Did the music business just kill the vinyl revival?

A few months ago I wrote about my return to vinyl gave up 34 years ago.

But I was shocked by what I encountered. Few of the albums I wanted were available on vinyl. The prices were outrageously high. The whole market seemed designed to discourage buyers.

I had heard so many big claims about the vinyl resurgence, but the reality was very disappointing. And I was a late adopter – the revival had been going on for a decade, but record labels still hadn’t got it done.

In my case, I ended up buying vinyl albums, but mostly used them. I just couldn’t find new pressings of the records I wanted. This was fine for me, but lousy for musicians and labels who don’t make any money selling a second-hand vinyl album.

I have some experience in these matters in my alternative career I worked with CEOs looking for high-growth product categories. I know how they handle these situations. But really, it’s not a mystery. The strategies you use in this kind of business are very simple:

(1) You aggressively add production capacityyom make sure you have enough product to stimulate growth.

(2) You reduce costs by achieving economies of scale. But this only happens because the unit cost decreases as the volume increases. So the main goal is to grow sales as hard and fast as possible.

(3) You continually lower prices to maintain demand. In some cases, you even set prices below your costs to accelerate growth. When I first saw companies doing this, I was skeptical: How can you make a profit if you sell below your cost? But I soon learned that you ended up with a huge payback.

(4) You keep expanding the product lineso you constantly have something new and exciting to sell to every potential buyer.

(5) You invest in R&D so that ultimately you have a next-generation technology to sustain long-term growth.

None of this is easy to do, but it’s not impossible. It just takes investment, focus, management commitment and hard work. And you will reap the benefits later. You turn a small company into a big company and enjoy a big payday.

The record labels could have done that with vinyl. Unit sales doubled in just 5 years. And these sales were insanely profitable, because much of the demand was for early music. So labels didn’t even have to pay to sign artists and cover the cost of recording sessions. The music was already there, the fixed costs had long since been written off.

All they had to do was press the damn album and send it to the store. How hard is that?

But what did the music industry do?

• They hate running factorieswhat hard work is. So they tried to outsource production instead of building it themselves. Chronic shortages resulted.

• They refuse to spend money on R&D, so they stuck with the same 1950s vinyl technology. In other words, the record business became the only entertainment industry in the world with no plan for technological innovation. In 2023, even bowling alleys, brothels and bookmakers are more technically savvy than the major record labels.

• Thi want easy money, so they kept the prices extremely high. That was bizarre because their R&D and catalog acquisition costs were essentially zero, and they could have priced vinyl aggressively. Instead, they treated vinyl as a luxury product while dreaming of it becoming a mass-market option as well. But you can’t do both without a careful market segmentation strategy that the labels never even started to think of.

• They like hype, so they focused on high visibility vinyl reissues, which look good in press releases, but didn’t bother to make back catalog albums available. After a decade of vinyl revival, they still hadn’t even taken the basic steps to offer a broad product line.

This is a lazy strategy and the exact opposite of what they should have done. And the results are, of course, predictable.

Here’s what I predicted my article 11 months ago.

The level of greed is off the charts. Since it is so hard to make money from music these days, the labels have decided to squeeze as much money as possible from vinyl fans. This is an area where Spotify and Apple don’t rule the roost, so why not charge $20 for vinyl? Or maybe thirty dollars is better. Hell, let’s ask for forty and see who buys it?

In other words, a technology that is 70 years old and in which labels have invested almost zero extra dollars is being priced as if it were a hot new innovation that requires billions of dollars in seed capital. This is like taking your old shoes and trying to sell them for twenty times what you paid for them.

In a market where retro is hot, you might get away with this, at least for a short while. Some of my readers will probably respond: Well if Taylor Swift fans are willing to pay forty dollarsit’s a totally fair price. That may be true, but it’s still a stupid price because the vinyl resurgence isn’t going to be a mass-market phenomenon at these prices. Having spent a lot of time studying the economics of pricing over the years, I can tell you with complete confidence that what record labels are doing right now will eventually be taught in business schools as a case study in mispriorities .

And now all this is starting to happen. Last week, Luminate has been year-end figures for the music market.

Despite all the hype, vinyl album sales only grew by 4%. I’ve heard some people praise this in silly news stories about the continued growth in vinyl.

But those numbers are a HUGE disappointment.

Just a year ago, the industry boasted of a vinyl market that did doubled in size in one year. In just 12 months, demand had risen from 21.4 to 41.7 million units.

But then, in 2022, the growth rate collapsed from 95% to 4%. That’s not slowing down, but hitting the brakes hard just before you hit the brick wall.

Take a look at the trend line that immediately tells you that the great growth spurt of recent years is over.

And if it weren’t for Taylor Swift, the vinyl market might actually have plummeted by 2022. This one artist did more to support vinyl sales than the much hyped Record Store Days.

But here’s an even more ominous sign. Half of vinyl buyers don’t own a record player. They apparently bought the Taylor Swift album as some sort of memorabilia, something cuter than a band T-shirt.

This can’t be a good thing for the record business. After all, how many records are you going to buy if you don’t have a turntable? This is like trying to sell Teslas as a status symbol to people who don’t drive.

Perhaps some brilliant minds at the major labels are already thinking ahead to the next craze, the alleged cassette tape resurgence.

But those people are blowing smoke. Cassette sales are minimal. Despite all the hype, they’re still under half a million units, roughly the streams The Weeknd gets in a weekend.

Here’s the bottom line on album sales across all formats (physical and digital). The small growth of vinyl and cassettes isn’t even enough to offset the drop in digital album purchases.

On an aggregated level, consumers simply don’t buy music. They prefer to stream it for pennies instead of buying it for dollars.

As these numbers make clear, vinyl has stalled at around the size of the moribund CD market.

I think it could be worse, but it can’t a lot worse. The music industry took the fastest growing segment and killed it through greed and laziness.

Had they followed the standard growth industry playbook (described above), they could have brought vinyl back as an option for the mass market. They could have easily convinced 40-50 million consumers to buy a dozen vinyl albums a year. That would create a total market more than 10 times the size of the current one.

In that kind of world, musicians would benefit. Record stores would flourish. Fan loyalty would increase. And record labels would have more money for themselves and a legitimate way to make money that doesn’t rely on Silicon Valley technocrats and hostile streaming platforms.

In short, the culture would be healthier.

Maybe this can still happen. But once you pass up an opportunity like that, you rarely get a second chance.

As for me, I have zero faith in the people who made this mess in the first place. Nothing gets solved until they are replaced by visionaries who can actually lead the music business in the right direction.

Sometimes those people come forward I recently reported to Barnes & Noble, where a new leader at the top reversed course and solved longstanding problems. And I know that people like that exist in the music world. I’ve even met a few, but not in the executive suite of a major label.