As 2005 comes to a close, the music industry is singing the same old tune: The Sales Slump Blues.
According to Nielsen SoundScan, the information system that tracks sales of music and music video product throughout the United States and Canada, sales of music CDs in the U.S. are down almost 7 percent from last year. Album sales in 2004 totaled 480.6 million; sales through late October of this year reached 446.9 million.
Meanwhile, legal digital downloading shows no signs of slowing down. Paid download sales grew 175 percent the first half of 2005. Nielsen reported digital sales in 2004 of 101 million. Spurred by the iPod revolution, that number grew to 264.4 million this year. There are more than 230 online sites where consumers can buy music legally, up from 50 a year ago, according to the International Federation of the Phonographic Industry (IFPI).
"I think CD sales are going to continue to decline," says Owen Sloane, a Los Angeles music attorney who specializes in music and intellectual property. "I think that the problem with the CD is that they were put out with just a few tracks that were very attractive to people, which fueled the single sales for companies like Apple iTunes."
The growth of broadband has contributed greatly to the surge in digital sales, increasing penetration of mobile phones and iPods. The digital music market has taken over the value of the singles market.
"The digital market has proven to be a viable means to deliver to the customers, period," says Dean Ernst, director of Promo Only MPE, the country's leading digital distributor of music content. "Prior to Apple with the iPod, there was no organized way to put the downloads on a portable player. Music now is being sent much faster with very little time between the studio and the master. Just the distribution has changed."
Ernst, a 20-year industry veteran who has worked as a DJ and a label executive, believes the notion of the music industry in decline is flawed. The industry, he says, is in flux, although it might be in a slump compared to the CD sales boom of the mid- to late-1990s.
"The distribution of music has come a remarkable distance in terms of modernization and is set for more growth in coming years," Ernst says.
CD sales might not be what they once were, but the physical format is not going away any time soon.
"The CD, I think, is here to stay," Sloane says. "It's much more revolutionary than one format replacing another. When it was the LP or a cassette, it was still physical music. There's more of a revolution in how the music is consumed, not how it's configured."
Beyond digital downloading affecting sales, there's the subjective charge that albums just aren't as good as they used to be.
"The consumer starts buying CDs after one or two hot singles. That's not because of downloading," says Blue Williams, a veteran industry expert and CEO of Family Tree Entertainment in New York. He also manages hip-hop supergroup OutKast. "That's just how the industry has become so corporate that they haven't concentrated on the quality of the music."
The big advantage of online music services is that customers can cherry-pick the songs they want from albums. Economically conscious music fans would rather spend 99 cents on the tune they really want instead of $18 on a CD laden with filler.
"It's really less about album vs. single," says Jay Frank, head of programming and artist relations at Yahoo! Music. "The beauty of an online music subscription service is that it's low-priced - $5 a month - and you can listen to a million songs. The artist gets paid; the label gets paid. People can explore new music. People are using it as a guide to buy new music."