How Germany Overtook The U.K. To Become Europe's Largest Music Market
How Germany Overtook The U.K. To Become Europe's Largest Music Market

When will U.S. recorded music sales be split 50/50 between digital and physical? It depends who you ask.

According to recent figures in an IFPI global music industry report, the trade value of recorded music sales in the U.S. is probably over 50% digital right now. In its Recording Industry in Numbers 2011 report released earlier this week, the IFPI put both digital and physical revenues at 49% -- the other 2% were performance royalties. Since CD sales continue to slide each month, digital could very well have passed 50% by the end of March 2011.

On the other hand, a new report by Strategy Analytics puts the 50/50 tipping point in 2012. The research firm forecasts 2012 revenue as $2.8 billion digital and $2.7 billion physical. Strategy Analytics' forecast is for consumer spending, or retail value (remember the IFPI's figures are trade value, not retail value), and includes outright purchases as well as subscription and advertising revenue.

If the discussion is just about purchases (items bought, not rented or streamed) then the 50/50 tipping is not here quite yet. In 2010, the value of CD purchases was far greater than the values of digital tracks and albums. Billboard's back-of-the-envelope estimate, based on 2010 Nielsen SoundScan figures for U.S. music purchases, is roughly a 40/60 digital/physical split. But if you include other digital revenue - subscriptions, performance - and ringtones and the gap would be narrowed.

Then again, if you included licensing revenue, the gap would be even wider. For example, licensing revenue account for 9% of Warner Music Group's global recorded music revenue in fiscal 2010. Digital accounted for 29% and physical the other 62%.

Over the years, forecasts of digital and physical revenue have been moving targets. Over the last ten years, research analysts have put out one overly optimistic digital forecast after another. As the years pass, their forecasts are revised downward. Most analysts - but not all - have been fairly accurate in their assessment of the CD's decline.

And from report to report, forecasts vary in part because analysts have taken different approaches. Some have included subscription revenue and ringtones. Others have stuck to a more meat-and-potatoes approach by counting just CDs and digital downloads.

While forecasts for the overall market will continue to vary, one genre should reach a 50/50 split reached this year. The alternative genre, according to Billboard's analysis of Nielsen SoundScan sales figures, could be the first genre to reach that digital milestone by the end of 2011 (or very early in 2012). And by the end of 2012, new age, electronic and soundtracks could also surpass a 50% digital share.