U.S. track sales are down 2% through April 14th, according to Nielsen SoundScan, while digital album sales are up 9%. A deficit in the digital marketplace is unusual. Although tracks were in negative territory through part of 2010 -- they finished that year in positive territory -- there has been nothing but growth since iTunes launched in April 2003.
 
While this is the first year track sales might show a year-over-year loss, the rate of track sales growth has fallen sharply over the years. Downloads are a mature product and the replacement cycle is weakening. In other words, people are less likely to buy digital versions of songs they already own on CD. There's evidence of this trend in the relatively weak sales for catalog tracks. As I noted a few weeks ago, catalog track sales have been on the decline over the years while current track sales have increased. Hit songs are doing relatively fine this year and have kept current tracks in positive territory.
 
The music download market as we know it is ten years old this month (the iTunes Music Store launched in the U.S. in April 2003). As fewer new download buyers enter the marketplace and consumers shift their listening from downloads to streams, the download as a format will naturally show its age.
 
Tracks' rate of growth has been behind digital albums' rate of growth for years. In 2006, tracks sales rose 65% while digital album sales grew 100%. The difference in rates of growth narrowed in 2007 -- 45% for tracks, 53% for digital albums -- to 8 percentage points and has remained within a narrow band of 5 percentage points in 2008 to 12 percentage points in 2010. As those rates of growth have slowed as digital downloads become a more mature product, tracks have fallen into negative territory before digital albums. If current trends hold, digital albums should be in negative territory in a few years.
 
There could be a couple factors that have helped prop up digital album sales growth. As a major label source believes that Apple's Complete My Album feature and the rising market share of Amazon MP3 -- and Google Play to a lesser degree -- are keeping digital album sales growth above that of tracks.
 
Launched in early 2007, Apple's Complete My Album feature allows people who have purchased one or more tracks from an album to obtain the additional album tracks at a discounted price and with a single click. "More people every single year are doing Complete My Album," says this label source. Track sales will decline as Complete My Album accounts for a greater share of digital album purchases. That's because Nielsen SoundScan removes a consumer's previous track sales when an album's remaining tracks are purchased via Complete My Album.

Amazon MP3's launch in late 2007 has had an effect similar to that of Complete My Album. Amazon -- and to a lesser degree the Google MP3 store (now Google Play) launched in late 2011 -- has gained market share through deep discounting and regular sale pricing of digital albums rather than individual tracks. Amazon has become such a place for bargain-hunting that X5 Music creates 99-song compilations for Amazon but 50-song compilations for iTunes, according to a recent New York Times profile on the label. But neither Amazon MP3 nor Google Play has aggressively discounted individual tracks.
 
Since 2008, the first full year both Complete My Album and Amazon MP3 were on the market, digital albums have had a compound annual growth rate (CAGR) of 12.3% compared to a CAGR for tracks of 4.5%. Again, note the difference is almost a full 8 percentage points.
 
The fact that tracks are in negative territory this year is less a concern than the overall slowing of the download market. Whether its tracks or digital albums in the red, the industry needs to recognize that U.S. download sales may have peaked. The question now is whether or not new innovations such as Apple's upcoming Internet radio service or cloud-based storage will lead to an uptick in demand.

Questions? Comments? Let us know: @billboardbiz

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