“Digital music sales in the U.S., the world’s biggest market, have hardly budged in the past five months. They almost tripled to 6.6 million downloads a week in the year through May, and were at 6.7 million in the week ended Oct. 23, according to Nielsen SoundScan, a unit of Dutch media company VNU NV,” Charles Goldsmith reports for Bloomberg.

“The iPod, with more than 28.2 million sold, isn’t providing the panacea that the music industry seeks. EMI Group Plc Chairman Eric Nicoli forecast in May that digital sales would help revive the $34 billion recorded music market. For now, they’re unlikely to offset falling CD sales that are causing global revenue to shrink for a sixth straight year,” Goldsmith reports. “‘Digital optimism seems to be crashing in on itself,’ says Simon Baker, a media analyst at SG Securities in London, who has a ‘sell” rating on shares of EMI, the world’s third- largest music company. ‘Downloads in the U.S. have alarmingly plateaued. This has devastating implications for predictions that digital sales would grow exponentially.’”

“The download numbers suggest that the iPod’s iconic success, which has driven up Cupertino, California-based Apple’s share price almost sixfold since 2001, isn’t translating into new music sales the way the evolution from vinyl albums to cassettes and then CDs did. For many users, the portable devices are just another way of stocking and listening to music, not an incentive to buy new music,” Goldsmith reports. “In the U.S., annual downloads per iPod dropped from 25 to 15 in the last year, New York-based Fulcrum Global Partners LLC said in an Oct. 17 report. Global CD sales fell 6.7 percent to $12.4 billion in the first half of 2005, according to the London-based International Federation of the Phonographic Industry, or IFPI.”

“‘It’s a blip, not a trend,’ Paul Burger, 50, president of London music-management agency Soho Artists and the former head of Sony Music in Europe, says of the leveling off of U.S. downloads,” Goldsmith reports. “That belief has music companies, led by Warner Music, fighting to boost the 99-cent retail price on their most popular songs downloaded on Apple’s iTunes Music Store. The music labels seek pricing that varies with demand for a song. They get about 65 cents per song from iTunes, Merrill Lynch & Co. analysts said in a June report. Given current profit margins, selling 10 digital songs will reduce record company profit by 20 percent compared with selling a CD at an estimated $10 wholesale price, according to the report.”

“‘The market ought to be able to decide, not a single retailer,’ Warner Music’s Bronfman, 50, said in September at a Goldman Sachs Group Inc. conference in New York. Days earlier, Apple CEO Steve Jobs, 50, said at a Paris news conference that music companies were being ‘greedy” by seeking more for downloaded tracks, adding that it would only encourage piracy. ‘There will be variable pricing, multitier pricing,’ Universal Music CEO Doug Morris, 66, said Oct. 6 at a meeting of financial analysts in London. ‘The issue is going to be when and who blinks first.’”

Goldsmith reports, “More than 600 million songs have been sold through iTunes since Apple started the online music site in April 2003, Jobs said in September. The company has more than 10 million account holders, and sells 1.8 million songs a day globally. Apple last month began selling more than 2,000 videos, which can be watched on a new iPod device unveiled on Oct. 12.”

Full article here.

Advertisement: The New iPod with Video.  The ultimate music + video experience on the go.  From $299.  Free shipping.
It’s way too early, yet. Despite Apple’s stellar success, there are not yet enough people with iPods and those who are getting them are still in the process of ripping their CD collections. Some people are not satisfied with the bit-rates offered by services, including Apple’s iTunes Music Store, so they’re sticking to ripping CDs to iTunes and transferring to iPods. It will take awhile for the transition to occur. But, certainly, raising song prices won’t help. What will help is waiting for enough iPods to get out to the world. Certainly, increasing the bit-rate quality would help a “bit,” too. Another idea would be to release major artists’ works online first and delaying the CD release for a short while. But, mainly, patience is needed, not raising prices. As more people get iPods and experience Apple’s iTunes Music Store’s easy-to-use instant gratification, sales will ramp up. Eventually the day will come when a major artist releases their work only via download, not CD. We’ve got quite awhile to go until that happens.

And if the music industry is waiting for Steve Jobs to blink first, they’re even crazier than anyone ever thought them to be, if that’s possible. Jobs could simply continue to sell millions of iPods that people load with music ripped from CDs, as they do today. That’s where Apple makes the money, from iPods, not from iTunes Music Store sales. The music industry needs to remember that fact.

Related articles:
Independent label addresses the Apple iTunes 99c question – October 05, 2005
Warner’s Middlebronfman: ‘We sell our songs through iPods, but we don’t have share of iPod revenue’ – October 05, 2005
Apple’s iTunes Music Store dominates as digital music sales more than triple – October 03, 2005
Dvorak: record companies’ biggest concern about Apple’s iTunes is clear and accountable bookkeeping – September 29, 2005
In 99-cent fight with ‘Looney iTunes’ labels, Apple CEO Jobs will get whatever Jobs wants – September 29, 2005
Warner music exec discusses decapitation strategy for Apple iTunes Music Store – September 28, 2005
Warner CEO Bronfman: Apple iTunes Music Store’s 99-cent-per-song model unfair – September 23, 2005
Analyst: Apple has upper hand in iTunes Music Store licensing negotiations with music labels – September 23, 2005
Steve Jobs plays high-stakes poker with greedy record labels – September 22, 2005
Record labels accuse Apple CEO Jobs of ‘double standard’ as they seek to force iTunes price increase – September 21, 2005
Apple CEO Steve Jobs to repel ‘greedy’ record companies’ demands for higher iTunes prices – September 21, 2005
Apple CEO Steve Jobs vows to stand firm in face of ‘greedy’ record companies – September 20, 2005
NYT’s Pogue to record companies: it’d be idiotic to mess with Apple iTunes Music Store prices – August 31, 2005
Apple CEO Steve Jobs prepares for pivotal fight on digital music prices – August 28, 2005
BusinessWeek: Apple unlikely to launch music subscription service – August 15, 2005
Record labels to push Apple for higher iTunes Music Store prices in 2006? – August 05, 2005
Study shows Apple iTunes Music Store pay-per-download model preferred over subscription service – April 11, 2005
Record labels look to raise iTunes wholesale prices, music industry fears Apple’s market domination – March 05, 2005
Report: Apple CEO Steve Jobs ‘angered’ as music labels try to raise prices for downloads – February 28, 2005
Report: Music labels delay Euro iTunes Music Store fearing Apple domination – May 05, 2004
Greedy Big Five music labels looking to jack up iTunes songs to $2.49 each? – April 22, 2004