Business Matters: Track Sales Down 2% in 2013, Not the First Deficit of the Digital Age

Track sales are down 2% through March 15, according to Nielsen SoundScan, suggesting the product has reached a mature stage as consumers are changing their behaviors. Digital albums are still growing, however, although their 9% year-over-year growth through March 15 is 11 percentage points lower than the same growth rate a year earlier. 

This isn't the first time track sales have been in negative territory in recent years. Track sales were down 1% year-over-year as recently as October 31, 2010 but pulled into break-even territory the next month and flourished for over two years. Why? The likely reason is the shutdown of LimeWire in late October 2010. Track sales ended up 1% in 2010 and improved to finish up 8% and 5% in 2011 and 2012, respectively.

Since interest in music has not decreased, the drop in track sales is likely the result of a mix of other factors. Consumers shift to streaming services could be a cause. Spotify added 1 million paying subscribers worldwide in about three and a half months (it has not released a recent US figure). Muve Music has 1.4 million US subscribers and is growing at a fast clip. The natural slowdown of the digital format is a likely factor. If fewer consumers become new digital customers, or if people drop out of the download marketplace in favor of other options, there will be fewer people to support previous years' sales levels. Today's music consumer has an abundance of options to choose from.

But one has to wonder if there will be another shift in aggregate demand similar to the post-LimeWire increase in track sales. If the just-implemented Copyright Alert System fulfills its mission, the infringement notices sent by Internet service providers could alter consumer behavior enough that track sales get a lift. Another possibility would be a game-changing music store on a popular smartphone such as the Samsung Galaxy S4.
Other factors could increase aggregate demand on the margins. Increased adoption of music identification apps such as Shazam or SoundHound could help track sales, although both already have over 100 million users. Improved mobile payment solutions that facilitate digital download purchases could also result in an increase in track sales.
One format's loss is undoubtedly another's gain. The year-to-date decline in track sales works out to about $22.4 million in trade revenue on an annualized basis (at a track price of $1.29). That's equivalent to the trade value of 266,000 new subscribers to subscription services at $10 per month. With the gains services are making in the U.S. these days, the loss in track revenue should be more than made up for by gains in subscription revenue.