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Group: Music Sales Down, Digital Music Sales Up

London – Worldwide sales of downloaded music, including cellphone ringtones, rose 82 percent to about $2 billion in 2006 to account for around 10 percent of music industry sales, up from 5.5 percent, a global music industry trade group announced.

Sales were about evenly split between downloads to a PC and over-the-air downloads of ringtones and full music tracks to a cellphone.

Despite digital-music gains, worldwide music industry sales nonetheless fell, according to the International Federation of the Phonographic Industry (IFPI). Worldwide music industry sales slid to about $20 billion in 2006 from $21 billion in 2005, IFPI statistics show.

By 2010, digital music sales will grow to account for at least a quarter of all music sales worldwide, said IFPI chairman John Kennedy.

In the United States, the number of downloaded tracks grew in 2006 by 65 percent to 582 million, accounting for 73 percent of the 795 million individual tracks downloaded worldwide. The number of tracks downloaded worldwide grew 89 percent to 795 million.

In addition, the number of downloaded albums in the United States rose 101 percent to 33 million in 2006 to account for 6 percent of all albums sold. Worldwide album figures weren’t available.

In other key findings, IFPI said that in the United States:

  • more than 13,000 digital-only albums were released in the first half of 2006, accounting for almost 36 percent of all new albums released during that time;
  • digital singles have completely replaced physical singles in the United States; and
  • music-download subscription services are growing in popularity but account only for a small share of digital music sales because the services are incompatible with Apple’s iPods.

Growth factors: IFPI cited multiple reasons for the digital-music gains, including the rapid growth in ownership of portable MP3 players and a doubling of tracks authorized for downloading to 4 million. Other reasons include a rapidly growing number of authorized download sites and music industry lawsuits against P2P file-sharing services and individual P2P users.

Referring to MP3 portables capable of playing authorized protected downloads, IFPI contends that “the increasing popularity of portable digital music players is driving interest in music services” and “driving interest in legal music buying.” The group cited statistics from two sources, an IFPI-authorized study of European consumers by M-Lab and a separate European study by Jupiter Research. IFPI concludes that “portable player owners are more likely to buy music legally than general Internet users, but the amount of purchased music stored on the devices is low.”

The M-Lab survey of consumers in November 2006 found “portability is a key driver of growing demand for recorded music,” IFPI said. Thirty-five percent of portable MP3 player owners in Europe bought online music at least once, and 47 percent of those people say they buy music only or mostly in digital form.

In addition, 14 percent of portable owners use paid downloads as their main source of music, or about the same percentage who use P2P networks and free Web sites.

Jupiter’s European research, IFPI said, “found that iPod owners are three times more likely than general Internet users to be regular paying music downloaders.” Jupiter also determined that 16 percent of iPod-owning Internet users download music legally every month compared with 5 percent of Internet users who don’t own an iPod. Nonetheless, IFPI said, “a greater volume of music on portable players is obtained from P2P and free [illegal and legitimate] sources than is purchased on legal sites. And the frequency of purchase on legal sites is still low.”

Protected downloads were available from 498 authorized download sites in more than 40 countries at the end of 2006, up from the year-ago 335, IFPI also said. At the end of 2006, 48 U.S. sites were authorized for music downloading.

Collectively among all sites, 4 million individual tracks were available for download at the end of 2006, up 100 percent from the year-ago period. The sites offer more song selection than the largest brick-and-mortar music store, IFPI added. The largest music stores stock a maximum of 150,000 CD titles, IFPI said, and if 10 tracks are available per disc, only 1.5 million songs are available at any one time in these stores.

The availability of such a broad selection of online songs 24 hours a day, IFPI contends, has reinvigorated sales of classical music and music videos. “Classical was the fastest growing [digital] music genre in the U.S., growing by 23 percent in 2006,” the IFPI report said. Although DVD music-video sales peaked in 2004, the group continued, “the [music-video] format is now beginning to see the positive impact of digital delivery.” Music video downloads accounted for 3 percent of total digital revenues in the first half of 2006, IFPI said.

Downloading has also boosted sales of music singles, which in 2006 hit an all-time worldwide high of more than 900 million in physical and download formats combined, IFPI said. In fact, digital singles accounted for more than 80 percent of singles sold worldwide, and in the United States, digital singles have completely replaced the physical singles market.

Similarly, the number of digital-only albums is on the rise, particularly in the United States, where more than 13,000 digital-only albums were released in the first half of 2006, accounting for almost 36 percent of all new albums released in the first half. In contrast, IFPI said in citing Nielsen SoundScan figures, 16,850 digital-only albums were released in all of 2005.

The IFPI report also found that music-download subscription services are growing in popularity but account only for a small share of digital music sales. The number of subscription-download subscribers grew 25 percent in 2006 to 3.5 million consumers worldwide, an unspecified majority of which are in the United States. Subscription-download revenues, however, accounted for only 7 percent of digital revenues in the first half of that year.

The portable versions of subscription services “have suffered significantly from lack of compatibility with the dominant music player, the iPod,” IFPI contended.

In other findings, IFPI said 2006 was marked by several firsts, including the first time that a music company (Universal) negotiated an agreement with an MP3 player maker (Microsoft) to share in the revenues of an MP3 player’s sales (Microsoft’s Zune).

Also new for 2006:

  •  an ad-supported online service (Napster Free Player in the United States) that lets users stream a song from Napster’s catalog for free up to three times before being asked to buy the song or subscribe to a Napster paying service;
  • the launch of the first cellular phones, excluding PDA-phones, to store and play subscription downloads.
  • the launch of the first MP3 player, the Zune, with ability to share music directly with other Zune users.