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Weekly Digital Music Sales in Decline
June 16, 2006
Thomas Mennecke
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RIAA chairman and CEO Mitch Bainwol delivered several powerful statements quoted by USA Today on Monday. Mr. Bainwol declared victory over piracy, stating the problem had been “contained.” Furthermore, Mr. Bainwol credited digital downloads as reinvigorating the music industry and stunting the growth of file-sharing.

"The problem has not been eliminated…But we believe digital downloads have emerged into a growing, thriving business, and file-trading is flat."

Both these contentions are now under attack. A recent publication by P2P tracking firm Big Champagne found the P2P population had increased by 12.4% from May 2005 to May 2006. This brings the current P2P population to just over 9.7 million simultaneous individuals (this number does not include the ~3-6 million BitTorrent users.)

Additionally, a new study published by Pali Capital with statistics provided by Nielson/Soundscan has found that weekly digital music sales are, for the first time, in decline and below the yearly average. Already six weeks into the second quarter, if digital sales continue their current slide it will be the first time the music industry doesn’t see a least an 8% growth over the previous quarter. Neilson/Soundscan and have found that digital music sales have grown at least this rate for the last nine quarters.

It seems this rapid pace of growth has become tempered. While it’s true that digital sales have doubled and grown expansively over last year, the market may have hit a brick wall – lessening the significance of rapid digital sales. Without the same explosive rate of growth as witnessed in 2005, the offset digital sales provide the music industry may not carry over to 2006 or 2007.

Nielson/Soundscan’s calculations partially validate the music industry’s argument for variable pricing. With a flat rate of growth or even a moderate decline in sales, the music industry will have to find additional ways to pick up the slack. Unless it’s willing to adopt a more liberal “AllofMp3” type policy, variable pricing may once again find traction in an effort to inflate revenue. This may only provide a band-aid approach however, as it does little to encourage new customers.

According to Neilson/Soundscan’s statistics, in January ’06, 17.56 million tracks were sold. This number fell to 16.68 million in April. Although this decline is modest, it’s a direction few in the music industry want to see. By comparing the trend lines of digital sales in 2005 and 2006, the two appear precariously destined to collide in early 2007.

The study suggests the digital market has reached a “glass ceiling”, while the buzz and hype surrounding it has “run its course.” Demand for digital music however, remains stronger than ever. So where have all the cowboy’s gone?

With millions of tracks (whether from iTunes, iPod, P2P, or CD) already adrift in the global population, the need to download additional music for the authorized customer has abated. A recent study found that iPod users fill their MP3 players by various methods, including play list swapping, iTunes, CD ripping and traditional P2P. It’s an unrealistic expectation to assume iPod owners will spend many thousands of dollars to fill a 30 gig hard drive with digital purchases – perhaps explaining why the populace is placing less emphasis on authorized music.

Authorized digital sales faced a similar condition last year; however sales were more flat during mid-2005 rather than the current ominous decline. The industry revived itself during the winter months, as Tunes gift cards and iPod MP3 players found themselves perfect gifts for the holiday season. Whether or not the authorized music industry can replicate last year’s good fortune – or more importantly continue to make up for lost physical sales – remains to be seen.

This story is filed in these Slyck News categories
Authorized Music Store :: Other
File-Sharing/P2P Related :: Statistics/Analysis

You can read the study here.

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