How Apple, Google, Amazon, and Sony Will Keep the Music Industry Growing

Sales in 2012 were encouraging, and the main players are trying to sustain the momentum

   

The music industry, that lonesome first casualty of the 21st century’s digital media revolution, is actually alive and kicking.

Back in October, Nielsen Soundscan reported that U.S. music sales for the first half of 2011 were up 8.5% for the period year-on-year. Digital music sales were also up, with songs boosted 11% and sales of full albums, thought to be a dying concern, were up 19%. It was the first period of music-sales growth since 2004.

That good news carried through to the second half of 2011 as well. The NPD Group (via All Things Digital) reported on Tuesday that digital music sales grew a total of 14% in 2011, a huge boost over 2010. Not only that, but there actually were more people buying music. Some 78 million Americans paid money for tunes.

While it might not be accurate to call this music’s comeback — it never really left — there’s no doubt the sales trends have been good for labels, good for musicians, and very good for gatekeepers of digital music sales like Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG), Sony (NYSE:SNE), and especially Apple (NASDAQ:AAPL).

Strategies for sustaining sales

With music sales on the rise again, though, the question now is how those companies plan to keep up the momentum. It isn’t enough for them to sit on their laurels and wait for Adele to put out her next record. Luckily for the business all of them have new initiatives in the wings.

Sony, for example, continues to try to expand the reach of its subscription-based music service, Music Unlimited. The latest push is to bring Music Unlimited to Apple’s portables, the iPod Touch, iPhone, and iPad. The $4-to-$10-per-month service, which gives users access to a set number of songs depending on how much the pay, faces stiff competition on Apple’s devices for obvious reasons, but Sony knows that’s where the audience is.

Google, meanwhile, officially opened Google Music, its iTunes competitor, in November 2011, making it the newest of the paid digital music stores. It’s also the most unproven. Unlike iTunes, Google Music features a variable price structure for songs, ranging between $1.29 and 69 cents, and it has limited support from music labels. Google’s growth plans for its music business are in hardware. Word around the Internet is that Google plans to release its own wireless stereo system for the home that would carry its own streaming radio service, not unlike Sirius XM Radio (NASDAQ:SIRI). Google would give listeners the option to purchase whatever they hear through the service, and that paid-for music would stay in the cloud of their Google Account and be accessible on PCs, Google TV home entertainment systems, and Android phones and tablets.

iTunes and AMZN upgrades

Then there’s iTunes, Apple’s 800-pound gorilla, which accounts for more than 70% of all digital music sales. Apple’s plans sound particularly exciting for the digital music business because they entail a complete overhaul of the iTunes interface and shopping experience. According to people familiar with the plans, the new iTunes is built around improving access to new songs and apps. This should certainly improve sales. After eight years of library growth, it’s incredibly difficult to browse iTunes for new music (or movies or apps) that you aren’t specifically looking for. The new iTunes will of course get a boost thanks to new products like iPad HD, iPhone 5, and the Apple iTV.

Amazon’s plans mirror Apple’s. The online retailer is a distant second place to Apple’s iTunes but it leads all other competitors in digital download sales. While the company doesn’t have any huge new services like 2011’s CloudPlayer, Amazon is working to improve accessibility to its wares. In February, Amazon released an overhauled version of its Amazon MP3 app for Android devices. Better access means better sales.

Different delivery systems, comparable results

The days of wild profits for music publishers like Sony, Vivendi (PINK:VIVHY), and Disney (NYSE:DIS) during the reign of the CD won’t be coming back soon, but a realignment of the music ecosystem is at least settling into place.

The music industry thrived in the late 20th century thanks to a symbiotic relationship between retailers and the broadcast business. Before Clear Channel Communications shattered the competitive sphere of radio for all but the biggest-spending music labels, music publishers could reach audiences by pushing all types of music on the airwaves, and listeners would base many of their purchases on what they heard on the radio.

And even though labels worried about the impact of free Internet radio, music social networks, and other streaming services like Pandora (NYSE:P) and Spotify, it looks as if those services are having the same effect that radio did back during the height of its viability. Free Internet music broadcasts appear to be encouraging digital music sales.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, http://investorplace.com/2012/03/how-apple-google-amazon-and-sony-will-keep-the-music-industry-growing-aapl-goog-amzn-sne/.

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