Digital media has been on the rise over the last decade, slowly replacing traditional forms of tangible media as many consumers’ medium of choice. Industries being affected by this trend include newsprint, recorded music, movie production and book publishing. Many titans of these industries are finding themselves scrambling to adapt to shifting demands, having to be creative with financial maneuverings and product offerings. But, the impact of this digital trend does not stop with the companies directly involved. It reaches all of us, having a very real effect on the economy as a whole.
In February’s edition of The AccuVal Advisory, we discussed the printing industry in the insight Commercial Printing: A Fight on Two Fronts – Economics & Technology and the decade-long decrease in newspaper circulation. Has the American population simply lost interest in the news? On the contrary, the number of readers (regardless of medium) continues to increase each year. The simple fact is that more and more readers are choosing to fulfill their desire for news using alternate sources, primarily the internet.
While newspaper circulations have continued in a downward trend, USA Today – the most widely read newspaper in the U.S. – reported in May 2009 a 12% year-over-year traffic increase for the online version of the newspaper, USATODAY.com. Overall page views had increased by 75%. Rupert Murdoch, owner of The Wall Street Journal and other major publications, reportedly has predicted that print newspapers will be extinct in 20 to 30 years, replaced by digital news formats.
The trend of going to the internet for news has already forced some of the largest print news sources into bankruptcy situations. And it is widely speculated that, in the near future, many other large players in the news printing industry will be faced with similar adversity, prompting a probable move to digital-only versions of their publications. Such a transition would consequently lead to the closings of printing operations across the country.
Recorded music is also moving toward a predominantly digital market. The current demand for music, like the demand for news, is at an all-time high. Also, like news, consumers are increasingly choosing digital sources, primarily the internet, as their go-to source for music. The digital music business grew in 2008 by 25%, reaching a 20% share of recorded music sales (up from 15% in 2007). Meanwhile, sales of CDs have been steadily decreasing (down 20% in the first quarter of 2007 alone). In the first half of 2009 it is reported that CDs made up only 65% of all music sold, and industry experts anticipate that by 2011 sales of digital music will surpass sales of CDs.
This trend is certainly good news for companies such as Apple iTunes and Amazon.com, who are the top two choices among consumers of music downloads. But manufacturers of CDs are facing the hard reality of a market that does not love them anymore. Certain CD production facilities in the U.S. have shut down operations and sold millions of dollars of production machinery at highly discounted prices to overseas manufacturers.
Two of the more recent digital shifts have taken place in the recorded movie and book publishing industries. While internet downloads of movies and cable pay-per-view and on-demand features are still heavily outweighed by their physical counterparts, U.S. consumers’ demand for the new digital wave is mirroring that of the news and recorded music industries. In 2008, sales and rentals of DVDs and Blu-ray discs fell 5.7%, while online sales and rentals increased by 73%. This trend is expected to continue, with an ultimate decline in industry revenue of over 6% for 2009.
Unlike the recorded music industry, sales and rentals of DVDs and Blu-ray discs are not in imminent danger of being eclipsed by sales and rentals of digital movies. But it can be expected that, in the coming years, the tipping point will be reached as consumer demands continue to shift.
In December 2008, we discussed the book publishing industry in the insight titled Book Publishing: The Writing is on the Screen – Changes are Coming. Electronic versions of books are becoming increasingly available from sources such as Amazon.com and Barnes & Noble. According to The Association of American Publishers, the sale of electronic books in June 2009 was up 150% from June 2008 to over $12 million. The Los Angeles Times reported that an online survey indicated that 1 in 5 shoppers plan to purchase an electronic book reader this holiday season. As the e-book phenomenon heats up, book printers suffer the consequences of this digital shift. While retailers of print books are able to adapt to new demands by offering digital versions of books, an alternative is not as readily available to the publishers of books. Book publishing (printing) companies are facing the same financial turmoil as news printers.
The truth is that it is a lot more profitable for companies to offer digital versions of their products rather than the traditional, physical versions. On the whole, a very noble battle is being fought to adapt to changing consumer demands. But stalwarts of these industries, despite their continuing efforts, are being forced into a financial challenge that has tangible consequences such as the loss of thousands of jobs and the obsolescence of billions of dollars of production machinery.
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