By The Numbers

Nielsen SoundScan released its 2007 music sales figures for the U.S., and as the old adage goes, there’s good news and bad news.

On the good news side, overall music sales – albums, singles, music video and digital tracks – were up 14 percent from 2006. The number of units sold was 1.4 billion versus the previous year’s 1.2 billion.

But once you dig into the numbers it becomes apparent that music downloads experienced growth while physical CDs remained on the decline. And, like previous reports over the past year, although download sales are growing, online music sales have yet to make up for the lack of sales for music packaged in traditional media.

For example, digital album sales went up 53 percent as 2007 ended with 50 million sold compared with 32.6 million in 2006. However, total album sales, including CDs, cassettes, vinyl and digital downloads, dropped 15 percent in 2007 as music consumers purchased 500 million versus 588.2 million in 2006.

Overall album sales, including digital track equivalents where 10 tracks are counted as an album download, were also in decline in 2007, a 9.5 percent drop that saw the year end with 584.9 million sold compared with 646.4 million the previous year.

The number of physical albums purchased from Internet e-commerce sites experienced a slight bump, rising 2.4 percent to arrive at 30.1 million by the end of 2007 compared with 29.4 million in 2006. But that wasn’t enough to help offset the 15 percent decline in total album sales, which includes physical media as well as downloads.

In short, downloads are up, physical sales are down, and downloads are not picking up the slack from lost sales.

On the digital side, album downloads went up 53 percent, selling 50 million units in 2007 versus 32.6 million in 2006. Digital track sales also had a hefty increase, rising 45 percent to 844.2 million compared with 581.9 million in 2006.

Nielsen SoundScan says 20 percent of total album sales occurred during the last six weeks of the year. This shouldn’t surprise anyone, as the holiday season is famous for increased music sales.

But what is surprising is that music sales exceeded 58.4 million during the final week of 2007. According to Nielsen SoundScan, that’s the biggest sales week for music … ever! Or at least in the history of Nielsen SoundScan.

Why are music sales on the decline? Music piracy is still the obvious response as the labels continue to search for an answer to how the industry can compete with free, albeit illicit, music. However, there are other entertainment options competing with music dollars, including movies, sports events, video games and even video games built around music, such as Activision’s "Guitar Hero 3" and MTV’s "Rock Band."

And the world is filled with self-identified music experts claiming that labels are dinosaurs that still don’t recognize the warning signs of extinction. But even that declaration seems too simple an answer when pondering the music industry’s future.

Maybe the only certainty is that some music sales figures will get worse before they get better. And even that’s uncertain.

 

Leaving DRM

Both Sony BMG and Napster have non-DRM projects on the table. While Napster’s vision of unprotected music makes sense, Sony BMG still doesn’t seem to grasp the old K.I.S.S. concept of keeping it simple.

Napster’s story is an easy one. The online service plans to drop digital rights management technology this spring, thus joining Amazon and, to some extent, iTunes, in selling unprotected downloads.

Napster’s plans apply only to album and single downloads the company actually sells outright and not to its subscription service, where subscribers download all they want for a fixed monthly price. Under that scenario, DRM is still needed to keep the music playing for subscribers while silencing the tunes for those failing to renew their subscriptions. So far, the company hasn’t said whether it will try to remove DRM from subscription tracks.

But while Napster’s plans seem to make sense, it’s Sony BMG’s announcement that the label will offer non-protected tracks online that has people scratching their heads.

That’s because Sony BMG isn’t just stripping DRM from its online offerings. No, that would be too simple. Instead, the label is selling a plastic card, called Platinum MusicPass, that provides the user with a PIN number needed to activate the download.

And how does one get a Platinum MusicPass? You go to a participating retail store and buy one. Then you log on to Sony BMG’s new online music site – MusicPass.com – to download the music formatted as MP3 files.

Evidently the concept that online music is supposed to be easy and simple hasn’t made an impression on Sony BMG execs.

But that shouldn’t come as a surprise to veteran Sony watchers. Before it acquired BMG, Sony used a proprietary DRM – ATRAC – when it launched Sony Connect, an online music store to complement its own line of personal music players. However, the world wasn’t ready to mess around with yet another reason for player incompatibility and last summer the label dropped ATRAC protection from tracks sold at its online music store.

Platinum MusicPasses, which are only good for entire albums, will be priced at $12.99, and some downloads will come with value-added features. The label also plans to sell artist-specific MusicPass cards for $19.99. Under that plan, in addition to value-added material, customers will also be able to pick a second album from the artist’s catalog at no additional charge. The first two artists / albums under this plan are Celine Dion’s Taking Chances and Kenny Chesney’s Just Who I Am: Poets & Pirates.

"The MP3 files delivered through MusicPass play on computers, as well as on all MP3 players, including iPods," said Thomas Hesse, Sony BMG Global Digital Business & US Sales president. "This makes them a simple, easy to use solution that will appeal to fans who already access their music on the Internet, as well as to consumers who are just getting into the digital realm."

 

FCC Looking At Comcast

Late last year there were rumblings that the nation’s second-largest Internet service provider was intentionally interfering with its customers’ file-sharing activities. Now it looks like the Federal Communications Commission wants to know about it, too.

Speaking at the International Consumer Electronics Show, FCC Chairman Kevin Martin said the Commission will look at charges that Comcast Corp. actively hindered its subscribers trying to share files online.

"The question is going to rise: Are they reasonable network practices?" Martin said while addressing an audience at CES. "When they have reasonable network practices, they should disclose those and make those public."

Although this involves peer-to-peer file sharing, this isn’t a copyright issue. Instead, it involves a major ISP accused of interfering or blocking certain types of Net use by its subscribers. Although P2P is often mentioned in tandem with Internet copyright issues, many media companies are examining how file-sharing can help them distribute content, and Comcast’s alleged practice of slowing down or blocking P2P activity blocks legitimate as well as illicit file-swapping.

It started late last year when Comcast subscribers using BitTorrent P2P apps noticed problems when sharing files, leading the Associated Press to investigate claims that the ISP was blocking file-sharing activities.

AP found that Comcast was often targeting P2P swapping when it involved only one sender and one receiver. BitTorrent P2P operations involve many senders, each uploading a small portion of a file to a receiver. In such cases, according to AP’s tests, Comcast would send a message effectively telling both sender and receiver that the other was breaking the connection.

At first, Comcast denied blocking file-sharing operations, but after AP published its test results the ISP admitted to "delaying" some of the traffic between file-sharers, claiming that it did so in order to improve service for the majority of its customers. Furthermore, Comcast claimed the practice was perfectly legit under the FCC’s policy statement regarding "reasonable traffic management."

The FCC’s willingness to investigate Comcast is being seen as a test of the Commission’s policy regarding "Net Neutrality," a concept that all Internet traffic should be treated equally.

"Comcast plans to work with the Commission in its desire to bring more transparency for consumers regarding broadband network management," said Comcast executive VP David Cohen. "We do disclose in our terms of use our right to manage our network for the benefit of all customers."