Business Matters: Six Things in SoundScan's 2012 Mid-Year Report to Be Optimistic About
Business Matters: Six Things in SoundScan's 2012 Mid-Year Report to Be Optimistic About

After U.S. album sales posted their first annual increase in seven years, the recording industry is now left to wonder whether an encore is possible in 2012.'

Based on recorded-music sales during the year-end holiday season and sales during the weeks immediately after Christmas, the data suggests that another annual gain could be in the cards.

Sales of digital tracks and albums look to match last year's gains, even though sales will be going up against tougher year-earlier comparisons. Moreover, merchants and label executives are expecting that CD sales will again post a decline that should be sharply narrower than the steep double-digit drops the format suffered from 2006 to 2010.

During the past several years, industry executives have found that sales data in the first few weeks following Christmas have provided a useful barometer of which direction music sales are likely to head in the subsequent year.

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For instance, after growth in digital album sales during the first two weeks after Christmas 2009 slowed to 11.1% from the same period a year earlier (after sales surged 31.2%), growth in 2010 digital album sales slowed to 13% from 16.1% in the prior year, according to Nielsen SoundScan. Then when growth in digital album sales during the first two weeks after Christmas 2010 accelerated to 14.9%, growth in 2011 digital album sales rose to 19.5%.With digital track sales, the second and third weeks after Christmas have provided a better glimpse of what's ahead. Digital track sales swung to a 0.3% decline during the second and third weeks after Christmas 2009 from a 19.2% surge a year earlier, foreshadowing a sharp slowdown in digital track sales growth to 1.1% in 2010 from 8.4% in the prior year, according to Nielsen SoundScan. After digital sales during the second and third weeks after Christmas returned to growth in 2010 with an 8.1% gain, growth in 2011 digital track sales accelerated to 8.5%.

Setting the digital sales pace during the first two weeks of 2012 have been Adele's "Set Fire to the Rain" (which has sold 397,000 digital tracks), LMFAO's "Sexy and I Know It" (369,000) and Jason Mraz's "I Won't Give Up" (356,000), according to Nielsen SoundScan.

Billboard's Year In Music 2011

What do sales during the weeks following Christmas 2011 tell us to expect this year? Sales of digital albums during the two weeks following Christmas surged 31%, accelerating from a 14.9% gain during the year-earlier period, suggesting that digital album sales will top 2011's 19.5% jump, according to Nielsen SoundScan. Meanwhile, sales of digital tracks during the second and third weeks after Christmas rose 7.2%, slightly slowing from the 8.1% gain in the year-earlier period, pointing to an annual sales gain in 2012 that should be roughly in line with last year's 8.5% increase.

Those digital sales increases, coupled with industry projections that CD sales will post a relatively modest decline, point to what until recently seemed extremely improbable: a second consecutive annual sales increase in 2012.

"I am bullish," Universal Music Group Distribution president/CEO Jim Urie says. "I think everybody should be."

Brick-and-mortar retailers also have an upbeat outlook for the new year, based on how their holiday selling season went.

At Newbury Comics, CEO Mike Dreese reports that the chain's revenue was up 7% in December on a comparable-store basis from a year earlier and said most of that came from fashion sales and other product lines. But even music turned in a good performance for the chain. CD sales were up 2% on a unit basis, while online CD sales surged 21%. Considering that 2011's holiday release schedule was considered by all to be weaker than the prior year's, Newbury had expected a 10% decline in CD sales, so the format's performance proved to be a pleasant surprise.

Looking ahead, Dreese says that considering there are some good things going on with the CD format in 2012, he expects the CD sales decline will remain at the slower pace established in 2011. Moreover, since the company's overall Web sales of CDs, DVDs, fashion accessories, T-shirts and lifestyle products achieved one-third of the company's sales during December, and considering Newbury Comics had its third or fourth best year in the company's history, Dreese says he is upbeat about 2012, even if the environment remains challenging.

U.S. album sales during the final seven weeks of 2011 fell 5.3%, due to the weak release schedule, representing the smallest year-on-year decline during the period since 2004 when the holiday selling season suffered a 5% decline, according to Nielsen SoundScan.

Alliance Entertainment president Mike Davis says the wholesaler had a great holiday selling season. In the company's category management operation for merchants like Barnes & Noble, Sears/Kmart and Meijer, as well as for its indie store account base, Davis says, "Our key customers had really strong Black Fridays all the way through Christmas." He said the CD fulfillment business for online CD sellers also had a great year.

Steve Harkins, VP of independents at one-stop Baker & Taylor, thinks CD sales will hold up because Universal Music Group has resumed a discount program it ran from Black Friday week into December, whereby merchants will be able to buy a range of more than 100 hit titles for greatly reduced pricing in exchange for certain requirements like low in-store pricing and good positioning.

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Additional reporting by Glenn Peoples.

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