The music industry has seen vast changes since 2000. Album sales have dropped precipitously year over year while both legal and illegal online music downloads have skyrocketed. Apple's iTunes store has sold over 6 billion songs while the Recording Industry Association of America (RIAA) has sued over 35,000 illegal music content distributors.
In the last month, though, the music industry has entered a new era. Beginning December 19th the RIAA stopped issuing new lawsuits. On January 6th, Apple announced it will allow unlimited copying of their files. Essentially, the transmission of music has become an unrestricted free market.
In 2007, Apple CEO Steve Jobs wrote an open letter arguing that removing copying restrictions from iTunes music will benefit the overall music industry. Since 90% of music is sold in unrestricted CD format, he maintained, downloadable files are already available for piracy. Jobs claimed that removing restrictions from iTunes files would not affect music piracy and would increase demand for iTunes music. In my opinion, this viewpoint discounts consumers' preferences. Demand for individual digital tracks is continually increasing, while consumers have become averse to purchasing CDs at brick and mortar retailers. This point has been reaffirmed by the CEO of Virgin Megastores, Simon Wright. In response to the closing of Times Squares' Virgin Megastore, Wright said "stores that rely completely on recorded music have a difficult future."
In the short term, the recent changes have caused increased usage of both iTunes and peer to peer networks (programs that allow free file transfer between users) as consumers flock to consume the content.
But I do not expect this trend to continue. Take my viewpoint not as the official Nielsen position, but as the perspective of a Millennial who came of age with digitally available music. There are two major reasons people are currently using iTunes instead of P2P networks: (1) iTunes provides CD quality music and (2) the fear of legal action against illegal downloaders. With the iTunes barriers removed, the easily distributable files will quickly migrate to the P2P networks. Subsequently, iTunes will see a significant decrease in use as files become available through free channels. At the same time, with no threat of action from the RIAA , P2P networks will see a significant usage increase.
As music sales have deceased, musicians have progressively garnered more of their income from touring, licensing, sponsorships, and merchandising deals. This trend will only accelerate, providing great opportunities for marketers to tie their products to popular acts.