Last week, Trans World announced their Q4 2007 financial results. Music sales dropped 28% in Q4, the top 50 music titles dropped 35% in Q4 and for the entire year the store’s music sales dropped 23%.

Two weeks ago, the NPD group released a report indicating that “consumer music acquisition increased by 6 percent in 2007, but average annual per-capita music spending fell by 10 percent”. The report also indicated that one million consumers dropped out of the CD buyer market in 2007, led by younger consumers. According to the press release, 48 percent of U.S. teens did not purchase a single CD in 2007, compared to 38 percent in 2006. Also NPD ranked Apple’s iTunes as the number two US music retailer, only behind Wal-mart.

Also last week, JupiterResearch announced that the digital transition was well underway, but digital sales are not enough to save the music industry. The announcement went on to say that “Yahoo! became the third big player to drop out of on-demand subscription services”.

Is Apple going to be the recording industry’s nemesis? Who will step up to the plate and provide consumers with a healthy alternative? Yahoo! couldn’t do it. Tower Records couldn’t do it. Trans World isn’t doing it.

Apple really understands the entire music experience. Apple also understands how to make it “just an Apple experience” and how to “lock us in” to their approach.

As far as the CD is concerned, its time has passed, just as vinyl and tape cassettes. This is the time for digital music, either as downloads or streams. As the market evolves, I hope that we have more than one choice of digital retailer to purchase and experience music. Competition not only maintains a healthy price point, but it also helps create interesting innovation.

According to Macworld: As well as launching a rival to the iTunes music store UMG hopes to nurture the adoption of other music players such as Microsoft’s Zune, and develop a new business model in which music for consumers becomes essentially free.

JupiterResearch’s Mark Mulligan believes “the idea of working with device manufacturers to get revenue directly for music is not actually that crazy an idea”, while podcasting news provides us with Five Reasons Total Music Will Be A Total Failure.

From everything I’ve read, I’m of the opinion that Total Music is counterproductive in terms of DRM, consumer rights and business model.

The recording industry needs to agree on a viable approach to DRM that encompasses multiple devices, including the market leading Apple iPod. If Total Music doesn’t interoperate with Apple’s iTunes/iPod it will face an up-hill battle. Removing DRM and using watermark or similar technology will go a long way to overcoming the DRM issue we face today.

Total Music and its association with the big recording giants is likely to confuse people. On the one hand the recording industry is intimidating people through RIAA lawsuits, while on the other hand they want to hide the subscription fee so people don’t know they are paying for the right to legally listen to music.

No business model is free to the consumer. There’s always a hidden price to pay somewhere. It could be built into the purchase price of a device, subsidized by advertising or incorporated into a monthly phone bill – ultimately the consumer will be paying for the service. It seems to me that the recording industry is applying a web 2.0 approach to the Total Music business model and ultimately creating a very interesting experiment.

Clearly, this is an attempt by the recording industry to ensure that Apple iTunes/iPod does not develop a stranglehold on the digital music sector, something the PC industry couldn’t do with Microsoft. I believe that Total Music will be a distraction from the real work, that of alligning the business model with consumer behaviors and market opportunities.

We’ve gone full circle. The single is back and it looks like it’s here for good. Single digital track sales allow people to buy only the songs they want, and skip buying 10 track CDs, with song they may not want. While it looks like the music business is healthy, the revenue generated from album sales is declining faster than the increase in revenue from single digital tracks.

In an early post, The 3 track ablum and other heresies I suggested that one way for the recording industry to overcome this decline in 10 track albums might be to produce 3 track digital albums for the consumer. Hopefully, the labels are looking at this or other innovative ideas to overcome it’s woes.

Click here to listen to this program using the RealOne Player.

The panel split into two groups, the lawyers and the entrepreneurs. We had very different perspectives on how to solve the difficulties, complexities and time involved in negotiating content licensing, especially for new tech enabled entertainment startups.

Technology now enables us to push the edge of the envelope with new entertainment business models. Consumers and artists are ready to try new approaches. In fact, one audience member suggested that Creative Commons offers a solid alternative to the current approach.

This panel, reinforced my opinion that the greatest obstacle to new entertainment business models may be outdated copyright laws and not content pirates or fear of technology.

Last month, in an article in Forbes entitled “Why Online Music Will Stay Locked Up” it was noted that Universal Music Group, had been mulling the possibility of dropping usage restrictions, according to Amanda Marks, Universal’s executive vice president and general manager of digital distribution.

“It is a step that we would not take lightly,” Marks said, adding that “if further tests prove that this provides us with a net positive sales result, by which I mean sales increase more than piracy, then we will try to work out a reasonable solution.”

Just this week Digital Music News reported that Universal Music Group is now actively discussing a possible DRM-free play with Apple.

Between them, Universal and EMI have nearly 50% of the recording industry market share in music purchases. If Universal takes the plunge, it’s my bet that we’ll see the other 2 major labels, Sony BMG and Warner, quickly follow suit.

Wouldn’t it be great to be totally rid of DRM protected music this year. As a consumer, just to have full music interoperability between my different computers and music players, will open my wallet to purchase more online music. As the CEO of Avvenu, where we offer the ability to stream your iTunes music over the internet to another computer or a windows mobile phone, I’ll be happier when we can provide an even better listening experience for our users.

When a new album is created we often wait several months before it is available for purchase. Digital download versions of the songs are usually not available until the CD has been manufactured and has shipped to stores. Sometimes a single is available for digital download as a teaser for the whole album.

We hear that illegal music downloading via P2P networks is a major contributor to the decline of the recording industry. A recent survey noted there has been a decline in illegal downloading of digital copyright material by 24% over the last 3 years. Perhaps, the real issue with declining music sales is the recording industry’s fascination with its 10 track CD business model.

Let’s think out of the jewel case. New ideas for packaging music just might get the recording industry back on track. For example:

1. Stop thinking the CD is a 10 track album. Create 3 or 4 track albums!
2. Spend less time recording an album or spend the same amount of time on 3 to 4 different smaller track albums.
3. Spend more time in production, sequencing and combining songs in each smaller track album. Duplicate songs from one album to another if the sequencing makes sense.
4. Sell the single tracks and 3 song albums on digital download sites first, even before they are available as a physical medium. This is also a way to test which combination of songs works for the consumer by geographic region.
5. Price a 3 track album on digital download sites at a price that makes it attractive — say $2.49.
6. Market the music earlier, not just when it’s available as a physical medium.
7. In some cases, don’t even bother to deliver a physical album to brick and mortar retail stores.
8. Use internet streaming as a marketing medium, work with social networking web sites, recommendation engines, and sharing services to create viral adoption of new music — well before it’s available in a physical package.

Late last year, Tower records closed their doors for good.

It was reported in January, that 2006 overall CD sales fell by 5% from approx 619 million units to 588 million, with Independent stores feeling the brunt of the change, down by 18% and mass merchant sales down 4%. On the other hand, digital track sales in 2006 increased over 2005 by 65% to 582 million tracks. We all know that this was not enough to overcome the drop in CD sales.

Regardless of any other business management issues, retail music stores are victims of the larger issues around consumer interest in traditional CDs. It will only get worse unless the labels and artists deliver new approaches to the traditional CD.

What’s amazing is that the songs are being used for promotion, at live venues as well as on the band’s website and myspace page, but the ability to purchase this music is still several months away. Maintaining this manufacturing business model will ultimately be the downfall of the recording industry. Moving to digital economics where music is available for download even before it’s availability on CD (or even on CD at all) will go along way to increasing music sales. A modernization of the business model where digital economics are at the forefront may ultimately save the recording industry or at least morph it into a new substainable business.