Discs are still money-spinning

As take-up of MP3 players spreads among every age-group, digital downloading is growing rapidly. But it started from such a small base that CD and DVD sales still dwarf it – and will do for some time

EMI Music UK is rolling out broadband-enabled listening posts to independent music retailers (MW December 1) in a bid to boost bands’ profiles and encourage sales. Readers might be forgiven for thinking this is a futile exercise, as the proliferation of digital downloading encroaches on sales of physical music formats. But is this is really the case?

Technological advances, such as digital downloads and MP3 players, mean consumers can access and buy music in new ways. They have created an entirely new market – one that offers consumers numerous distribution channels beyond traditional retail outlets and standard online physical sales. Today, it is possible to download music either from an online source or alternatively via traditional audio formats. It is not surprising that sales of digital music (downloads) tripled in the first half of 2005, according to recent research by the International Federation of the Phonographic Industry (IFPI).

This research reveals that global sales of digital downloads increased from $220m (127m) in the first half of 2004 to $790m (456.4m) over the same period in 2005. Digital downloads now account for six per cent of total record industry sales, while sales of traditional audio formats (CDs/DVDs) fell by 6.3 per cent, to $12.4bn (7.17bn). Overall recorded music sales worldwide were down by a small amount, from $13.4bn (7.75bn) in the first half of 2004 to $13.2bn (7.6bn) in the first half of 2005.

IFPI figures show that the digital download market is now bigger than the global singles market, which was worth $520m (300m) in 2004.

There are numerous reasons for the increasing number of downloads. MP3 players and next-generation mobile phones are increasingly popular with consumers. The growing proliferation and accessibility of broadband technology, and the rising number of music download websites, is also key. For the most part, music websites operate within the law, and even big high street brands such as HMV and Virgin are getting in on the act, offering consumers downloadable content.

IFPI figures show that rising sales of digital downloads are keeping pace with the fall in CD sales, owing to the increasing popularity of downloads across all global markets. However, sales of CDs have also been adversely affected by commercial piracy and the continued impact of illegal downloads and file-sharing, and even competition from other entertainment sectors.

In 2004, according to the British Phonographic Institute (BPI), 5.7 million tracks were downloaded in the UK, compared with a negligible number in 2003. Already, 13 million downloads have been sold in the UK so far this year and the market shows no signs of slowing, with weekly sales of track downloads regularly topping 500,000.

The BPI has also analysed the demographic breakdown of those in the UK who actively download tracks. It’s no shock that it is mainly male consumers who download music. Men were responsible for 73 per cent of all UK music downloads in the first quarter of 2005. Yet this is a big change from the final quarter of 2004, when men were responsible for 96 per cent of all music downloads. Women have taken a much greater interest in music downloads this year.

Furthermore, BPI research shows that while British 45- to 54-year-olds are still the biggest spenders on digital music services – accounting for 34 per cent of sales – 12- to 24-year-olds, who accounted for only six per cent of digital sales in 2004, have increased their activity, accounting for 27 per cent in 2005 to date.

However, the BPI’s research also shows that 15 per cent of downloaders are responsible for 54 per cent of all the tracks downloaded, illustrating the existence of a hard core of downloaders.

The Informa Media Group predicts that in 2010, global online sales will exceed $6bn (3.4bn). This would be an impressive figure, but would still account for just 15.2 per cent of music sales (including music downloads, and CD and DVD sales online). Informa predicts digital downloads will make up half the online total – $3.1bn (1.8bn), or 7.7 per cent of total music sales – meaning DVDs, CDs and their successor formats account for 92.3 per cent of music sales.

While these are only predictions, they are a good indicator that despite rapid growth in music downloading, it will not make the significant impact on sales of traditional audio formats many doomsayers have forecast.

Mark Mulligan, research director, Jupiter Research

CDs will indeed remain the bedrock of music sales for the foreseeable future, but it is too early to say that digital downloading is offsetting declining CD sales, which have been falling for years. In some countries, such as Spain, CD sales have lost almost half their value since 2000. In comparison, downloading is still a drop in the ocean. A major concern is that young people prefer illegal to legal downloading: just six per cent of 15- to 24-year-olds pay to download music, compared with 34 per cent who file-share. Something needs to change to convert these consumers. The irony is that although MP3 players are pervasive, they have nothing to do with most legal download services, which instead opt for rights-protected formats. And perhaps that is part of the problem: the legal services aren’t speaking the language of digital downloading the digital youth either understand or want to listen to.

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