Statistics Canada is out today with a report on the state of the recording industry. The news is not good as the government' s statistics agency reports that the Canadian recording industry experienced its worst performance in six years in 2003.
While this is old news – similar numbers have been supplied CRIA for months – there is some new data that merits further examination.
First, Statscan attributes the decline to two potential factors file sharing (which it misleadingly refers to as "illegal file downloads") and competition for the entertainment dollar from other sources such as DVDs and video games. As I have chronicled elsewhere, I believe the data suggests that file sharing is a relatively small part of the story. Competition for the entertainment dollar has certainly had an impact as the DVD was not even a consumer product at the time of the 1998 Statscan benchmark.
Just as important, however, is where those dollars are spent. The emergence of the big box retailers such as Wal-Mart (now the leading music retailer in North America) has had a major impact on pricing and back catalog sales. The pricing pressure remains evident as sales by volume are up in Canada in 2005, yet revenues have declined.
The back catalog issue, which focuses on the limited number of CDs sold at stores like Wal-Mart may be even more important than is commonly realized. The impact cannot be understated – in an industry that relied on 25 to 40 percent of revenue from sales of older works, the disappearance of those works from the shelves of the dominant retail channel must hurt industry revenues.
The impact of this development becomes even more important when you consider the Statscan data on new releases. Today' s report indicates that new releases declined by 16.5 percent between 2003 and 1998, approaching the 20.5 percent revenue decline. The lack of new releases should stand out as a critical development as the reduced product undoubtedly reduces revenues, particularly at big box retailers who carry virtually nothing but new releases.
The other major story in the Statscan data is the profile of new releases by Canadian artists. Statscan reports that Canadian artists continue to comprise about 16 percent of the market, not the 23 percent that the industry has touted. At 16 percent, the royalty decline for Canadian artists is even less pronounced that previously expected with the private copying levy covering much, if not all, of the shortfall.
Even more interesting is the source of new Canadian music. Statscan reports that foreign controlled companies (the major CRIA members) comprise 85 percent of the Canadian retail market. Despite their dominant share of the market, the CRIA labels produced only 100 new Canadian releases in 2003, less than half the number of Canadian releases by those same companies in 1998 (and under three percent of their total releases).
The smaller Canadian controlled companies (of which there are far more – 13 foreign controlled labels to 287 Canadian controlled labels) released 804 new Canadian releases that same year, a drop of only 17 releases from 1998. The revenue story is similar as the foreign labels experienced a much sharper decline in Canadian revenue than did the Canadian labels.
What does this say?
Simply put, CRIA's foreign labels are a tiny part of the development of new Canadian artists. They are responsible for only 11 percent of the total Canadian new releases and are almost solely to blame for the decline in the number of new Canadian releases. Canadian music continues to be released as it always has, it is just not CRIA's foreign labels who are backing the Canadian music scene. Perhaps Ministers Emerson and Frulla might like to ask CRIA about these numbers the next time their lobbyists come calling with claims of protecting Canadian artists.