Nielsen's Q1 Numbers: Sales Down, Streams Up

The transition to the streaming ecosystem in the U.S. is picking up steam. The decline in download sales accelerated in the first quarter to nearly match historic drops in CD sales from 2007-2010.

Q1 At-A-Glance

Digital sales (albums + TEA)Down 13.3%
Interactive streaming34.28 billion streams (vs. 25.44 in Q1 2013)
Interactive streaming rate$0.005 (vs. $0.00375 in 2013)
Streaming equivalent albums22.85 million
CD sales31.9 million scanned (vs. 40.1 million in Q1 2013)
Number of tracks > 1M scans16 (vs. 15 in Q1 2013)
Electronica2.7% increase in sales
Classical 33.3% decrease in sales
Pop28.6% decrease in sales

At the end of the quarter, digital tracks were down 12.5%, to 312 million units from 356.5 million units. Digital albums were down 14.2%, to 27.8 million from 32.4 million in the U.S., according to Nielsen SoundScan. Looked at another way, taking into account digital albums plus track equivalent albums (whereby 10 tracks equal one album), U.S. digital sales were down 13.3% in the first quarter of 2014. In contrast, even though U.S. digital sales over all of 2013 were down 3.1%, at the end of the first quarter of last year, digital sales were actually up 3.9% at the end for the first quarter.

For the first time since the advent of digital sales, the format's declines resemble the now-routine annual percentage declines for the CD in the new millennium, when drops in CD sales ranged from 18.2% to 19.7% each year from 2007-11.

However, digital interactive streaming -- not including passive streams from services like Pandora, iTunes Radio and Sirius -- appears to be making up the slack, on a revenue basis at least. According to Nielsen BDS data, interactive music and video streaming totaled 34.28 billion streams in the first quarter of the year, versus 25.44 billion streams in 2013's corresponding period. Not only have streams grown by nearly 9 billion, but per-stream payout has improved this year versus last year, according to label sales executives.

Last year, interactive streams paid an average of $0.00375 per stream, meaning 2,000 streams equaled the average $7.50 wholesale -- the average price when you consider the $9.99 list price for most albums and $11.99 for some superstar albums -- for a digital album download. This year the industry average is more like $0.005, which means that 1,500 streams equal the wholesale cost of an album.

Figuring 2,000 streams per stream equivalent album last year, and 1,500 streams per stream equivalent album this year, that means that SEA totaled 22.85 million in the first quarter of this year, while last year totaled 12.72 million, a difference of 10.1 million album units. So, while digital albums and track equivalent albums were down 9.06 million units, streaming revenue growth is outpacing digital sales decline.

But the industry is still not out of the woods. Again, the CD's decline has accelerated. After dropping 14.5% over the last year, the CD album format is down 20.5% so far this year, to 31.9 million units from the 40.1 million units scanned in the first quarter of 2013.

Analyzing the 16.6% decline in album sales -- to 61.7 million units from the 74 million scanned in 2013's first quarter -- current albums (sales of albums released in the last 18 months, plus sales of albums out longer that remain in the top half of the Billboard 200) are down 18.5%, to 30 million, and are doing slightly worse than catalog albums which are down nearly 15%, to 31 million units. Looking at the year's top selling albums thus far, last year, 31 albums had scanned more than 200,000 units by the end of the first quarter; while this year so far only 17 have done so. The "Frozen" soundtrack leads the way with scans of 1.5 million units.

Moving over to track sales, Pharrell Williams' "Happy" is the top-selling digital song, with 3.6 million scans. So far this year 16 tracks have scanned more than 1 million units. Last year, 15 tracks hit that milestone, led by Macklemore & Ryan Lewis' "Thift Shop," featuring Wanz, with 4.2 million units by the end of the first quarter of 2013.

"Overall, there is still strong demand for people buying and streaming hits," says Nielsen Entertainment senior VP Dave Bakula. "It's the catalog and the bottom levels of the charts, where weakness is occuring."

Looking at genre sales, electronica was the only large genre -- which for this story Billboard defines as a genre with more than one million unit album scans -- to post a gain, with a 2.7% increase, to 1.45 million units from 1.32 million units. Jazz didn't decline as much as the overall U.S. album market, as the genre posted an 8.5% decrease. Classical -- with a 33.3% decline to 1.4 million units -- and pop -- with a 28.6% decline to 4.6 million units -- both had the weakest showing so far this year. The other large genres -- rock, R&B, country, and gospel/Christian -- were all down, ranging from 16%-19%. Latin was down nearly 21%.

On the flip side, when looking at tracks, Latin had the best showing of the genres tracked by Billboard for this story, suffering only a 2.5% decline to 1.8 million song downloads, followed by R&B, which declined 8.6% to nearly 63 million downloads. Rock, pop and country were each down, respectively 15.8%, 8.5% and 16.9%.

Moving over to music merchandisers, the Universal Music Group posted 38.8% in albums plus TEA, versus the 37% it had in the first quarter of 2013. That gives UMG a commanding lead over the 28.4% chalked up by Sony Music Entertainment, from the 29.9% it had at the end of 2013's first quarter. But within Sony Music, Columbia remains the No. 1 U.S. label with 8.05% in album plus TEA marketing share, including ChristianScan album counts.

Finally, for the first time in recent memory, all different store types posted declines, with chains and mass merchants suffering the biggest hits with 24.4% and 24.5% declines respectively, to 7.5 million units and 14.1 million units for the first quarter. But download stores also had a big decline, 14.2% to 27.8 million units, suffering a reversal in fortune after a decade of gains. Also, non-traditional CD merchants also posted a slight decline of 2.9% to 8 million units while indie stores were down 16.6% to 4.1 million units.