Nielsen Rating System At Odds With RIAA's Claim
Of "Lost Sales"
RIAA says sales are down. Soundscan says "Wha..?" Who should
By Moses Avalon,
When speaking this month to a representative from Soundscan, the company
that provides much of the data for the Billboard Top 200 Chart, I
learned things that would contradict reported statements by the RIAA.
Mainly that US labels have had a significant reduction in sales over
the past three years. Cary Sherman, president of the RIAA, responded
personally, put his rebuttals on the record and in the process exposed
intriguing insight into the way the RIAA calculates "losses."
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Soundscan is a service owned by Nielsen, the company
that computes TV ratings. Soundscan uses the barcodes on CDs to
register sales at record stores. The correlated data contributes
to the Billboard chart listings, as well as much of the market research
that record companies use to determine which artists are worth keeping
My original reason for speaking to Soundscan was to
determine if the "free" barcode many CD Replicators provide with
a substantial order is a real added value to the indie artist, or
just a bogus premium that sounds more intriguing than it really
is. Replicators claim that with the barcode they give one can track
indie sales on Soundscan. I have my doubts.
The answer will be revealed in my Keyboard article
over the next few months, so I'm not going to spoil the punch here.
Through my interview with the Soundscan rep, however, I learned
- For the first quarter of 2003 Soundscan registered
147,000,000 records sold.
- For the 1st quarter of 2004 Soundscan will report
160,000,000 records sold.
That's 13,000,000 more units, almost a 10% increase
in sales since last year. He also confessed that 1st quarter "album
sales" (as opposed to overall sales) had increased 9.4% since 2003.
What gives? Didn't Cary Sherman recently attest to
the "fact" that there was a "7% decrease in revenue since last year."
(This quote was taken from Mr. Sherman's speech to Financial Times
Media at a Broadcasting Conference in London.) And didn't he name
piracy/file-sharing as the main reason? Yes, according to more than
one source. (http://musicdish.com/mag/index.php3?id=9338)
So, I asked the Soundscan rep, who would only speak
to me if I didn't use his name, "Would you disagree with what the
RIAA is implying?"
"I would NEVER disagree with the RIAA," he said.
Of course he wouldn't; the RIAA is, after all, arguably
Soundscan's biggest sycophant. But he did do the most amazing thing;
he proceeded to explain the rational that would allow both of these
seemingly inconsistent realities to exist in the same universe,
"The RIAA reports a sale as a unit SHIPPED to record stores. Whereas
Soundscan reports units sold [to the consumer] at the point of purchase.
So, you're talking about apples and oranges."
Really!?! I fact-checked this with Cary Sherman, who
confirmed, "He is correct," and added, regarding RIAA and Soundscan
data, that "The two sets of numbers tend to be similar, but because
of timing differences, they're usually a little different at any
point in time."
Similar?!?! How is a 10% increase for first quarter
of 2004 similar to, or a premonition of, a 7% decrease for the entire
year of 2004?
THE SECRET: "SHIPMENTS" = "SALES"
Now armed with the secret decoder formula, I went
back and read the RIAA and International Federation of the Phonographic
Industry (IFPI) Web sites more adroitly. Sure enough, every time
the RIAA complains of large drops in "unit sales" it includes international
sales, not strictly domestic. Every time it speaks to domestic "losses"
it is speaking ONLY of "units shipped in the US" to record stores.
It seemed obvious that if the RIAA confined their revenue statistics
to the US market alone they may not be able to publish ANY losses
in REVENUE at all.
But what about Sherman's statement of 7% "losses"
at the London conference? He answered, "I was speaking to an international
audience, [and] thought they'd want worldwide figures, rather than
Sherman's statements hinged on a statistic published
by the IFPI. "Surveys in all major markets prove [file-sharing]
is a major factor in the fall in world music sales, down 7% in 2003,
and down 14% in three years." (Their Web site, which claims to "represent
the industry worldwide," but, oddly enough, doesn't readily explain
what the anachronism, IFPI, means, has a "fact sheet" at (http://www.ifpi.org/site-content/press/20040330c.html)
But the RIAA's website chart claims only a 7.1% drop in units SHIPPED.
There is only one logical integration of all these
statistics with the recent Soundscan data: even though actual point-of-purchase
sales are up by about 9% in the US - and the industry sold over
13,000,000 more units in 2004 (1st quarter) than in 2003 (1st quarter)
- the Industry is still claiming a loss of 7% because RIAA members
shipped 7% fewer records than in 2003.
Forget the confusing percentages, here's an oversimplified
example: I shipped 1000 units last year and sold 700 of them. This
year I sold 770 units but shipped only 930 units. I shipped 10%
less units this year. And this is what the RIAA wants the public
to accept as "a loss."
I'll go a step further. This fact, that Sherman seems
to confirm, should logically mean a smaller percentage of returns.
But, shouldn't fewer returns mean higher profit margins and faster
turnaround; and shouldn't that be good for both the retail and wholesale
side of the industry? "Sure," admits Sherman today, "but I have
no idea what US shipments looked like in the first quarter." Then
how can he claim world-wide "losses" in his March speech to Financial
Times New Media?
Roger Goff, an Entertainment lawyer in Los Angeles
confirms that, indeed, retail has reacted this way in the Post-Napster
era. "Retail used to buy 10 weeks-worth [of records] and now they
realize, in most cases, they don't have to carry more than two weeks-worth."
In other words, retail has adapted to more of an "on demand" model
(similar to the Internet) as opposed to the, accepting-tons-of-product-shoved-down-the-pipeline
model record companies imposed on them in the past.
I misplaced my MBA this morning, but my mental math
assures me that fewer returns and shorter reserves should mean an
INCREASE in record company profits and artists' royalties. If this
is true, and file-sharing is responsible, one could conclude that
"on-line piracy" has been the single greatest factor in increasing
profits, because it forces record companies to keep a tighter lid
on mass-production and costs.
Sherman's response is pithy, "Managing shipment and
returns better is obviously a good thing. But to credit file-sharing
is silly. That's like saying if enough thieves were holding up delivery
trucks and causing massive losses to the industry, the thieves should
be thanked for forcing record companies to keep a tighter lid on
My pithy rebuttal: No, it's like acknowledging what
most retail industries have been doing for the past ten centuries;
theft (even by employees) needs to be built into the cost of doing
business, and file-sharing has forced the record sales side of the
industry to finally adjust to that dynamic. Should we thank the
"thieves?" No, but we shouldn't let off the hook those who blame
others for "losses," only to ask Congress to legislate fix-its due
to their own mismanagement.
SO ARE THERE REAL LOSSES?
Maybe, but "we, the people" will never be able to
figure them out due to this confusion, deliberate or not. Regardless,
it's certainly been a great excuse for majors to clean house of
over-paid executives. But as for a US major label's bottom line,
the effect could never rise to the RIAA's/IFPI's claim that file-sharing
is the "major factor" of revenue loss for labels, and certainly
not for artists.
Nope. My analysis suggests that the number one reason
for the loss of jobs in the industry is self-perpetuating major
label PR, and that the number one cause of loss of unit sales revenue
for artists is STILL record label accounting practices.
Take a bow, fellas; you finally beat the geeks.
Of A Record Producer"
to Survive the Scams and Shams of the Music Business
by Moses Avalon
The tried and true classic which has now become the
defacto industry bible for musicians, writers, producers
and artists. Now expanded and updated for 2002
by the MusicDish
Network. Copyright © Tag
It 2004 - Republished with Permission