Economics / December 2008

Demand for CDs and DVDs


Compact disc

CDs

The rise in popularity of MP3 players has led to a drop in demand for CDs. In 2005, 8 percent of Americans owned MP3s. In 2006, that number rose to 27 percent. In addition, 45 percent of the public was downloading music. The future of CDs seems uncertain. Although CDs by high profile performers tend to do well when they first go on the market, demand drops rapidly. Most consumers just want the one or two songs from the CD, and don’t wish to pay for the whole package.
As a result, some small music retailers are going out of business, but others remain optimistic. They think true music fans will continue going to music stores. They point out that the demand for vinyl records has remained steady–admittedly due in part to the superior sound quality of vinyl over digital media. But serious fans also want to continue using music stores as a meeting place for sharing ideas and suggestions with others like them. Furthermore, true music fans don’t only want individual songs; they want the liner notes, lyrics, and art that come with CDs and records.

DVDs

Although DVD sales have slowed considerably, home entertainment industry officials expect DVDs to remain consumers’ preferred way of watching movies for the next ten years. Most consumers like the convenience of watching at home and the ease of use. In addition, it can be less expensive to purchase a movie on DVD than to take an entire family to the theater. Various factors contribute to the flat demand for DVDs. Consumers today have a variety of choices for viewing movies. They can still go to the theater, and many get video on demand, pay per view services, or Internet downloads. Another factor is that much of the demand for DVDs has been met. Most movies as well as many popular television shows have become available on DVD over the years, so the public has had time to purchase the ones they want. Fewer new movies are available today. Nonetheless, most Americans continue to watch DVDs–but they are renting rather than buying. The Internet and mail order service Netflix, for example, had five million customers in 2006 and anticipates having 20 million by 2012. Studio officials have mixed feelings about the success of rentals. Studios make $2.25 on a DVD rental and $17.26 on a DVD sale.

Sources:

  • Leeds, Jeff. “Squeezing Money From Music.” The New York Times, December 11, 2006.
  • Torline, Jennifer. “CDs for sale.” The Wichita Eagle, January 29, 2007.
  • “Sun setting on CD sales.” Ventura County Star, June 4, 2006.
  • “Study: DVDs will remain no. 1 format.” Chain Drug Review, November 20, 2006.
  • Belson, Ken. “After a heady ascent, the DVD is stuck in pause.” International Herald Tribune, June 14, 2006.

Demand and supply of labor

As the world economy becomes increasingly globalized, white collar as well as blue collar American jobs are being outsourced. Many people in the United States worry that the supply of jobs will run out. New York Times columnist Thomas Friedman offers some ideas. He believes the U.S. economy needs Americans to stay true to their roots as innovators who design and sell new goods and services to the world. In his book The World Is Flat, Friedman lists job categories where labor will be in demand in the future.

Two categories include jobs that are very familiar: people with special talents, such as professional athletes, singers, or novelists, and people who provide services to a community, such as hair stylists, doctors, and bakers. Another group of categories include people who can work with technology. Friedman includes people who understand and can use math, people who can adapt technologies to new uses, and people who can apply technology to increase productivity.

Two categories encompass jobs that take advantage of globalization: people who can work with people in parts of the world that are active during off hours in the U.S. and people who can offer products that were not available before. Friedman also believes there will be a strong demand for workers with “people skills”–people who can communicate complex ideas, such as teachers, salespeople, and managers, and people who can bring excitement to what they do and attract customers. Perhaps newest category of jobs for the future is “green” jobs. Friedman believes that opportunities abound for people who can make any line of work or product more eco friendly.

Sources:

  • Friedman, Thomas. “Tom’s Journal.” By Terence Smith. NewsHour with Jim Lehrer, March 9, 2004.
  • Friedman, Thomas. “Transcript of Flattening World Challenges Imagination.” By Nayan Chanda. YaleGlobal Online, March 30, 2007. http://yaleglobal.yale.edu/ article.print?id=9044.

Factors affecting the business cycle

Early 2008 saw a contraction in the business cycle. In spite of the fact that the nation’s economy had not shrunk for two consecutive quarters, some economists believe that it has entered a recession. They point to economic growth of less than 1 percent in the first quarter, combined with inflation, a weak dollar, rising unemployment, and tight credit. Many consumers agree and have begun to cut back on spending. But other economists believe that a recession has not begun and can be forestalled if the credit problems created by problems in the housing market are resolved.

Not all states are being affected equally by the contraction of the economy. In January 2008, the economies of 15 states were in danger of recession. These include states like Michigan and Ohio that depend heavily on the automobile industry and Sun Belt states that depended on home construction. On the other hand 30 other states had growing economies. Farming states are benefiting from rising food prices and increasing overseas demand for grain and other crops. Thanks to the weak dollar, states that depend on exports are doing well, as are states with tourism industries since more Americans are staying home and foreign tourists are vacationing in the United States.

Analysts worry about how the contraction of the American economy will affect the rest of the world. The United States has the largest economy in the world. Although other countries can sell to each other in the global economy, the United States is a major consumer of goods from around the world. A slowdown in the United States can result in an economic slowdown everywhere.

Sources:

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