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Effects of recession on general spending patterns

It is probable that the recession will have an impact on general discretionary spending, as people both lose their jobs or earn less and also feel more cautious about the future and increase savings/debt repayments. The inability to extend credit may also mean that debts need to be repaid, or new credit becomes harder to find. In addition, with asset prices falling, whether they be shares or housing, all these factors will reduce people’s willingness to spend.

The length of the recession will clearly be crucial as all the effects of the recession will heighten as time goes on. Both individuals and business can hold on for a bit but it becomes harder and harder with time. In my view it is not likely to be a short recession, and it will be a long time before we all go back to our old ways, if ever. The effects of the recession of the thirties were still being felt in my parents’ generation’s attitudes and behaviour when I was growing up in the fifties and early sixties.

Effect on Music Spending

With total discretionary spending likely to reduce, the question then becomes whether the proportion spent on music is likely to increase or decrease. Given that it is so easy to acquire recorded music at virtually zero cost through p2p services, memory sticks, Bluetooth transfer, hard drive swapping and so on, it is probable that the proportion of music expenditure spent on recorded music is likely to decline.

It is also probable that the average price paid for tickets for live events will also decline. It is possible, though, that as the live experience cannot be digitally or electronically replicated, the damage done will be less than to recorded music. But merchandise sales will probably suffer as people think twice before buying the second t-shirt or that other CD. Seeing the artist is irreplaceable, buying the merch is discretionary. There is also a high likelihood that people will become more conservative and just go to see artists they know they will like, rather than going to see a band they have merely read about, just
to check them out.

Market impact on recorded music sales, directly and through retail

As sales overall decline the relentless evaporation of retail outlets for music will accelerate. At the same time the focusing of sales of hit product into the supermarkets and high street chains is likely to increase. In this environment there will be increased  ressure to reduce prices paid to the record companies. The record companies in turn will be forced to attempt to increase margins whilst reducing prices to the public.

Impact on online and digital biz

In the digital space it is likely that there will be a drift to ‘value’, so that those music services that provide perceived better value (such as subscription services) would slowly increase their market share versus more expensive granular sales models (iTunes). It is also likely that there will be a further drift to free or advertising driven mdels. Decline in retail will also continue to accelerate the drift to ecommerce from physical sales.

In the end however, we should not underestimate habits and the inertia of cnsumer behaviour, leading to less change than might seem logical.


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1 Comment

  1. http://news.bbc.co.uk/2/hi/business/7690096.stm
    and the currency drop is hitting imported act tours:
    “One artist, booked in June, has cut his performance fee by 25 per cent in exchange for a restructuring of his merchandise take. It was the only way to keep the tour viable”
    “Either the acts have taken a reduction or I’ve got rid of them … That’s how bleak the whole f—ing thing’s been.”
    “The dollar’s crash has increased risk exposure by up to $10 million for some promoters, industry sources say. One company is set to lose about $2 million on a tour tickets for which have already been put on sale.”(Source: SMH 21 October 2008 p.10)

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