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[ONLINE MEDIA] Digital Music Offsets CD Buying Dropoffs

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  • madchinaman
    Digital music offsets drop in CD buying Downloads rise 65% last year, down from a 150% jump in 05. The slowing growth is a worrisome sign as physical sales
    Message 1 of 1 , Jan 11 2:46 PM
      Digital music offsets drop in CD buying
      Downloads rise 65% last year, down from a 150% jump in '05. The
      slowing growth is a worrisome sign as physical sales continue to
      decline.
      By Alana Semuels, Times Staff Writer
      http://www.latimes.com/entertainment/news/music/la-fi-
      music5jan05,1,3218473.story


      Digital downloads helped the struggling music industry end 2006 on a
      positive note, but their once-sizzling beat is starting to slow.

      A Nielsen SoundScan report released Thursday showed music purchases
      in the U.S. exceeding 1 billion units for the second straight year as
      downloads continued to compensate for declining CD sales.

      But analysts remained skeptical that the industry was in a full
      turnaround, saying that the torrid growth in digital music sales was
      slowing.

      According to the report, which tracks data from more than 20,000
      retail locations and from every major digital music seller, 1.2
      billion units of albums, singles, music videos and digital tracks
      were sold in 2006, up 19.4% from the 1 billion units sold in 2005.

      Although total albums sold — including digital ones — fell 4.9% from
      a year earlier to 588.2 million, the decline was partly offset by a
      big increase in digital tracks sold, up from 352.7 million in 2005 to
      581.9 million in 2006.

      But some analysts said that the 65% growth in downloads paled in
      comparison with the 150% rise in digital purchases a year earlier, a
      sign that the industry could be in for tougher times.

      "Digital downloads are growing, but not at a fast enough rate to
      compensate for a decline in physical sales," said Richard Greenfield,
      a senior analyst at Pali Research in New York.

      Greenfield noted in a report that if digital sales increased by less
      than 40% in the future, total sales in the industry might fall below
      even the lackluster 1% growth reported in 2006.

      Digital downloads are slowing because the iPod market has matured, so
      fewer people are purchasing large volumes of digital music,
      Greenfield said. And the music industry's response to piracy has been
      less than adequate, he added.

      Technical complications in downloading and transferring digital files
      are also confusing some consumers, said Phil Leigh, a senior analyst
      at Inside Digital Media Inc.

      He blamed the slowing digital growth on digital rights management
      issues that restrict the uses of a work. Although Leigh expects that
      digital sales will eventually surpass physical album sales, he said
      that this couldn't happen with the technical restrictions.

      Still, the growth figures are nothing to scoff at, said Brian
      Garrity, senior business correspondent at Billboard Magazine.

      "We are seeing a growing tide of digital consumers," he said. "I
      think we're going to see some healthy gains for the foreseeable
      future."

      The Nielsen numbers don't include some of the most promising digital
      opportunities for music labels, said Larry Kenswil, president of
      ELabs, the digital division of Universal Music Group. Downloads,
      which are becoming a smaller component of digital revenue, are "just
      one piece of the total picture," he said.

      The major labels are further exploiting such fast-growing products as
      mobile ring tones to diversify music sales. Digital recorded music
      accounted for 16.3% of Warner Music Group's total domestic recorded
      music revenue in the fiscal year that ended Sept. 30, 2006, up from
      7% the previous year.

      "We like the fact we have a business that is growing, albeit
      incrementally," said John Esposito, chief executive of WEA Corp.,
      Warner Music Group's U.S. sales and marketing company.

      Although some observers had expected the industry to perform better
      thanks to downloads, Billboard's Garrity said a lack of a sales
      decline was itself significant.

      Making the switch to completely digital will take awhile, he said,
      and companies need only stay afloat.

      "Tread water is the name of the game these days," he said.


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      alana.semuels@...

      *

      Chart toppers

      Top-selling albums of 2006 Title Artist Units sold
      (In millions)
      "High School Musical" Cast recording 3.48
      "Me and My Gang" Rascal Flatts 3.06
      "Some Hearts" Carrie Underwood 2.46
      "All the Right Reasons" Nickelback 2.31
      "Back to Bedlam" James Blunt 2.06
      "FutureSex/LoveSounds" Justin Timberlake 1.95
      "Taking the Long Way" Dixie Chicks 1.77
      "Breakthrough" Mary J. Blige 1.75
      "Now Vol. 21" Various artists 1.64
      "B'Day" Beyonce 1.60
      ---

      Most downloaded tracks Title Artist Units sold
      (In millions)
      "Bad Day"* Daniel Powter 1.88
      "Crazy"* Gnarls Barkley 1.53
      "Temperature"* Sean Paul 1.46
      "Over My Head (Cable Car)" Fray 1.41
      "Unwritten" Natasha Bedingfield 1.32
      "Hips Don't Lie" Shakira, featuring Wyclef 1.29
      "Dani California"* Red Hot Chili Peppers 1.20
      "SexyBack" (main version) Justin Timberlake, featuring T.I. 1.19
      "Move Along" All-American Rejects 1.18
      "Lips of an Angel" Hinder 1.12
      ---

      *Album version

      Sources: Nielsen SoundScan
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