Digital Music Market More than Triples - 04 Oct 2005

The International Federation of the Phonographic Industry (IFPI) reported yesterday that the market for legally downloaded digital music has tripled since last year. This explosion of online music sales has helped offset CD sales, which continued its slow year-over-year decline during the same time period.

According to the report, digital music sales hit $790 million in the first half of 2005, compared with sales of $220 million in the same time period a year earlier. Most of those sales, of course, came from Apple Computer's hugely successful iTunes Music Store, which is used by Apple iPod owners and accounts for 82 percent of legal song downloads. Total digital music sales--which include sales of individual tracks and albums and subscription music service fees--now outsell CD-based song singles.

But don't feel bad for the recording industry yet. During the first half of 2005, overall recorded music sales fell a modest 1.9 percent but still accounted for a whopping $13.2 billion. (In the first half of 2004, music sales were $13.4 billion.) CD and other physical format sales were down 6.3 percent in the period to $12.4 billion. Some of that decline, however, is attributed to lower CD prices: Actual unit volume is down only 3.4 percent.

Despite Apple's successes, hurdles remain. The music piracy market is much, much bigger than Apple's sales, and the recording industry has been fairly aggressive in its pursuit of the world's biggest music pirates. In the past 2 years, the industry has sued almost 15,000 music pirates in the United States. And the music industry feels that it can resuscitate music sales by moving to a more common variable pricing model in which new songs would cost more than Apple's strict 99-cent cost, whereas older songs would cost less. Apple, thus far, has resisted this change, but its contracts with the record labels are expiring in early 2006, and the company might find it has no choice but to comply.