Continuing on my digital music packaging discussion. I thought I would talk about the potential market for these packages.

“What’s your market,” asks the VC?

“The people who bought CDs,” is my answer.

“No one buys CDs anymore,” they retort.

“That’s why there is a market for digital music packages,” I reply.

Why we bought music packages?

As I pointed out in my previous post, people* bought vinyl, tape, and CDs for 3 primary reasons:

1. Convenience, which included listening on-demand, portability (tapes), durability (CDs), and acquisition (MP3s)
2. Collectablity. These music packages were expressions of who we were and our social status.
3. Connection. Albums and CDs connected us with the artists and bands we loved.

*Who are these people who bought albums?

Well in the 1990s buyers of CDs were roughly15-20% of the population in North America. That’s buying one (1) CD or more in any given year. During the 90s I bought on average 60 CDs per year. People like Ian Rogers bought 60 in a month! I would fathom a guess that I would represent 1% of the population. Ian Rogers 1/100th of 1%?

“Well that doesn’t seem like much” , says the VC?

“Well that represents *about $8 billion in yearly NA sales,” I say.

*Note: After reading a number of IFPI reports I have no confidence in their numbers. They just don’t add up from year to year. A colleague of mine believes it is a result of their somewhat erratic methods of data collection.

Let’s break up the market

The market is made up of:
Insiders – musicians, reviewers, industry. These guys and gals don’t buy music. Ok, I know a few do, but we can assume it is VERY small over all. The industry does not run on musicians selling to other musicians. (Then again. I think it does in the local Vancouver indie scene.)

Fans - these are people like myself who bought more than 1 CD per year and supported the recorded music industry. These are the people who buy for Collecting and Connecting. However, when looking at this group, I would say you probably are not a fan if you purchase less than 3 CDs in a year. So let’s extract those who bought only 1 or 2 CDs per year. I call these people…

Consumers - I know a lot of these people. You do, too. These people bought CDs for convenience to play in their car, or during parties, or what-have-you. They didn’t follow the artists they purchased. It was about listening to music they liked (or was popular) when they wanted it. As such this group is unlikely to buy digital music packages. I do not know what percentage of the market this group represents other than from some ad hoc surveys we conducted. If anyone has some research on it, I’d love to hear from you.

Public - these people did not buy CDs in a given year. They represent most of the people you will ever meet in your life. We love them. They are mothers, fathers, sisters, brothers, and friends, but they don’t buy music. Interestingly the industry wants to monetize them unwillingly in a number of horrible culture tax schemes. I will leave that for another post.

Below is a diagram illustrating the potential market for digital music packages. The biggest hole as I pointed out is what percentage do music consumers represent verus the music fans.

BTW. I actually didn’t recognize that the diagram looked like a CD until my colleague Seamus pointed it out. So Loren quickly re-authored it. :)