Digital music offsets drop in CD buying
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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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
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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 Fray 1.41 Car)” “Unwritten” Natasha Bedingfield 1.32 “Hips Don’t Lie” Shakira, featuring Wyclef 1.29 “Dani California”* Red Hot Chili Peppers 1.20 “SexyBack” (main Justin Timberlake, featuring 1.19 version) T.I. “Move Along” All-American Rejects 1.18 “Lips of an Angel” Hinder 1.12
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*Album version
Sources: Nielsen SoundScan
