Dipping Music Sales to Sting Labels, Not Apple

by , 11:45 AM EDT, June 16th, 2006

The average weekly number of digital music sales is twice what it was a year ago, but the numbers may be starting to decline. According to a report from Pali Research, sales have declined each week during the second quarter of 2006.

Billboard has been tracking digital music sales for nine quarters now, and the growth numbers have always stayed at 8 percent or higher. 2006, however, shows a downward trend. Comparing the first four-week periods in 2005 to the same periods in 2006 shows that last year's sales were steadily climbing, but this year's sales are steadily dropping.

The first four-week period in 2005 showed an average of 7.38 million song sales per week, and by the fourth four-week period, than number had climbed to 8.73 million. In contrast, the first period in 2006 showed a substantially higher number of sales at 17.56 million per week, but by the fourth period, that number dropped to 16.68 million.

Mark Freedman, Digital Media Analyst for The Diffusion Group, says "The implications of these findings for the digital music industry are very profound: the hypergrowth of the past few years is over and the buzz that drove digital music sales to new heights has essentially run its course."

Digital music sales aren't finished by a long shot, but the news doesn't bode well for recording labels that have been counting on increasing online sales to offset declining CD sales.

Unfortunately, it looks like the RIAA isn't aware of the changing numbers. In a CNET News interview, the RIAA's chairman and CEO, Mitch Bainwol, commented "Digital sales are rising at a value that is larger than the decline in physical sales. We went through a pretty extraordinary time (recently). What you're seeing now is proof of that exercise. The promise of the digital marketplace is being realized. There's new optimism."

The immediate result of slowing digital music sales will fall on the recording labels bottom line. Slowing online sales will make the losses to declining physical sales more obvious.

The real trick in the ever evolving music industry is to be nimble enough to react to changing consumer trends. Mr. Freedman thinks Apple is just the company to do that. He states "In such an environment, branding and integrated offerings become critical to customer acquisition. Wouldn't you know, these are precisely Apple's core strengths."

Apple's forward-thinking attitude towards the music industry may very well keep the iPod maker in the winning seat for some time to come. The current trend, according to Mr. Freedman, validates Apple's strategy and "underscores the fact that the real money for Apple is in the iPod."

The recording labels and the RIAA seems set on following their old ways in hopes that the market will turn back around in their favor. While they continue to look back, Apple will march forward embracing and molding the technology that is redefining the music industry.