Deconstructing Pop Culture: Record Sales and Theatrical Box Office
COLUMN: The Recording Industry Association of America (“RIAA”) is the trade association for the U.S. record industry. The Motion Picture Association of America (“MPAA”) is the trade association for the U.S. film industry. One of their pretend jobs is to compile and disseminate statistics pertinent to each of their respective businesses. Their favorite hobby, however, is to drop those statistics from their websites after a couple of years, which makes it impossible to discern historical trends. Fortunately I have solved this problem by maintaining a complete database of information since 1970. I have strived to do so on a yearly basis, since both the RIAA and the MPAA enjoy adjusting their figures retroactively, in response to various factors that only their analysts know for sure, but that probably are of dubious validity.
The RIAA number is for gross U.S. sales of sound recordings at manufacturer’s suggested retail list price (“MSRLP”). At the inception of the data set, this primarily comprised vinyl LP records. Later, it came to include audio cassettes, then compact discs, then digital downloads. To a large extent the MSRLP is an imaginary number. The actual average wholesale price to retail record stores is somewhere between 40% – 50% of that amount. On the accompanying Figure, the RIAA number is in dark blue, the third down from the top at the inception of the data series in 1970; it later migrates to second down from the top — see images bottom of page).
The MPAA number is for gross domestic theatrical box office admissions. This number also by and large is imaginary. The actual average license fee to theatrical exhibitors is approximately half of that amount. Particularly since the early 1990s, motion picture distributors receive a majority of their income from other sources, including television license fees, sales of video devices (at first, VHS tapes; now, DVDs), and international sales.
While of course there are many exceptions, domestic theatrical box office gross remains the best proxy for these additional revenue streams. The MPAA numbers frequently are criticized on the ground that actual theatrical box office admissions are declining, the only reason why the number keeps getting higher is because of increases in ticket price. In this flash analysis, I did not attempt to measure for this effect. My objective was to maintain as much compatibility as possible between the RIAA statistics and the MPAA statistics. On the accompanying Figure (second image, below), the MPAA number is in purple, the fourth down from the top.
An important task that neither the RIAA nor the MPAA perform is to inflation-adjust their data. I undertook to do this for them. I used the gross domestic product (“GDP”) implicit price deflators prepared by the U.S. Department of Commerce, Bureau of Economic Analysis on October 1st of each year. The current series is 2000 = 100. Normalized RIAA sales are in red on the accompanying Figure, the first down from the top. Normalized MPAA theatrical box office is in green, the second down from the top (at the inception of the data series in 1970; it later migrates to third down from the top).
As illustrated by the Figure (second image, below), there are two interesting things about these numbers. The first is that the U.S. record industry peaked in the late 1990s and has declined ever since, on both a “real” and an inflation-adjusted basis. On an inflation-adjusted basis, the film industry peaked approximately six years ago, and has been declining ever since. Even then, it has remained far less volatile than the record business.
The second point of note is that all four data series have converged. This potentially gives rise to half a dozen different interpretations. My analysis is that both have become increasingly marginalized as consumers are presented with other consumer entertainment software alternatives and substitutable competitors for leisure time expenditures, particularly including the Internet and video games.
Thanks to the RIAA and the MPAA for maintaining this data, such as it is.
Apr 1, 2009 @ 2:38 AM PDT
Great analysis David. It would be interesting to map this against the changes in enterprise valuations for pure music companies and film companies over this period (normalized of course).