As Digital Sales Soar, CD Sales Slide

Despite tremendous interest in music, iPods, and all things digital, the recording industry continues to flounder.

This comes as no surprise: The industry has fought technological change, and is more a victim than a driver of events. Their lack of strategic vision and leadership vaccuum continues to plague the industry, which remains directionless and at odds with their fan base. 

How out of touch brain damaged is the industry? In 2005, sales of digital music were included in the annual report for the first
(duh). Revenue from
digital sales nearly tripled, to $1.1 billion from $400 million. How incompetant do you have to be as a group to refuse to acknowledge the fastest growing part of your industry? Its truly astonishing.

Here are some interesting factoids on the music industry:

• Global music sales (CDs, DVDs, and digital) fell
3% to $21 billion in wholesale revenue; But on a retail basis, the
industry generated about $33 billion in sales last year, a decline of
2.4 percent.

• Music CD’s fell for the sixth
consecutive year;

• CD units fell 3.4 percent (music DVD’s were flat); that’s a 6.7 percent drop
in the value of CD purchases;

• 618.9 million CDs were sold in 2005 — that’s down 19% from the 762.8 million sold in 2001.

• Global digital sales continue to rise, generating revenues of $1.1
billion in 2005;

• Apple’s iTunes has about 80 percent of the market for legal digital downloads;  subscription-based pricing models Napster and Rhapsody are the leading competitors for the remaining share;

•  In the U.S., overall shipments of music products, including
CD’s and digital albums and singles combined, fell 3.9 percent last

• US Sales of CD’s and DVD’s combined generated about $6.4 billion, a decline of 9 percent.

• Gnarls Barkley’s hit song, Crazy, was the first track to top the singles charts based on internet sales alone – even before it went on sale in

• Coldplay’s album "X&Y" was the biggest-selling album of the year, selling over 8 million copies; It was
also the biggest-selling digital record of the year in the U.S.

• Markets with the strongest digital sales — United States, Japan,
Britain, Germany and France — were generally the best performing
markets overall for Music.

• Singles continue to dominate digital sales,with single-song downloads accounting for 86
percent of online purchases.

The next battle will be over variable pricing, something the labels are gung ho to pursue. The major labels agreed to Apple’s "one-price-fits-all" model three years ago. When Apple’s license is expires, however, the labels are expected to push for higher prices, especially for new hit releases.

I suspect this could drive fans back into the arms of P2P networks . . .



UPDATE April 3, 2006  2:05pm

Chris Anderson notes that the 3 categories of digital — ringtone ("mobile"), subscription (Rhapsody, Napster) and download sales (iTunes, et al) all enjoy significantly higher margins on digital distribution because there are no physical goods to manufacture and ship.

In theory, 2005 may
have been more profitable than 2004
(it certainly was for Warner
Music Group


Source:  The Long Tail



Music Industry Posted Their Sixth Year of Decline
NYT, April 1, 2006

Is it the end for the CD?
Dayle Crutchlow
Coventry (Trinity Mirror), Apr 4 2006

Apple’s iTunes Leads Soaring Digital Music Sales
AP,  04/03/06 5:00 AM PT

Record Industry Pushes Apple to Raise iTunes Prices
Jennifer LeClaire,  ECT News Network
04/03/06 12:02 PM PT

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What's been said:

Discussions found on the web:
  1. MTali commented on Apr 4


    BACK into the arms of P2P?

    As a professor at a major university I can assure you they never left.

    None of these kids pay for music. And they’re proud of it and don’t have the slightest feelings of guilt.

    People with your attitude (and reach) don’t help.

    If you had a useful suggestion for how the music business might survive (2005 was yet another substantially down year for revenues) instead of constant myopic criticism, I’m sure it would be appreciated.

  2. Idaho_Spud commented on Apr 4

    I’m with you, Barry.

    The music industry has a less than stellar track record, going back to the payola scandals, and more recently with collusion and price-fixing.

    The only people in the music industry who deserve compensation are musicians, recording engineers, and whoever creates the media.

    Screw the rest of the parasites. It’s not like these leeches need the vision of Jack Welch – they just need a constant stream of talent to skim income from.

  3. Patrick Grote commented on Apr 4

    This will all come to a head when someone fronts the money to move a big act or two to the internet.

    Smaller bands will see this, the success they have with it, and the tide will turn. The music companies will only exist to handle old music, not new.

    An artist will be able to assign control of distribution and their internet presence to a technology company that won’t screw them.

  4. Ken J commented on Apr 4

    “None of these kids pay for music. And they’re proud of it and don’t have the slightest feelings of guilt.”

