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There has been a lot of talk about the decline of the traditional entertainment industry the past several years.

As a growing and maturing Internet has become a much more powerful medium for the distribution of media, traditional entertainment enterprises, from television networks to record labels, have increasingly faced new challenges that many argued threaten their survival.

But has the decline of the entertainment establishment been overblown? Is the entertainment industry actually experiencing a sort of revival?

Two recent news items hint at the possibility.

David Chartier of Ars Technica recently reported on the fact that the movie industry experienced record profits in 2007 and despite a slight decrease in tickets sold in 2008 in the US and Canada, realized slightly higher box office earnings in 2008 thanks to higher ticket prices.

Despite the Motion Picture Association of America's worries over piracy, 2008 proved that Hollywood is still able to produce blockbuster hits that consumers will pay to see.

The Dark Knight was the second highest-grossing release in history, taking in a whopping $531 million. Warner Bros. alone took in $1.79 billion thanks to The Dark Knight and other hits like Sex in the City and Get Smart.

In the UK, the Entertainment Retailers Association just reported a strong year for home entertainment sales.

Game sales were up 17% thanks to strong growth in console buying.

Sales of digital music grew an impressive 41.5%, propelling total single sales to a 3.3% increase over 2007 figures despite a 43% decline in physical single sales. Digital album sales were up 65% and despite the weakness in physical music, CD sales were actually up in Q4 2008.

The entertainment industry's 2008 was so impressive that even the Electronic Frontier Foundation, which has often been a legal foe of entertainment companies in the debate over piracy, couldn't help but point out how well the industry is doing.

So what gives? Has the entertainment industry, with its complaints about the threats of piracy, played the boy who cried wolf? Have tough economic times helped the entertainment industry as they have done in the past? Or is it something else?

The biggest question - are these bright spots temporary anomalies or do they indicate that the entertainment industry is still on solid ground?

I think the answer to the former questions is - a bit of everything. And I think the answer to whether or not the entertainment industry still has its footing is 'maybe'.

While there's no doubt that piracy is a threat to the entertainment industry, I think many, including the industry itself, were fooled into believing that piracy should be a primary focus.

Take for instance the RIAA's recent decision to stop suing individual file sharers and to instead turn to ISPs for policing. This move is nothing other than an admission that its approach to dealing with the issue of piracy was misguided and, most importantly, a waste of resources. While the record labels do have a lot of issues to grapple with, including piracy, I think it's evident that record labels are making changes that should be beneficial over the long term. From the licensing of music for use in new markets like video games to aggressive deal making with digital distributors like Apple, the record labels are clearly doing more than just complaining.

Although they'd be loathe to admit it, we cannot rule out the possibility that all that 'piracy' (or 'sharing' depending on your perspective) has actually served a promotional purpose, as many have argued. As entertainment companies develop new revenue streams online, some might go so far as to argue that the revenue lost to piracy was going to be lost anyway and that piracy, regardless of morality, will benefit entertainment companies in some fashion as they get better at monetizing their digital initiatives.

When it comes to the economic environment, we shouldn't discount the possibility that this is helping the entertainment industry. As Ray Waddell of Billboard told the Associated Press recently in an article reporting on the record 2008 experienced by the concert industry, "[A concert is] not something you can get a fix for somewhere else. There's no other substitute for it, and compared to other things, it's pretty affordable."

From concerts to movies to video games, entertainment does provide an escape from the bleak economic environment and while a long downturn won't be good for anyone, entertainment is one of those industries that has proven time and time again that bad times aren't bad for every industry, even if we believe that past results aren't guarantees of future performance.

But beyond the overblown piracy concerns which shifted focus and made things look far worse than they were and the benefits the entertainment industry may be realized from the economy, I think we have to recognize that the entertainment industry is finally adapting.

The fact that traditional entertainment companies like record labels are increasingly embracing digital, experimenting with new approaches and recognizing that they don't have the leverage they used to reminds me a little bit of the evolution of online retail. In the first .com boom, many called the death of major offline retailers, who seemed slow and clueless when it came to ecommerce. Yet after the bust, many brick and mortar retailers became successful multi-channel retailers with powerful internet presences. It simply takes big companies longer to adapt to new markets.

I think we're starting to see this with the entertainment companies online. Whether they are willing 'to go all the way' and, most importantly, can realign their cost structures with changing economics remains to be seen. No doubt we can expect to see hard times for some players and not all may survive. But those who do will likely emerge as stronger and more diverse businesses.

Given the fact that the business of entertainment had a better 2008 than might have been expected, hopefully in 2009 we'll see a continued trend - less complaining from the entertainment industry, less doomsaying from entertainment industry critics and more of the great entertainment that everybody loves.

Patricio Robles

Published 8 January, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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