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Music CD Sales Still Dropping

New figures on U.S. music sales from Nielsen SoundScan show the music industry is still facing declining revenue, as sales of traditional music CDs declined 19.3 percent during the first half of 2007 to 205.7 million units. Digital music sales, however, continue to see strong growth, with digital music sales increasing 50 percent during the first half of 2007, compared to the first half of 2006. However, the revenue from growing digital sales isn’t enough to offset the losses from declining CD sales.

During the first half of 2007, SoundScan reports that U.S. consumers purchased 417.3 million digital music tracks. Sales of digital albums were also up 60 percent to 23.5 million units.

That digital music sales are eroding traditional album sales isn’t any great surprise: the a la carte purchase models offered by most online music services encourage users to purchase only the single tracks they want, rather than taking a chance with an entire album. In traditional CD format, individual singles never developed much of a market, but in the online world, singles are the dominant form of music sales. Nonetheless, it’s interesting that digital album sales managed to rise so significantly during the first half of 2007: the increase may be attributable to an ever-growing number of digital music buyers (some of whom will buy entire albums), and promotional efforts from labels and online music services to promote the purchase of entire albums.

The singles-oriented nature of the digital music business to date is one of the key reasons music distributors like Universal want to institute variable pricing on digital music services—especially Apple’s iTunes music store, which my most estimates controls about 70 percent of the digital music market. Record companies feel they could significantly increase their revenues from digital sales if they could charge a premium for “hot” tracks from contemporary artists—the sorts of tunes which live at the top of the pop, hip-hop, and R&B charts—while offering discount on back-catalog tracks in order to encourage sales to fans. Apple’s Steve Jobs has notoriously maintained that uniform pricing is key to consumers’ acceptance of digital music sales.

The music industry has also blamed declining revenue on digital piracy, claiming music consumers are downloading unauthorized copies of music from file sharing services and other sources rather than purchasing music from legal sources. Although there’s no doubt digital music piracy is a reality, its impact on overall music sales has been the subject of considerable debate—if nothing else, the music industry can take some heart that increased sales of legitimate digital tracks is an indication of consumers’ willingness to purchase digital music from legitimate sources.

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