Last week, track sales in the United States totaled 19.8 million units, an incredible 15% lower than the same week in 2012 and the lowest weekly total of 2013. A dip below 20 million units is remarkable. For context, weekly track sales in 2013 have routinely been in the area of 25 million and broke 28 million in February, late March and early April.
Although that big drop marks only one week in the year, track sales have been slipping all year. Sales were fewer than 23 million one week in July. Weekly sales slipped below 22 million units in September -- that was 7% lower than the same week a year earlier.
Numerous factors are likely in play with the recent decline in track sales. Here are four of them:
1. The impact of streaming. Subscription services may finally be changing the buying patterns of the most active music fans. Word is that some music companies now believe streaming services -- namely on-demand subscription services -- are starting to impact sales. Until recently, executives did not see proof that streaming services were cannibalizing download sales. Digital revenues aren't necessarily dropping if streaming is impacting download sales, however (see below).
2. The quality of releases. Popular songs are not resonating with buyers as much as they were last year. Through October 6th, sales of the top 20 tracks are down 5.3% compared to an overall track decline of 3.7%. The most popular songs are currently on a good run, however. In the second half of 2013, sales of the top ten tracks are up 32.3% while the rest of the top 40 is down 11.9%. (Quality is a difficult word to define in the context of entertainment products. In this instance, I use quality to mean a product's commercial popularity. By this definition, high-quality songs get to the top of the charts and grab the highest share of sales.)
3. Impact of Android. Rob Wiesenthal, Warner Music Group's Chief Operating Officer, tweeted Friday morning that music download growth is slowing in part "because of consumer shift from iOS to Android." That's a plausible explanation if iOS users are more likely to buy digital music than Android users. It just so happens there is evidence exists to support that argument: iOS users spend more on apps than Android users, according to a study by AdTruth. There is also evidence that iOS users earn more and spend more in general than Android users.
4. The life cycle of the download. For years, the growth of download sales has been slowing as the format matures. One major factor in the slowdown: the US market has not been adding new digital downloads buyers. According to the NPD Group, the number of Americans that purchased at least one track or digital album remained steady at 44 million -- just 14% of the U.S. population -- from 2010 to 2012. Keep in mind that number has remained flat during a period of strong growth in subscription music services, free Internet radio and music identification apps. Every year there are more music services that nudge people to buy digital downloads, but they don't seem to be creating new digital download buyers.
So what does this mean for you? If you're a top 10 artist, or a label, music publisher or manager of a top 10 artist, your share of track sales is probably lower this year than it would have been in previous years. Everybody else has fared better because the losses are concentrated in the hits -- but remember that track sales are down 3.7% across the board. If your track was a hit in the third quarter, you got a larger share of total track sales than you would have last year.
What does this mean for the industry? It shows the digital market is (a) in a state of flux and (b) better off than a year ago. As noted above, gains in streaming revenues should easily outstrip losses in track sales. The value of the year-to-date decline in track sales is roughly $25.8 million, assuming an average price of $1.17. (In 2012, the average selling price of a digital track was $1.17, according to the RIAA. My calculation assumes the average price has not changed in 2013. That may not be the case. The average price rose to $1.17 in 2012 from $1.14 in 2011.)
The digital market is better off because streaming gains should easily outweigh losses in track sales. The increase in streaming and subscription revenues (including non-interactive digital services such as SiriusXM and Music Choice) is about $205 million through October 5th. (I assume 40% growth in subscription and streaming revenues, and use SoundExchange's own forecast for 2013 distributions of $500 million.) That's a net gain of about $179 million. The net digital gain is even larger if you add in growth of digital album sales of 2.1 million units.