Saturday, January 3, 2009

NYT: "Music Sales Fell in 2008, but Climbed on the Web"

Music Sales Fell in 2008, but Climbed on the Web
By BEN SISARIO, New York Times
Sales of recorded music fell sharply in 2008, as consumers continued to migrate away from the CD format and the recession dampened consumer spending during the critical year-end holiday shopping period.

The year’s biggest seller was Lil Wayne’s album “Tha Carter III” (Cash Money/Universal Motown), which sold 2.87 million copies, followed by Coldplay’s “Viva la Vida or Death and All His Friends” (Capitol), with 2.14 million. “Fearless” (Big Machine), the second album by the 19-year-old country star Taylor Swift, was third, with 2.11 million. (Ms. Swift also scored the sixth-highest seller this year, for her self-titled debut, released in 2006, which sold 1.6 million copies in 2008.)

The music industry has grown accustomed to dismal sales numbers, and this year even the good news comes with disappointment. “Tha Carter III” is the first release in SoundScan’s 17-year history to top the year-end list with sales of less than 3 million.

Sales of digital music continued to rise steeply last year. Just over a billion songs were downloaded, a 27 percent increase from 2007, and some record companies say they are finally beginning to wring significant profits from music on Web sites like YouTube and MySpace.

But analysts say that despite the growth and promise of digital music — in 2003 just 19 million songs were purchased as downloads — the money made online is still far from enough to make up for losses in physical sales.

“As the digital side grows, you get a different business model, with more revenue streams,” said Michael McGuire, an analyst with Gartner, a market research firm. “But do we get back to where the revenue that the labels see is going to be fully replacing the CD in the next four to five years? No.” Gartner recently issued a report urging record companies to put their primary focus on downloads.

Record companies counter that album sales alone do not give a full picture of the complex new economics of the industry. Rio Caraeff, the executive vice president of Universal Music Group’s digital division, eLabs, said other income, like the fees collected when users stream a video online, had become an essential part of the pie. Twenty percent of Rihanna’s revenue, he said, has come from the sale of ring tones.

“We don’t focus anymore on total album sales or the sale of any one particular product as the metric of revenue or success,” Mr. Caraeff said. “We look at the total consolidated revenue from dozens of revenue lines behind a given artist or project, which include digital sales, the physical business, mobile sales and licensing income.”

Even as most of the industry pushes for greater online sales, two of the biggest albums of the year were by artists who have been vocal opponents of downloading. Kid Rock’s “Rock N Roll Jesus” (Atlantic) reached No. 4 with just over 2 million sales, and AC/DC’s “Black Ice” (Columbia), sold through an exclusive deal with Wal-Mart, was No. 5 with 1.92 million.

Neither act sells its music through Apple’s iTunes, the dominant online seller. AC/DC has said that selling individual tracks breaks up the continuity of a full album. But à la carte downloads are also far less lucrative than full CDs.

At least one sector of the music industry has continued to enjoy robust success: the concert business. Ticket sales in North America in 2008 rose at least 7 percent, to $4.2 billion, according to Pollstar, the touring-industry trade magazine. But in keeping with the trend of recent years, slightly fewer tickets were sold for more money: attendance for the top 100 tours dropped 3 percent, but the average ticket price climbed 8 percent, to $66.90.

The record industry has been eager to share in touring’s bull market, and many of the major labels’ new contracts are for so-called 360 deals, which give the company a much wider share in an artist’s income, from touring to merchandising to product endorsements. But those types of contract are still far from the norm.

Despite the growth of online music sales, CDs remain by far the most popular format, although that hold is slipping; 361 million CDs were sold in 2008, down almost 20 percent from the previous year. About 84 percent of all album purchases were CDs, down from 90 percent the year before.

And since CDs remain the record industry’s biggest profit engine, many analysts worry that the industry will be particularly vulnerable to inventory reductions at retail stores. Big-box stores like Wal-Mart and Best Buy account for up to 65 percent of all retail purchases, and many of those stores are sharply reducing the floor space allotted to music, said Richard Greenfield, a media analyst at Pali Research in New York.

“CDs no longer drive somebody into a store on Tuesday,” Mr. Greenfield said, referring to the day new CDs usually go on sale. “So the big risk for 2009 is that you will see even more rapid contraction of floor space, as CDs really go out of sight, out of mind for the consumer.”

A version of this article appeared in print on January 1, 2009, on page C1 of the New York edition.

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