The Internet, Deflationary Effect – Music Stores - Its Just The Beginning

USA Today ran a story about U.S. music album sales. Get this: 2005 album sales were down 7% from the previous year while digital downloads of music doubled! U.S. album sales were down about 7% as 2005 drew to a close, but the budding market for music downloads, which more than doubled over last year, helped narrow the revenue gap. The article goes on to note that this isn’t particularly bad news for recording companies, but “it doesn’t bode well for music retailers.” Combined, album and singles sales fell about 8% over the same time last year. More than 95% of music is sold in CD format. Downloaded tracks from online retailers soared to 332.7 million this year, compared with 134.2 million in 2004, an increase of 148%. Download sales increased by 350% over the prior year. Michael Hyatt predicts, a big enough slice of the book reading public will opt for digital delivery and that will have a significant, disruptive effect on the entire industry. As he sees it, 5-10 percent reduction in sales would wreak havoc. It’s already happening with newspapers and magazines. In the online world through comparison shopping, targeted advertising, promotional schemes, personalization and preference patterns all provide unique value that can potentially drive offline sale as well quite significantly. Add mobile technologies and online world - the combination can really create deep impact in the offline world.

The Stalwart thinks that while today it's music stores, many kinds of mall stores are plainly threatened by the internet as well, which doesn't bode to well for malls. At a minimum, losing music stores will impact the mall's pricing power in terms of rent. As ameritrade CEO once said, in an environment where productivity, efficiency and scalability is the name of the game, you want to go where your costs are reasonable. The internet should have a deflationary effect, eventually, on land prices. The more technology changes the financial industry, as more work can be done in places like India and Omaha, the price in major metro’s like NYC would get a hit. While it hasn't happened yet, but it likely will -It's also hard to see how, over the long term, the internet won't have an effect on other commodities like paper and energy. As at this time, it doesn't seem like we've witnessed the true productivity gains form the internet. While there is a benefit from technology, obviously, to business, the true economic gains come when land and other commodities can truly be reduced or substituted for something cheaper. In the age of Youtube & Google Video, it is clear that What we are now seeing is just the beginning!!.