February 24, 2010

By By Glenn Peoples, L.A.

Recorded music gets less of a household?s entertainment spending than video games, movies, sports and reading material. Each year for the last decade, music spending has dropped as consumers spend less on CDs. But this isn?t the first time the record industry has suffered a setback, and a rebound would hardly be the first.

According to data released this week by Nielsen, recorded music has a 3.7% share of U.S. household entertainment expenses. That is a mere 16% of what the average household?s spending on regular TV packages, such as basic cable, and about half of what is spent going to the movies. (Not included in these figures are expenditures for dining out and shopping, which were included under the entertainment catch-all by Nielsen.) Live events, including sports and live music, account for 7.9% of entertainment spending.

Entertainment spending has not changed much over the decades. According to the U.S. Department of Labor, entertainment spending was about 4% of total income in 1950 and 1960, spiked to 8.6% in 1972, and then dropped and level off to around 5% since 1984.



While total entertainment spending may not change much, the share of total spending grabbed by any particular industry does. Recorded music has taken a wide range of gross domestic product over the last 90 years. In his paper ?Impact of Radio on the Record Industry,? Dr. Stanley Liebowitz showed the lean and boom years of record labels. In the 1920s, the recording industry comprised about 0.12% of GDP. After the advent of radio, the industry fell to 0.02% in the 1930s and rose gradually over the decades to over 0.16% in the 1970s. (All numbers are in 1983 dollars.)

The sharp drop in record sales in the 1930s coincided with the rise of radio. In the 1950s, television overtook radio as the home?s dominant entertainment medium. Rock and roll changed popular music in the 1950s. Long player records appeared in the 1960s. In later years, the CD pushed revenues upward and the emergence of digital technologies took back those gains. The fact that recorded music currently accounts for such a small fraction of entertainment spending implies the right products and services are not reaching mainstream America.

Eventually, a new product or service will spark renewed growth ? like the LP and CD did - and return more of household?s entertainment spending to the parties that create and market recorded music. The current downturn should be viewed as a temporary low point between the booms of the CD years and whatever happens next. Things look grim now, but they also looked grim many times in the past.

How long will revenues take to rebound? It could take quite a while. Sixty years passed before recorded music?s share of GDP reached its 1921 level.

For more info on this year's Music & Money Symposium, presented in association with Loeb & Loeb, visit Billboardevents.com. For more Better Know A Panelist Q&As click here.

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