Apple’s iTunes passed a historic mark the other day. They sold their 10 billionth song. The web site sells 25% of all music in the US, and nearly 70% of digital downloads. Compare that to the number two source of downloads, Amazon that sells 8%.
We see headlines all the time about the popularity of digital downloads, over a billion tracks downloaded last year alone. Then there are all the CDs are dead stories. We read about plummeting CD sales, bankruptcies of record store chains like Tower Records and just assume that nobody buys CDs anymore.
Actually according to NPD Group, CDs remain the most popular music format at 65% of all music sold in 2009. According to NPD’s Russ Crupnick, VP of entertainment industry analysis:
Crupnick might as well be talking about terrestrial radio. Given all the attention to Internet radio, many people are surprised that terrestrial radio is still the dominant music and information delivery format.
But it is.
It is refreshing to see someone correct the misconception created by stories that selectively highlight digital’s growth. We see it all too often in stories about Internet radio listenership. The emphasis is always on percentage change, not the absolute numbers.
Growth as measured by a percentage gain is always going to be greatest in the beginning. Starting out at close to zero, any new product or service is going to register double digit gains with even relatively modest unit gains.
As more people buy a new product or begin using a new service the absolute number of users will get larger even as the gains as a percentage decline. This is a favorite trick of new-media pundits. Don't talk about the number of actual users. Just talk about the percentage increases from last year.
A variation of this trick is to use past gains to project into the future. After admitting CDs outsell downloads, Crupnick dismisses it as a temporary situation, assuming the past growth rate will continue:
But with digital music sales growing at 15-20%, and CDs falling by an equal proportion, digital music sales will nearly equal CD sales by the end of 2010.
Not so fast.
Just because digital downloads once grew by double-digits does not mean that growth will continue at that same pace.
The new iPods sold very quickly at the start, but now sales are declining. The pace of iPhone sales is declining. Satellite radio subscriptions grew very quickly in the first few years, but now they are declining. Same with Rhapsody.
Growth for all things digital is not infinite. Whether it is a device or a service, there comes a point when things start turning negative. The same is true for things in decline. As this graph from the Wall Street Journal illustrates, after peaking in 2000, CD sales have steadily declined. That is a fact. The past, however, is a very imperfect predictor of the future.
As it turned out, after digital downloads had increased 27% in 2008, 2009 downloads grew only 8%. Maybe it’s because of the recession. Maybe it’s because of rising prices. Maybe it’s because the empowerment that comes from being able to download songs is wearing off. Whatever the reason, the rate of growth is declining, and that normally precedes an actual decline.
The belief (or hope) that digital music sales will surpass CD sales now has been pushed out a few years. Instead of a cross-over by the end of 2010, latest estimates put the date at 2015.
So there appears to be some life left in the CD. Just like radio’s imminent death, the death of the CD is more pundit hype and hopefulness than fact.