tracking company Nielsen SoundScan, while overall US music sales fell 2.4 percent last year, CD music sales fell even harder, with sales of both new and catalogue titles on CD falling by 16 and 23 percent, respectively. And music video, which has come to rely on the DVD format, is also suffering, with sales in 2010 down 22.6 percent from the year before, according to the RIAA.

While consumers angrily lambasted Netflix for upping prices, the economics behind the move are clear: streaming a file costs far less than making and mailing a disc that will eventually wear out from handling and exposure, and nudging consumers to drop discs in favour of files will be very good for the bottom line in the long run.

Once the demand for DVDs drops further, the knock‑on effect will see more closures of optical‑disc manufacturing plants, the largest of which make both DVDs and CDs. It's happening already: Sony closed its last CD‑only manufacturing facility in Pitman, New Jersey, last March. In fact, when the vast reams of independent artists are included, most new music CDs are now duplicated rather than mass‑replicated, using burners that can cut 50 or 100 CDs at a time: cottage‑industry stuff compared to the dwindling number of CD replication lines that churn out millions of discs in 2.5‑second cycle times.

And there are other omens that the final days of the CD are nigh: Ford announced earlier this year that it will no longer put CD drives into its new automobiles, opting instead for interfaces for file‑based devices like iPods, and in‑car Wi‑Fi.

But the CD was already toast, so why mourn its loss? Because it was the last vestige of stability in a turbulent industry. It could be argued that the CD rebuilt the music business, arriving in 1982 in the wake of the huge drop‑off in music sales in 1979 and 1980. Its novelty boosted music sales massively, prompting consumers to replace entire collections they had on vinyl and ferrous oxide with new ones on metallised polycarbonate. The CD even helped stem the tide of the industry's first pirate adventure, when it migrated music from copyable tape to a locked digital platform that would not be widely hacked for over a decade. The Compact Disc may ultimately have been something of an illusion, creating the impression that the good times it brought could go on forever. It was, in retrospect, a kind of bubble not unlike the housing market. But the CD's revenues funded the excesses of the industry into the 21st century. In the process, it raised everyone's expectations of what it meant to be in the music business, and made the crash of falling far short of those expectations all the louder.

What's replacing the CD is an increasingly diverse array of options. Apple's iTunes, which has already replaced the physical‑sales retail model for music, faces challenges from a dozen or so streaming propositions. Even USB drives are being cleverly fabricated as distribution devices (check out some of the weirdly pleasurable designs from www.recordmemory.com). However, none of them will replace the revenue that CDs generated: online track sales grew only one percent, to 1.17 billion, while overall album sales (including digital tracks) fell 12.8 percent, to 326.2 million units, in the prior year.

While the technology for making and recording music has matured extensively, distribution remains in a digital wilderness. A welcome trend towards higher sonic quality is manifest in labels dedicated to high‑resolution music, like Chesky Records' HDtracks imprint; the availability of 256kbps, DRM‑free downloads on iTunes; and new codecs from Fraunhofer that enable even higher streaming resolutions. But instead of the unified delivery format that music has had in the last three decades in the form of the CD, it now has a growing number of tantalising yet Balkanised possibilities. It may prove that the real creativity on which music's future will depend will not be found in the studios or in the clubs, but in figuring out how to spread it around.    

Published October 2011