Music Downloads Gain On CD Sales

The compact disc is still the delivery method of choice for most music fans, but downloads are quickly encroaching on their sales figures.

So says research outfit NPD Group, which recently reported that downloads accounted for 35 percent of music purchases in the U.S. during the first half of 2009 while CD sales made up 65 percent.

How much of a boost in download sales does that 35 percent represent? NPD points out download sales in 2007 accounted for only 20 percent of total purchases. In other words, online sales are gaining on CD sales, albeit slowly but surely. However,it doesn’t look as if CDs are going to become obsolete anytime soon.

“Many people are surprised that the CD is still the dominant music delivery format, given the attention to digital music and the shrinking retail footprint for physical products,” said NPD’s VP of entertainment industry analysis Russ Crupnick. “But with digital music sales growing at 15 to 20 percent, and CDs falling by an equal proportion, digital music sales will nearly equal
CD sales by the end of 2010.”

Although download sales have yet to overtake CD sales, NPD MusicWatch says when it comes to unit-sales volume of music sold at retail, Apple’s iTunes leads the pack with 25 percent of music units sold up from 21 percent in 2008.

In second place is Walmart where the mega-retail chain’s physical stores combined with online ordering of CDs and the company’s music download service account for 14 percent of music volume sold. Best Buy is in third place.

NPD also points out that, when it comes to downloads only, iTunes is still No. 1 with 69 percent of the market for the first half of 2009, followed by Amazon MP3 at 8 percent.

Consumers still flock to Walmart for their physical CDs, giving the retailer a 20 percent chunk of the physical market, followed by Best Buy at 16 percent and Target and Amazon tied at 10 percent.

“The growth of legal digital music downloads, and Apple’s success in holding that market, has increased iTunes’ overall strength in the retail music category,” Crupnick said. “But the importance of the big box retailers shouldn’t be dismissed, as long as the majority of music consumers continue to buy CDs.”

Although the above numbers seem impressive and reflect the growth of download sales compared with physical sales, the report doesn’t compare sales against illicit downloads, CD ripping and general song-sharing. Despite all the available avenues for purchasing music online and offline, too much music is walking out the door in the form of unauthorized downloading and file-sharing as well as massive music / entertainment piracy in the forms of illegal CD / DVD reproduction and distribution.
But more consumers bought downloads during the first six months of this year than last year, which is good news for online stores as well as record labels.

Copyright’s China Syndrome

Entertainment and media companies are hoping a recent World Trade Organization decision requiring Beijing to lower import barriers will clear the way to sell more CDs, DVDs and video games in China.

However, pirated entertainment, especially music and movies, is easily available in China. In fact, a pirated movie often sells for a third of what a movie ticket would cost.

Furthermore, many pirated flicks in China haven’t yet been released in the country, leading many to think it’s going to be a tough sell convincing the Chinese to cease their copyright-unfriendly ways.

“I don’t care whether it’s pirated or legitimate so long as they look good and are convenient,” said Linda Nie, 30, a researcher at a Beijing university, adding that 70 percent of her books and DVDs are pirated.

The WTO recently rejected a Chinese policy calling for U.S. media producers to do business through state-owned companies. But as China considers appealing the decision, there’s talk among entertainment companies that threatening sanctions may be the only way to persuade the country to open its borders to show biz imports.

It’s also thought that, if companies could market entertainment in China as easily as in other countries, it might reduce demand for pirated goods.

“Consumers buy pirate copies maybe because it’s very slow for legitimate copies to enter the Chinese market,” said Xiao Wei, manager of the FAB music and movie store in Beijing. Wei also said pirated copies of “Slumdog Millionaire” were available right after it won the Academy Award for best picture, yet legitimate copies didn’t become available in the country until six months later.

One of the reasons movie piracy flourishes in China is that a government cap limits Hollywood to releasing 20 films in the country per year, and part of the recent WTO ruling calls for the country to ease up on distribution rules and regs. If Hollywood can market more flicks to the Chinese, it believes the demand for pirated versions will decrease.

Even if China eases up on imported entertainment restrictions, there’s still another factor contributing to piracy that will be tough to overcome: cheap prices.  It’s been difficult to persuade China’s citizens to pay for online music instead of grabbing illicit downloads off the Net or through peer-to-peer file sharing networks.

For example, the WaWaWa Music Store recently launched an online subscription service offering customers 88 indie song downloads each month for 20 yuan, which is about $2.90, or 3 cents per song.

But even at those prices WaWaWa is finding it tough to persuade potential customers that it’s better to purchase music instead of steal it. And that goes for video games as well.  “The idea of paying a lot of money to buy a disc is going to take a certain amount of time
to get used to,” said Colin Sebastian, a video game analyst with Lazard Capital Markets. “Over
the long term, as Chinese consumers have more disposable income and they can afford to buy
set-tip boxes and consoles, it’s going to be a bigger opportunity.”

Beatles Online Rumors

It’s that time again. Time for the latest rumors about selling The Beatles online.  The rumor about putting the Beatles catalog online is one that pops up every few months. Sometimes you’ll find a news item quoting an unidentified Apple Corps insider saying the Fab Four’s albums will go online “very soon.” Other times it’s merely someone connecting the so-called dots indicating we won’t have to wait much longer before we can download (legally) the group’s incredible collection of songs.

This time it’s more of the latter, that is, constructing a narrative based on known information, although neither Apple Corps, nor for that matter, Steve Jobs’ Apple has said anything indicating the moment is almost at hand.

The reasons for the latest Beatles rumor, which says the group’s music will soon be sold on iTunes, are apparently based on news that Apple (The Cupertino company, not the Beatles one) is planning some kind of major event for the week of Sept. 7, with some bloggers narrowing the date to Sept. 9. It’s the alleged Sept. 9 date that’s actually sparking the rumors.

Why Sept. 9? It’s because that date is already scheduled for two Beatles events – the re-release of the band’s entire catalog, digitally remastered, and the release of the video/music game Rock Band: The Beatles. With Apple saying it has something important to announce that week, many watchers have put two-plus-two together claiming it adds up to Beatles online.

Of course, you could also cite the number 9, as in “Revolution 9,” as yet another dot in the grand connection scheme. But that might start another rumor.