Do The Numbers Add Up?

Music sales numbers are in and as expected they don’t look pretty. In the United States, quarterly album sales tanked, dropping 16.6 percent in the first quarter according to figures from Nielsen Soundscan. In the UK, album sales dropped nine percent during the first quarter according to the Official Charts Company. However, compilation CDs increased 10.1 percent. While a welcome gain, is this just a physical manifestation of what’s happening digitally – people wanting individual tracks instead of albums?

Digital sales continue to gain, the OCC noting that chart-eligible, paid downloads reached 9.96 million, up from 5.71 million during Q1 2006. But that’s the equivalent of only 905,455 LPs, if we use Amy Winehouse’s market leading album as an average (11 tracks), against 32 million CDs.

All these numbers have got the researchers and analysts busily sniffing the Delphic fumes to divine the future for their clients. Merrill Lynch star analyst Jessica Reif Cohen predicts CD sales won’t stop declining until 2008. Former Talking Heads musician David Byrne predicts 2012 as the crossover point where digital outstrips physical sales. Maybe.

These numbers don’t include musicians selling CDs from their own Web sites or at gigs since they’re not reported to any official body. How many more million is that? These are generally artists supported by their fans and not as subject to unpaid downloading as those on major labels.

If, as the music industry privately reckons, 100 unpaid tracks are downloaded for every paid one, that’s 996 million unpaid UK downloads in the first quarter, or 90.5 million albums, using our Amy average. Whether you rate that at £0.79 a track (i-Tunes), £0.25 (eMusic) or an even cheaper blanket license, it’s a strong argument to work out how to monetise p2p sites.

Also at the Delphic fissure is London-based Enders Analysis, who in a comprehensive analysis of the record industry’s ups and downs pointed to a saturation point for portable media players like the iPod in 2010, a situation that will help to stabilize the CD sales story.

This to me seems naïve. Sony Ericsson has sold more than 20 million Walkman mobile phones in 18 months, which is faster than the iPod was adopted. In reality, hundreds of millions of mobile music capable phones were sold in that time. It’s just that most buyers were either unaware of it or couldn’t be bothered dealing with the less than intuitive interfaces and software. Make playing music on a mobile as simple as taking a photo and the player market expands at the rate of mobile sales – about 1 billion worldwide last year.

I think CDs will continue, but as a premium product that creates an experience an mp3 file can’t; just as there continues to be a healthy market for vinyl records with music fans of all ages. But any investor or company basing their business around the CD-album model is taking a risky position indeed.