Going to the mall to buy music may no longer be a rite of passage for adolescents.
For the first time last year, nearly half of all teenagers bought no compact discs, a dramatic increase from 2006, when 38% of teens shunned such purchases, according to a new report released Tuesday.
The illegal sharing of music online continued to soar in 2007, but there was one sign of hope that legal downloading was picking up steam. In the last year, Apple Inc.'s iTunes store, which sells only digital downloads, jumped ahead of Best Buy Co. to become the No. 2 U.S. music seller, trailing Wal-Mart Stores Inc.
That could be hopeful news for the music industry, which has been scrambling in recent years to replace its rapidly disappearing CD sales with music sold online. The number of CDs sold in the U.S. fell 19% in 2007 from the previous year while sales of digital songs jumped 45%, Nielsen SoundScan said.
The number of people buying music legally from online music stores jumped 21% to 29 million last year from 24 million in 2006, according to the study by NPD Group, a market research firm in Port Washington, N.Y.
NPD declined to release figures on individual retailers' sales or their market shares, so it is impossible to know how close iTunes sales are to Wal-Mart's. The NPD market ranking of music retailers is based on a study of the music habits of Americans 13 and older over the last week.
The report, which involved 5,000 people who answered questions online, highlighted a generational split. The increase in legal online sales was driven by people 36 to 50, the report said, giving the music industry an opportunity to target these customers by tapping into its older catalogs.
That's not to say iTunes is not popular with the younger set. Mallory Portillo, 24, an executive assistant in Santa Monica, said she hadn't bought a CD in five years, but typically spent more than $100 a month buying music online. She will turn to illegal music sharing sites only if she can't find new releases or more obscure music on iTunes, she said.
Buying online saves her the step of having to load a CD onto her laptop so that she can then transfer the files to her iPod.
Her most recent purchase came two days ago, when she spent $19.99 on iTunes for Michael Jackson's 25th anniversary edition of "Thriller."
"Hopefully it doesn't come back to haunt me one day that my 'Thriller' CD is on my computer and therefore not a collector's item," she said.
The increase in online spending didn't offset the revenue lost from the drop in CD sales and from illegal downloading. Last year, about 1 million consumers stopped buying CDs, according to NPD.
There are several ways for consumers to expand a digital music collection. They can buy music at online stores such as iTunes and Amazon.com's MP3 store. They also can convert their CD collection into a digital format.
What concerns the music industry is illegal Internet file-sharing on websites where people pick up a digital song or album that others have uploaded. They can also do what is known as peer-to-peer file sharing, when people download music while temporarily opening up their computers to others to pick up music. The music industry says people who obtain music free online are breaking the law.
Rachel Rottman, 14, says she hasn't bought a CD in a year. The Santa Monica High School freshman says she downloads five or six songs a day, using paid services such as iTunes and social networking site MySpace, where bands post songs for free download. Rachel said she had about 2,600 songs stored on her computer.
Before getting a computer in the seventh grade, she always bought CDs. But now it's too much trouble, she said.
"You have to go to the store and then you have to pay -- I don't know how much, $12, I'm guessing? -- then you have to put it on your computer," Rachel said. "When you download it, it's right there."
Hunter Conrad, an eighth-grader at Lincoln Middle School in Santa Monica, says she downloads about 80% of her music from iTunes, "but when it's an artist I really like, I'll buy the original CD."
Out of her group of friends, she's "one of the few" who still buy CDs, she said. Most of her buddies download for the convenience, to save money and to get only the songs they like.
"Nobody really wants the other songs [on an album]," Hunter, 14, said. "They just want the hits."
In the last year, consumers paid for 42% of the music they obtained, the report said. That was down from 48% in 2006 and more than 50% in 2005.
"The trend is continuing but it will flatten because there are people who will always want the physical," said Ted Cohen, managing partner at TAG Strategic, a digital media advisory firm.
Over the last year, the music industry has pushed back. Some companies now permit online music stores to sell songs without copyright protections in hopes of making it easier for consumers to move digital music to different computers and devices, and thus remove the temptation to download it illegally.
Some music companies have thrown support behind Amazon's MP3 store, which competes with iTunes. The music industry has also sued fans to stop them from downloading and sharing music without paying for it.
The legal efforts may have had an effect. The report said that the portion of survey respondents who shared music on sites that facilitate illegal downloads was 19% in 2007, the same as 2006. But those who do it are doing it more. Some said they got more than 3,000 songs a year this way.
Two years ago, teenagers accounted for 15% of CD sales. In 2007, the figure was 10%. The digital music world has yet to completely capture the attentions of Isaac Kahn and his friend Charlie Williams, both 14. They buy music online but prefer to go to the Amoeba store on Sunset Boulevard in Hollywood and thumb through the CDs. "I like to look at CDs and see if there's anything else I might want to buy," Isaac said.
Charlie, who recently bought a device to transform his father's 300 records into digital files, said many teens download music illegally because they are on computers. But he doesn't have a computer. And besides, he said, "I'm a musician myself; I prefer to just buy it."
Quinn reported from San Francisco, Chang from Los Angeles.