No doubt, Vinyl has made a long-term comeback from the abyss, growing from an annual 1.2 m units in 2001 to over 47.7 m units in 2021; (source: Luminate). RIAA states the Year-over-Year growth was 61% reaching $1B in revenue for 2021. But will this continue as consumers begin to leave the house to engage in other entertainment activities under the headwinds of inflation and a pending economic slowdown? Having been an analog music fan, I have been following this market very closely and I made some observations over the last few months.
First, I was pleased to see the investments in vinyl manufacturing, improved quality, and the launch of many catalog albums. But these cannot be the only enablers for sustainable market growth in the near term. Second, I do see the Vinyl market continuing to grow, but perhaps at a slower pace than the past 2 years that was fueled by COVID. It will be interesting to see how the vinyl market continues in demand, but also if it’s limited to special/limited releases or dominated by popular new releases and how catalog/re-issues continue.
It is likely, that we will see a more bifurcated market between high-quality records for audiophiles, ~$75 to $150 albums, and the larger pop-driven market by the younger generation where the price/cost pressures will play a larger role in the selection, ~<$25/album. Both markets will serve new releases and catalogs and the margin of the Audiophile albums will be much higher, but the unit TAM (Total Addressable Market) can be expected to decline, given the older generation that dominates that consumption may have changes in preferences in the post-pandemic area.
At this stage, I don’t think we see the record labels get back into the production of records to relieve the production shortage, but they could get into the cutting of the master discs used for the production; it will help them squeeze more costs, provide higher control on the quality of the mastering, and more control of the licensed material.
Ultimately the manufacturers will face real challenges if any significant slack in the overwhelming demand is realized given the new facility investments that have been made, rising variable costs, and ultimately increased retail pricing which will press down on volume. Hopefully, those vinyl factories invested vertically in their supply chain, built up strategic manufacturing advantages for yield and quality, and diversified their customer portfolios that will allow for a flagship margin audiophile product coupled with a volume mid-tier for the masses. Notice I did not say low end, I don’t see that prevailing. The customers of today are buying the packaging and the experience. A thin floppy record with low-cost packaging will struggle since that look and feel plays a big part in the decision to buy coupled of course with the artist’s image.
If the demand does not blink in 2022 and 2023, and no new capacity is brought in, then the vinyl manufacturers face a continuation of 12-month delays in backlog production. This may serve a few of the labels and artists but not the many that are waiting to include their fans and will motivate other solutions to serve that demand. Vinyl availability should not determine a new album release date. In the current environment, it is tough to invest in more production, given the risks unless those vinyl production profits were put to good use.
This year will be interesting as we move through the summer and towards the holiday season of 2022. It will be a litmus test for the return of Vinyl. Stabilizing the vinyl market in both demand and supply will play a bigger role as this come-back story plays out in a digitally dominated world.
The vinyl manufacturers can perhaps focus on providing audiophile quality at mass-market costs/prices, perhaps adopting some manufacturing techniques from semi-conductor brands, (more on this in my previous blog) It can help differentiate their products and services to the labels/artists and future-proof the consumers purchases as they upgrade their listening systems over the years to come. It can also help grow the consumption market and keep it sticky, so they return for decades and not just a few years, and allow the vinyl market to grow out of its niche existence. Finally, vinyl manufacturers can seriously start looking at some advertising and marketing to drive loyalty and sales with the existing and the new fan base by mixing nostalgia with lifestyle. Vinyl manufacturers and the surrounding industry now play a key role in the future of vinyl and are at crucial juncture of overturning the pages in history, if executed well.