We all know that the music and movie industries have been crippled by the digital revolution of the last 10 years. Some blame piracy and filesharing, others (including me) blame the economics. Regardless of the cause, we can all still agree that these are two giant industries brought to their knees by the internet… right?

Wrong, actually! The recorded music industry has been decimated in the last five years, there’s no doubt about that, but the film industry has actually been booming. Despite all their complaining about piracy (you wouldn’t rob a car, would you?) the industry has been growing remarkably. Take a look at these figures published by the UK Film Council (found via TechDirt):

  • The core UK film industry has grown 50% over the last 10 years
  • UK box office takings at record levels, with growth of over 60% over 10 years
  • They have had a 500% return on their investments in film
  • More films are being released, up over 30% in the last decade
  • Independent films are performing quite well, taking in nearly half the revenue of major studio films

So why has the recorded music industry been decimated while the movie industry is thriving? The answer lies in the economics at work – specifically the economics of scarcity and abundance.

The internet has transformed the distribution of film and music. They were once both limited in supply (there’s only so many plastic discs in the world) but they are now in infinite supply online. One copy of a song or a film can be replicated (copied and pasted) a million times over at practically no cost. When supply becomes abundant like this, price will plummet towards zero.

This has happened across both industries. Independent musicians find it very hard to command any price for an MP3, so too do YouTube with their videos. Larger monopolies (Record labels and Film Studios) are struggling to maintain high prices on mainstream products, but the market is finding ways of bringing the price to it’s natural equilibrium (think Napster, Limwire et al).

So both of these industries have had core products – relatively scarce CDs and DVDs – transformed into infinite, digital goods. The important difference between the two has come from what they’ve done with the remaining scarce products in their arsenal.

If you’ve noticed me using the term “recorded music” instead of just “music industry” it’s for a reason. The music industry as a whole has been booming too, boosted mostly by live performances. Tickets to see your favorite musician live in concert are limited and scarce – so they can still command a price. The experience isn’t something easily replicated and it’s not something you can download on a filesharing network. Better still, the abundance of freely available music online has created more fans listening to more music made by more musicians than ever before, which in turn is creating more demand for live concerts.

I know this seems hard to believe, given all the sky-is-falling talk we hear from the industry – but even the PRS in the UK recently reported (PDF) that 2009 saw a 4.7% rise in the industry’s total revenue.

As for the movie industry, I don’t have any supporting data, but my guess is that this is the same effect we’re seeing in their record numbers. The internet is enabling more film makers to make more movies to be watched by more fans than ever before. The cinema is still providing a scarce, difficult-to-replicate service (big screen & popcorn and all that), and so it’s reaping the rewards of a population more “into” movies than ever before.

And It’s Egg Shaped

So maybe the future is bright for these two industries that seemed doomed since the advent of file sharing? Don’t bet on it!

The music industry, instead of recognizing the value of a scarce concert ticket and nurturing it as a growth industry, are crippling it. They’re treating it as a replacement for CD sales and hiking ticket prices to plug the gap in the numbers. This, it seems, is starting to have pretty disasterous effects. I won’t go into it in much detail, but there are plenty of reports this summer of hundreds of cancelled shows, of a dismal Live Nation investor presentation, and the Ticketmaster CEO blaming piracy for driving up ticket prices.

The movie industry are also faced with the same opportunity. With home theatres becoming more and more affordable, they risk loosing out on a major source of income as the theater experience becomes easily replicated at home. This is why so many people view innovations like 3D and IMAX as important parts of the future of the movie industry – because they help enhance the cinema’s attraction and stop the experience drifting into abundance.

So what are they doing to make sure 3D is as appealing as possible to keep people coming back to the theaters? Jacking up the prices on the tickets AND charging for the glasses, of course!


(P.S. I love terrible puns, so I really wanted to end the post by saying “If only 3D glasses helped stop such short-sitedness”)