Music industry alarmed as online digital music sales level off

“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.

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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

59 Comments

  1. Increase the bit-rate to cd-quality and add complete digital-booklets with lyrics and artwork and I will most likely buy ALL of my music from iTunes. Until, then I buy little from iTunes and just rip cds.

  2. Album Art, liner notes, stuff to read. CD’s have this and most iTunes albums do not.

    I have yet to purchase a digital album for this reason, and until it has more than just the Tunes I’ll buy my albums at the brick and mortar store.

    How difficult is it to include the basics?

    MDN MW = was not Was.

  3. First the recording industry says it’s afraid of an Apple monopoly on digital music, then they want more $$ per song, then they say iTMS is not successful enough.

    I think I see a split personality problem here.

    I would like to know, however, how the number of “legal” digital downloads were calculated. Did they look just at iTMS or did they include the subscription services? Because if the subscription services is part of the equation, that’s what’s making the resulting numbers allegedly “disappointing”.

  4. Bit-rate, schmit rate. That’s a non-issue. Only the most demanding music lover is put off by the quality of downloaded music, and they aren’t iPod customers.

    Frankly, I’m beginning to see some wisdom in a stratified pricing structure. But only if CDs carry DRM protection, preferably Apple’s.

    If you want the ‘body’ of an artist’s work, that usually comes with a CD, then buy the CD ($15?). If all you want is the top tune then buy it, but the price is $2.50.

    Putting the same value on the lead song of a CD, as the other 13, or so, filler songs is not reasonable. CDs are purchased by the overwhelming majority of people for one, two, maybe three (rare), songs. The remainder are provided to help justify the $15 price tag.

    Question: What did you buy in 1959 (that you can buy today) for $1.00, and the price is still $1.00? 99¢ for legacy music (that has already been extensively mined) is a reasonable price. 99¢ for a current hit may not be, and probably isn’t.

    The problem in this debate is the inept way the music industry has presented its case. I think they’re afraid to admit that 90% of the music on a CD is worthless.

  5. You people are looking at things from a completely wrong angle. If artists make good music, or at least are allowed to be creative and make good music, people will pay for it. How many new ‘good’ artists are there? Probably lots of them! But how many of them get proper marketing and attention? Very few of them. Why don’t the big guys try to support people with talent and not just quick 50 cent / britney spears gimmics to flood the airwaves.

    iPods and digital downloads have nothing to do with declining music sales. I love music, I personally own more than 600 physical CD’s and on my iTunes have more than 5,000 songs, but I won’t pay for garbage. However, when something good comes out, yes, I pay for it, I will go to the record store to find it and if its really hard to find, I Google it and buy from a novelty store or some outlet. I am sick of people saying P2P is killing the music industry. The music industry forgot about music and became a money making industry. That’s the problem!

  6. “Vinyl to Digital

    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.”

    Well Duh! No shit! People buy iPods and then fill them with music from their existing CD collection as well as a few tracks a month from the online music store.

    Interesting. There are some very smart people out there. NOT!

    If they continue to provide great tracks from good groups on CD and (eventually an NZ iTMS-not counting the back dooor to the Aussie iTMS) then I will continue as a when free cash allows, to buy good CDs and or music online. I dont buy crap CDs just for the sake of buying music.

  7. I can see why sales might level off when you look at it a certain way (song sales per ipod). I hope they are considering that some people replace or own multiple ipods.

    $9.99 is the cut-off point for me. anything above that, and I’d probably look for a used CD instead.

    seems like CD’s, which are close to $20 each are also losing money, so apparently raising the price does NOT increase sales. Can’t be that hard to understand, seriously. its just greed.

  8. “Question: What did you buy in 1959 (that you can buy today) for $1.00, and the price is still $1.00? 99¢ for legacy music (that has already been extensively mined) is a reasonable price. 99¢ for a current hit may not be, and probably isn’t.”

    99¢ is ridiculously overpriced on legacy catalog items — which have already more than paid for the costs of their original production through previous sales.

    The labels could provide thousands of songs from their back catalogs for the trivial cost of encoding them for AAC delivery via iTunes, resulting in what amounts to almost pure profit, and which would make them big bucks at even at half the current 99¢ standard price.

    The artists, of course, will continue to be screwed to the tune of pennies on the dollar — perhaps less, depending on their particular deal.

    Apple should negotiate a buyout of Apple Records as part of the settlement in their Beatles lawsuit, then go into the music business for real, offering artists direct deals with iTunes. The big-label music mafia would go out of business faster than Paris Hilton running an H&R Block office.

    Just my 2¢ — which is more than a lot of artists ever see from their deals with Big Music.

  9. GREED!

    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.

  10. Dear Mr Thurman

    I totally disagree with your point about the bit rate being a non-issue and that “Only the most demanding music lover is put off by the quality of downloaded music, and they aren’t iPod customers.”

    I own a budget priced hi-fi system and buy a heap of cds. My wife and me own nearly 1200 vinyl recording that I am currently digitising. That means myself and my wife just love music.

    Similarly I have a 3rd gen. 20 gig ipod and my wife has a six gig ipod mini. I’ve tested the quality of some of the songs listed on ITMS both in the U.S. and Australia (via purchases) and the quality is below par. Near cd quality is not good enough for me and I refuse to waste my money on music that needs to be clearer in sound quality.

    There are numerous other issues involved. I think that bit rate is one, DRM is another, closed DRM marketing is another. That is, if you buy a cd it plays on a cd drive. If you buy download music from non ITMS sources you cannot play it on an ipod. Likewise if you purchase music form ITMS you can only play it on an ipod.

    Last but not least I still do not think that ipods or other mp3 players have reached the mainstream market. Perhaps Apple and other manufacturers might consider reducing their pricing for mp3 players generally. For example a portable cd player costs much less than mp3 players. These points are controversial but when you consider that vinyl records, cassettes and cds can be listened to universally it is a compelling argument.

    There are other issues involved and I think music pricing is one. I have long advocated that download bit rates should be price based. With higher prices linked to the bit rate. Likewise none of the major manufacturers have settled on a stable business model on what is still an emerging market.

    Finally there is the issue of copyright and perhaps we are finally seeing the death of a legal principle that has only been around for 150 years. Perhaps many people have become so accustomed to illegally downloading music that DRM and copyright seem at the very least alien and at worst a load of BS.

    As I have said, there many issues involved here and I have to admit I don’t have the time to air them. It is however worth perusing some of the views put forward on this website as to how the legal download market can be improved.

    P.S. Greg, my wife and me have already discussed purchasing an ipod with video capability. My advice is to think before you make broad and sweeping statements.

  11. What cost a dollar in the ’50’s is now still costing a dollar? Actually, it’s free, and songs are easlily located and pirated in 40 seconds.

    That’s what iTunes is up against, and is pulling the music industry into the lead, with legal downloads outpacing illegal ones.

    The consumers are fed up for paying $15 for a CD to essentially purchase one song. While a popular song can be purchased and enjoyed by millions and millions of more people using the iTunes system. This helps the bottom line far greater than CD sales.

  12. Again the greedy music industry is jumping to conclusions and the first thing they want to jump on is the price. Then they want to copy protect everything to death. Then they expect people to buy it? First they should get rid of any copy protection on there CD’s, Sony! Then they should lower the price of online music. They they would see an immediate rise in those numbers of online sales. But there to greedy for that.

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