Digital music downloads won't replace CDs, says report

Downloads of digital music are up, while CD sales are down. But CDs are here to stay - with adults, anyway, if not with teens, according to JupiterMedia analysts.

"Sales of music CDs are continuing to decline annually at double-digit rates. At the same time, we see indications that downloads of digital music are increasing," noted Mark Best, an analyst at JupiterResearch. "That said, digital music downloads are not replacing music CDs."

Best was referring to a report issued today by Jupiter which forecasts that while spending on digital music downloads will step to $3.4 billion by 2012, CD sales will keep on dropping over the next five years. On the whole, the increase in downloads won't make up financially for the decline in CD sales, according to Jupiter's study.

But the ensuing prospects for the music industry, individual artists within it, and the listening public aren't necessarily all that bleak, Best suggested during an interview with BetaNews.

"Still, the music industry is a multibillion dollar industry. And among some customer segments, CDs will really never go away," he elaborated.

Meanwhile, in Best's personal view, the advent of digital music downloads and surrounding Web-based communities are helping to broaden out the music industry, giving less known artists a chance to promote their own work.

The analyst said that Jupiter's accounts of sliding sales for CD sales over the past two years are drawn from statistics drawn from the RIAA (Recording Industry Association of America) and major record labels.

But if CD sales are slipping, and digital music downloads are rising, why has Jupiter concluded that music downloads are not replacing CDs?

"You're talking about two different types of customers. The customer who buys CDs is generally not the same person as the one who downloads digital music," according to Best.

By and large, digital music downloads are most popular among teenagers. Further, many of those teens are downloading the songs on to Apple iPods, he continued.

"But adults still tend to like to have something they can hold in their hands, and they like to 'own' their music," he added. In many instances, digital downloads constitute more of a "rental" than an "ownership" model, according to the analyst.

The jury is still out on the question of whether, on reaching adulthood, today's teens will decide to emulate their elders and start pulling together CD collections of their favorite tunes of all times.

Best pointed to one reason why teens might not do so: Digital music downloaders can store music they want to hand on to on the Web, anyhow.

As for music CDs, nobody's quite sure why their sales have fallen so precipitously over the past two years, Best said. However, it's quite clear that the CD industry enjoyed a huge surge from around 1999 to 2002, when consumers spent larger than usual chunks of their disposable income on recorded music. More specifically, the combined CD/DVD music industry reached its peak in 1999 at around $15 billion in sales.

In contrast, Jupiter's most recent numbers show that although digital download sales grew 30 percent from 2005 to 2006, to hit $1 billion for the first time ever, CD sales plummeted to $9.6 billion over the same time frame.

"So the market would have been inflated (from 1999 to 2002). But also - and this is my own opinion, not Jupiter's - I think that (the boom in CD sales) seems to have been related to upgrade cycles. People were upgrading their music collections back then from tape to CD," he said.

Best also posited that the absence of true music superstars over the past few years - particularly in the category of artists who can easily "cross over" between rock, R&B, rap, and other musical genres - might play a role in the dip in CD sales.

Why is the iPod such a successful platform for music downloads? "With (the iTunes Web site), Apple is making it very easy and convenient to download and store music," said Best.

Yet apparently, even teenagers purchase some CDs. The trend to downloading music on to iPods has really picked up steam over the past year or so, according to the Jupiter analyst. Before that, iPod owners were more likely than today to get music on to the devices by burning CDs - either bought from stores, or borrowed from friends - on to the hard drive, he recalled.

How is the Internet helping to widen the music market? "Artists no longer need to rely on the big labels to get their music out," Best replied.

Indeed, during the Digital Music Forum East, held in New York City this past February, panelists cited the Internet and satellite radio as a couple of factors that are helping to expand the music industry. Moreover, professional musicians also make money from live performances, speakers pointed out.

During a performance at a Manhattan music club called The Knitting Factory, held during the digital music conference, members of a 20-something rock band known as The Brakes credited the Internet as boosting their efforts to move beyond the Philadelphia and New York City markets. The Brakes have used their space on MySpace to promote their club appearances as well as song downloads and their first EP (extended play) CD.

The influence of the Internet on musical artists seems to span generations, too. During a concert tour earlier this year, Tom Rush - a singer/songwriter who first launched his career while a Harvard student several decades ago - gave his own Web site a big plug. On his Web site, Rush lists his national performance schedule and also sells his own music, ranging from current releases to digitally remastered albums he first recorded during the 1960s.