    Copyright has no moral force in our society. The Lord did not say, “Thou shalt not copy thy neighbor’s scrolls.” I argue that copyright was designed as a business regulation and it applies to the general public about as well as antitrust law. Try developing a child-worthy explanation why filesharing is wrong but VCRs are legal. Hey, I missed West Wing on Sunday, did you tape it?

    I have little doubt that “a” music business will survive. Look back at the recent coverage of the SxSW festival for new rock music, which was filled to overflowing, with journalists and biz types complaining they couldn’t get into the showcases for hyped new artists. There continue to be reports that independent labels are doing very well, and IIRC (no time to look it up now), UK CD sales remain very good.

    What’s in danger: Four giant corporations with overhead so high that they say they can’t make a profit on sales less than 500,000 on a title, and with a business model dependent on illegal payola to get songs crammed down the throat of the radio audience. And CD-specialized retailers, who are suffering as much from Wal-Mart/Target/Best Buy as they are from filesharing.

    But this is like saying that the travel business will be destroyed because the Internet is putting travel agents out of work.

  5. Steve commented on Apr 4

    Jenny Toomey (of the great ’90s DC act Tsunami) and her Future of Music Coalition have been wrangling with this for a while; I don’t think the “music industry” is going to be destroyed; as Ken said, I suspect what happens is that disintermediation accelerates, bands try to make up for lost CD sales by touring more, musicians keep a bigger slice of a smaller media pie, and beats-and-samples based music continues to outgrow traditional rock.

    The economics that Steve Albini described aren’t sustainable, so eventually they’ll stop, but the willingness of the music industry to eat its seed corn continues to astound.

  6. GRL commented on Apr 4

    I’d be curious to know your thoughts on the fact the studio that made Brokeback Mountain (I forget which one it is) is offering it for download “on the day the DVD goes on sale.”

    To me, it sounds like the movie isn’t doing so well, so they offered it up to the Internet Gods as a sacrifice.

    Plus, today, the conversation on one of the morning radio station talk shows was about “Men Who Won’t Watch Brokeback Mountain,” in which they basically ridiculed as sexist and neandrathal any member of the male gender who will not fork out $9.50 (plus the cost of his date and refreshments) for this boring exploitation flick.

    How much money do you want to be that the company that owns the movie rights also owns the radio station?

    Why, out of all the sexually suggestive and salacious subjects in the world to talk about in order to goose their morning ratings, do they chose this subject?

    And just how f__king stupid do they think we are?

  7. MTali commented on Apr 4


    There’s a student here, a junior, singer songwriter, with the most incredible songs and mesmerizing voice. Really ground-breaking stuff. You could listen to him for days. He’s been compared in print to Lennon and Dylan.

    His lawyer, a well-placed entertainment specialist out of Boston took him to BMG in New York to meet with an A+R exec who said “I really think this is just amazing stuff and if you’d come to me 10 years ago we’d have him released and out there in 6 months, but we don’t have the budget to take chances out of the mainstream anymore.”

    All the pro-file-sharing (read “stealing”) people like Barry point the accusing fingers at the record companies, but it’s this kid and all the other great artists who will never be heard by the broader public who are the real victims, and even more so all of us who’ll never hear him.

    I could care less if some record company survives, but I hate that there’s no great music anymore. No Pink Floyds. No Rolling Stones. No Beatles. No Stevie Wonders.

    Great artists take lots of time and money to nurture and develop over the long term. File-stealing has sucked all the money out of the industry, so now the only music that’s left out there is garbage.

  8. trader75 commented on Apr 4

    “All the pro-file-sharing (read “stealing”) people like Barry point the accusing fingers at the record companies, but it’s this kid and all the other great artists who will never be heard by the broader public who are the real victims, and even more so all of us who’ll never hear him.”


    Oh come on man, that’s a complete load of bullshit.

    For about a year I had an office in the loft of a nifty little commercial recording studio. The owner knew so many great local bands and talents, he was thinking of starting an internet based record label just for kicks. The way he tells it, the endeavor wouldn’t exactly be cheap–but nor would it be especially expensive.

    Point being, there are lots of great ways to get heard, and the internet is only proliferating those channels. Ever heard of or How easy would it be to create a sort of social filter site for new musicians, like the guy you are talking about? Or how about sites like or, who welcome talent with open arms?

    If this talented soul you speak of is really the next Bob Dylan but too damn lazy or disaffected to get his stuff recorded and into the hands of an indie distributor, then he doesn’t deserve to be heard. And the idea that it takes a lot of money to create great music is just laughable. If anything, the money influence destroys good music. Too many chefs spoil the broth, especially when the chefs are wearing suits.

