December 11, 2010 / 1:05 AM / 9 years ago

Growth in sales of digital downloads slows to a trickle

NEW YORK (Billboard) - Another year, another dashed hope.

In 2010, the growth in sales of digital downloads, which only last year had been marked and promising, slowed to a trickle, as more consumers plugged into Internet radio and video streaming sites.

Through November 21, total track sales (both albums and individual tracks) are up about 5 percent (assuming 12 tracks equal an album). That gain of 95 million tracks pales in comparison to the 277 million-unit gain achieved in all of 2009. And the revenue those 95 million tracks generated is tiny compared with the financial impact of 47 million fewer CDs sold through November 21.

Nearly all of 2010’s meager gain in track sales has come from albums. Sales of digital albums are up 12 percent through November 21, according to Nielsen SoundScan. At the same point in 2009, they were up 17 percent and finished the year up 19 percent.

Track sales are basically flat in 2010—up just one-tenth of a percent compared with 2009. At the same time last year, track sales were up 10 percent and would finish the year up 12 percent. The lack of growth has reduced tracks’ share of total sales to 53 percent from 56 percent last year.

There’s a small silver lining to these trends: In terms of value, single tracks are faring a bit better this year. Higher prices weren’t installed at iTunes until April 2009, giving 2010 an edge over 2009 in single-track revenue. Digital albums may not be worth any more in 2010. For years labels have been successful at selling premium digital albums with added content at higher prices. But the $12.99 or $13.99 digital album isn’t a new product, so little has been gained this year outside of an increase in units sold.

Download sales have been helped by a few notable events in the fourth quarter. First was Taylor Swift’s “Speak Now,” which sold 390,000 digital albums and 3 million tracks in its first four weeks of release, according to SoundScan. Second was the arrival of the Beatles’ catalog at iTunes. In the first week they were available digitally, the band’s 16 titles moved 144,000 albums and 1.4 million tracks. Due in part to this once-in-a-lifetime iTunes debut, digital album sales were up 13 percent and tracks were up 19 percent over the same week in 2009.

But there tend to be unusual events and breakout hits every year: 2009 digital sales were buoyed by a sales spike after Michael Jackson’s death, and 2008 saw Lil Wayne move more than 1 million units of “Tha Carter III” in its debut week. Even with these rare events and hits, the industry is still left with a flattened trend line.

Slowing download sales fly in the face of another trend: Alternatives to iTunes are on the rise. From more competitive download stores to direct-to-fan sales to easier impulse purchases, there are more ways than ever to purchase MP3s.

Numerous download stores are stepping up for a share of the MP3 market. Amazon has become increasingly aggressive in pricing its digital albums. Swift’s “Speak Now” was on sale for $3.99 in the week of its release. On Cyber Monday (November 29), albums by Lady Gaga, John Mayer, Pink Floyd, Train, Jack Johnson, Sara Bareilles, Arcade Fire and others were sale-priced at $1.99. eMusic, too, also picked up its game in 2010 by adding music from majors Warner and Universal. Alas, download sales continue to shrink.

Streaming sites are also struggling to move the needle forward. “Buy” links at such services as Pandora and YouTube give millions of users the ability to make an impulse purchase. Pandora has more than 65 million registered users — it added about 22 million in 2010 alone. Each week, YouTube streams more than 1 billion music videos from just the top five music labels, according to TubeMogul. Between the two, consumers streamed billions more songs in 2010 than they did in 2009.

Unfortunately, those billions of additional streams appear to have had little or no incremental impact on download sales. A small fraction of streams may result in a purchase, but who’s to say those purchases wouldn’t have happened anyway?

Direct-to-fan sales blossomed in 2010 but have yet to drive growth in digital sales. This has been a busy year for such direct-to-fan providers as Topspin, Nimbit and Bandcamp, all of which report sales to SoundScan. But with total track sales at 1.9 billion-plus units through November 21, such channels aren’t yet significant enough to tangibly affect download sales.

Moreover, the digital album is showing signs of old age. For the first time, digital album sales declined for three consecutive quarters — from the first quarter through third-quarter 2010. If downloads are like any other consumer product, the current slowdown will be followed by an irreversible slide in sales and revenue. Streaming alternatives that will accompany the downloads’ fall are already on the market. More are certain to follow in 2011. Whether they can replace lost download revenue will be up for debate.

Editing by Bob Tourtellotte

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