Soundscan Q1 2013 Report: Taking Share

As the industry consolidates, ­questions about the wisdom of market-share ­rivalry crop up. Looking under the hood of 2013's first-quarter salesBy Ed Christman

While it's never wise to read too much into first-quarter sales data, many executives will not feel great about the fact that album sales are down 5%, compared with a dip of 4.4% for the same period a year ago, according to Nielsen SoundScan. That said, in recent years, a bad first couple of quarters hasn't necessarily always played out as being a down year.

All this after 12-18 months of consolidation, led by Universal Music Group's takeover of EMI. And there's more to come after Warner Music Group's acquisition of Parlophone from UMG closes in the current quarter.

Many long-term music business watchers have taken consolidation as a move to build market share in a shrinking market. But there's another school of thought that questions whether this focus on retail and distribution still makes sense in an industry whose revenue streams are rapidly diversifying to areas like streaming, synch licensing and live entertainment.

Chairman/CEO Lucian Grainge's UMG raked in a 37% market share--albums plus track equivalent albums (TEA), where 10 tracks equal an album-now that it has absorbed EMI, versus the 30.1% it had last year before it acquired EMI, which had 9.4% at the time.

Sony Music, run by chairman/CEO Doug Morris, continues to grow its market share, even though it was the sole major shut out of EMI's recorded-music acquisitions. The company increased its albums-plus-TEA market share to 29.9% from 29.1% in first-quarter 2012. Warner Music Group, meanwhile, finished the first quarter with 20.5% market share, up from the 18% it posted at the end of first-quarter 2012. So far, these numbers don't reflect the Parlophone acquisition, which has yet to close.

While market share is still an important consideration in the life of major labels, executives say that financial considerations can trump it occasionally, something that rarely occurred a few years ago.

"Market share still means something," a major-label sales executive says. "There is still the chart game and the perception game and how artists and their managers view it. If you are the biggest label in rock, or rap, or EDM, it's beneficial to you in signing acts. They look and see that this label knows what they are doing, and they can see the acts that have broken. Market share is still important as long as the cost isn't too high."

One industry observer asks, "If market share wasn't important, do you think Universal and Warner would have paid what they did for EMI and Parlophone?"

Another label exec says the majors still eye each other each week to see whose market share went up or down. "It not only happens between competitors but between labels within the same company," he adds. "When there is a big act with a deal that is so costly you know it won't be profitable, there is always competition for them anyway for the market share."

Another executive says that's why so many labels are also offering label services to the indies. "Since indie labels don't care about market share as much as major labels, the majors offer to do radio promotion or digital marketing for a price, and also demand the market share too."

Beyond market share, the chase for high debut-week sales also continues, often to the determinant of profit. "For better or worse, first-week sales have become an important barometer, which we have to live with," a label executive says. A retailer says that whenever two new titles are vying for No. 1 in their debut week, the competing labels start offering all kinds of discounts and incentives to retail in exchange for promotional opportunities. "They want the No. 1 album; it's a market-share game," the retailer says. "It's more about pride, but maybe it helps them in signing acts."

Market share is certainly important to the indie sector, and Billboard biannually calculates--at midyear and year's end--indie market share by label ownership instead of distribution ownership. When market share is calculated by ownership, indie market share usually comes in above 30%. But in the first quarter, the indie sector collectively posted 12.4% in albums-plus-TEA market share, but that excludes all sales from indie labels distributed by the majors and the major-owned indie distributors.


For the first quarter, industry executives attribute the overall downturn to fewer first-quarter hits than last year. That may be true, as this year only 15 songs have so far reached the 1 million-unit milestone, while last year 21 songs accomplished the feat. But 2013's best-selling song download, Macklemore & Ryan Lewis' "Thrift Shop," has scanned almost 4.2 million units, while last year's best seller, fun.'s "We Are Young" (featuring Janelle Monáe), scanned 2.8 million.

Also, while Sony Music and WMG are enjoying an increase in track sales, UMG and EMI combined this year have scanned 14 million units fewer than the two did separately last year.

Still, a few voices suggest the track downturn could be due to the impact of streaming on song downloads, even if industry executives are resolute in their belief that streaming hasn't affected album sales.

While the numbers in this story represent sales, the RIAA has just reported that when streaming is adding to the mix, digital surpassed physical music revenue in the United States for the first time in 2012. So far this year, Nielsen BDS reports that the top three streamed songs during the quarter were Baauer's "Harlem Shake," with 355.8 million streams; "Thrift Shop," at 106.5 million; and PSY's "Gangnam Style," with 52.9 million.

Against that, album sales totaled 74 million during the first quarter, down from 77.8 million. Within that, CD sales were down 15.4% to 40 million from 47.4 million in first-quarter 2012, while digital album sales increased 10.4% to 32.4 million, up from 29.4 million.

With nearly 1.3 million scans, Justin Timberlake's "The 20/20 Experience" is thus far the top-selling album this year, as well as the top-selling digital album with 558,000 downloads.

Within album sales, catalog has been gaining on current sales, thanks to the $5 CDs sold at Walmart. But while catalog overtook current in last year's first quarter, this time around it finished a hair down, comprising 49.9% of sales on scans of 36.9 million units, versus current at 50.1% with 37.1 million scans.

Current track scans increased 2.7% to 163 million, down from 158.8 million units. Overall, digital track scans dropped to 356.5 million in the first quarter from 361.1 million.

Overall, albums plus TEA dropped 3.8% to 109.7 million units, down from 114 million in first-quarter 2012.

Rock was the sole large genre category to enjoy an increase in sales, growing 2.6% to 26.1 million units while R&B/hip-hop declined 8% to 12.5 million. The genres with double-digit percentage declines were Latin, down 11.4% to 2.3 million units from 2.6 million, and electronica, which dropped 29.1% to 2 million units from 2.8 million.

Chains suffered a 19.7% decline in the first quarter with album sales falling to 9.9 million units, while scans at mass merchants dropped 17.7% to 18.7 million and independent stores had an album sales fall of 13.1% to 4.6 million. Consumers are clearly migrating to the Web, as digital album sales jumped 10.4% to 32.5 million units and online CD sales and live venue sales increased 4.5% to 7.4 million.


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