    I’m not in favor of stealing–and I don’t think Barry is either. My main point here is that your objections are completely asinine. In defending the “industry,” you are clinging to the dregs of a broken down kleptocracy, claiming that nothing will replace it when it finally collapses. That’s ludicrous. We’re already seeing the next generation of music distribution channels, and surprise, they are on the whole much more favorable to the artists themselves.

  9. sjgmoney commented on Apr 4

    Good to see Yale professors with so much wisdom and tact…NOT.

    How does Barry’s attitude (or mine for that matter) affect whether your students are using P2P networks? You mean to tell me when you were in college 100 years ago (or maybe 20) you never taped an album/CD for a friend?

    Do you think it ever spurred your friend on to buy the rest of that band’s catalog or buy music like it, or did he just go around asking everyone else if they had any other albums they could tape for him?

    Do you think it ever spurred him on to go and catch that band’s tour, buy a T-shirt etc and REALLY put money in the band’s pockets?

    What Barry is saying is the music industry just DOES NOT GET IT!! CD prices are still too high, usually for inferior product. Download prices are still too high. For some reason the music industry would rather sell 1 million copies at 99 cents than 5 million copies at 40 cents. And they want to tell you what you can or can’t do with that album after you buy it.

    30 years ago my parents could tell me what to do with my music, mainly don’t play it too loud and bother them, don’t play it when I was doing my homework, and in my mom’s case don’t play Kiss Alive II when she was home because she couldn’t stand seeing the cover with Gene Simmons dripping blood out of his mouth. However they never told me I couldn’t make a tape or two for my friends, or I couldn’t bring my albums over to their house and play them there.

    As for your student, if he’s good enough he’ll make it big without going the old school route. Look at the success of bands like the Artic Monkeys (just to name one) who’s music spread by word of mouth until they got signed and are selling out on a tour as we speak.

    As for no good music, I give you : Pearl Jam (who released their new single for free on their website before offering it for sale on ITunes), Coldplay….

  10. Barry Ritholtz commented on Apr 5

    There is no Professor at Yale with the name M. Tali or last name Talis or with the email address “”

    Yale Directory Assistance — (203) 432-4771 — can not find either a Talis or a Tali in their records.

    The “Profs” two posts are from IP addresses and

    So the “Professor” appears to be a fraud. Not surprisingly, he is as full of shit as his posts are goofy and empty headed.

    I won’t ban our “Yalie friend” until later today — the “Prof” has until 5 to come clean, and then we:

    1. delete all comments;

    2. Ban IP addresses and from The Big Picture;

    3. request typepad ban him system wide from all typepad blogs;

    Since we allow anonymous comments, why the fraud? Are you that insecure in your own beliefs you have to pretend to be sometyhing you are not?

  11. Barry Ritholtz commented on Apr 5

    And one last rebuttal to our trolling fraud Prof, from Today’s NYT:

    Another Cinderella Story

    Virtually unknown singers like Sandi Thom, 24, can’t afford world tours. So Ms. Thom, who is originally from Banff, Scotland, but lately of Tooting in southwest London, went on tour by Webcasting from her basement apartment, Agence France-Presse reported. Her first performance attracted 60 listeners. By the end of her 21 nights of worldwide Webcasting in February and March, Ms. Thom, who attended Paul McCartney’s Institute for the Performing Arts in Liverpool and toured with the Proclaimers, was attracting a global audience of 100,000. Now she has been signed to a recording contract by the RCA division of SonyBMG, home to Christina Aguilera, Ricky Martin and Shakira. Her debut album, “Smile. It Confuses People,” will be issued this month.

  12. Ken J commented on Apr 5

    MTali, in possibly soon-to-be-deleted comments, wrote:

    “He’s been compared in print to Lennon and Dylan.” and “…I hate that there’s no great music anymore. No Pink Floyds. No Rolling Stones. No Beatles. No Stevie Wonders.”

    All of the artists he’s using as references started their career before 1967 and had completed the bulk of their important creative work by about 1980-1985. Big Music certainly seems to have had problems in developing artists with the staying power of the classic rock generation, but this problem was well under way a decade or more before filesharing started in 1999.

    MTali’s unnamed Yale junior singer-songwriter story also rings a bit false with me. But if he really exists, he should be glad he escaped signing a deal with BMG. See Janis Ian’s essay mentioning that all her major-label royalty statements showed her as still owing the label money.

    Yet there is a culture supporting such performers on small labels and in live performance. Ani Di Franco, just to pick the most obvious name.

    (I’d point out that ripping out MTali’s comments will leave the rest of our comments arguing with an invisible rabbit.)

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