Faced with heat from iTunes and other digital downloads, the nearly-three-decade-old music CD is slowly melting away.
iTunes-purchased songs now account for 25 percent of the overall music market--both physical and digital--in the U.S., says an NPD Group report released Tuesday. However, CDs are still the most popular format for music lovers, winning a 65 percent slice of the market for the first half of 2009.
An iTunes playlist
(Credit: Screenshot by Lance Whitney)Digital music downloads have jumped in recent years, said NPD, hitting 35 percent of the overall market for the first half of this year, compared with 30 percent last year and 20 percent in 2007.
For the first half of 2009, iTunes itself snagged a 69 percent share of the overall digital music arena, trailed far behind by Amazon.com with 8 percent.
"The growth of legal digital music downloads, and Apple's success in holding that market, has increased iTunes's overall strength in the retail music category," said Russ Crupnick, entertainment industry analyst for NPD Group.
The CD, though, marches on. Among CD retailers, Wal-Mart leads with a 20 percent chunk of the physical music market, said NPD. Best Buy took a 16 percent share, followed by Target and Amazon at 10 percent each.
Still, the days of the CD seem numbered.
"Many people are surprised that the CD is still the dominant music delivery format, given the attention to digital music and the shrinking retail footprint for physical products," said Crupnick. "But with digital music sales growing at 15 to 20 percent, and CDs falling by an equal proportion, digital music sales will nearly equal CD sales by the end of 2010."
Correction at 3:30 p.m.: The venerable audio CD is actually 27 years old.
Consumers are increasingly willing to pay for songs they acquire over the Internet, but declining interest in CDs is dragging down overall music consumption among Internet users.
During the third quarter, there was an increase both in the number of people buying digital downloads and in the number of tracks sold, according to market researcher NPD Group. Legal music downloads were up 29 percent from the same period last year, and sites such as iTunes and Amazon MP3 chalked up an additional 2.8 million music buyers, to a total of 15 percent of Internet users.
That jibes with reports from Warner Music Group and Universal Music Group. Both labels have recently seen vigorous growth in sales of digital music. Warner, for instance, said last month that in the third quarter, digital music sales rose 27 percent to $167 million.
Peer-to-peer sites, meanwhile, saw an increase in the overall volume of song files being shared, up 23 percent for the same quarter last year, though some of that increase was attributed to a greater number of downloads per user, according to NPD. The number of P2P sharers among Internet users, NPD reported, stayed flat at 14 percent.
Not surprisingly, teenagers were a big factor in the gains--they accounted for 34 percent more paid downloads than in the third quarter of 2007, and P2P downloading spiked 46 percent among 13- to 17-year-olds.
Also, credit popular video games such as Rock Band and Guitar Hero with spurring consumers to make a music purchase of some sort. In many cases, "gaming can help remind customers of the music they grew up with...and to re-engage with the artist," said Russ Crupnick, entertainment industry analyst for NPD.
But the music labels, knocked off their stride by the advent of the digital music era, still face challenges.
Among Internet users, according to NPD, overall music demand was down 2 percent year over year in the third quarter of 2008. That figure takes into account purchased CDs, purchased digital music downloads, files obtained via P2P sites, and music files borrowed to rip to a computer or burn to a CD.
Largely, that slippage is a result of the continuing drop in sales of CDs (down 19 percent in the third quarter), most notably among teens and young adults, but also including adults over the age of 36.
"The value of each music customer is declining," Crupnick said. But, he added, "anytime you can add 2 (million) to 3 million buyers year over year, that's very encouraging."
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