The demise of the physical CD and vinyl formats in the digital age has been well and truly exaggerated, at least in the United Kingdom, said speakers at the Music Tank debate in London.

Called 'Never Mind the Box Set: The Album Post-iTunes,' the May 20 event was organized to determine the fate of long-playing albums, when consumers are happy to buy individual downloads via legal online stores such as Apple's iTunes.

Sales of the physical albums continue to thrive, concluded a presentation by Sony Music Entertainment and trade body U.K. Music called 'Not All Consumers Are the Same.' The latest IFPI data for 2009 shows U.K trade revenue is 73% physical, 19% digital and 8% performance rights.

Physical Fanatics Want Innovative Releases

Based on findings by the Future Business Research Group and described as the first-ever industry-wide segmentation of the British music-buying public, the study found that 'Physical Fanatics' were among the segment of music fans prepared to spend significantly on CDs and vinyl recordings.

"Physical fanatics represent about 11% of the [U.K. music-buying] population and about 11% of the total music spend," said Mark Uttley, Sony Music Entertainment's head of insight. "Although tech savvy, they are older [than digital buyers]. For them, discovery is about discovering old gems from back catalogs. They want a big connection with artists and love box sets. They want innovation in physical recordings."

These include extras added to CDs, such as DVDs of the artist in concert or a documentary of the album's recording, and free coupons for ordering merchandise.

"The industry is unlikely to get them to start downloading unless digital begins to have the trusted voice of old record stores. They have been buying [physical recordings] all their lives and they want to be rewarded for their loyalty," Uttley explained.

'Traditional Physicals' and 'Digital Dabblers'

Other segments of high-spending music fans were those 'Going Digital,' who are just starting to discover online music; 'Music Obsessives,' who have adopted digital but also illegal file-sharing; and the 'Digital Converts,' who are fully committed to legal digital music.

Yet, among the low-spending segments of the U.K. music fans, there are the 'Traditional Physicals,' 'Digital Dabblers,' the 'Budget Conscious,' and 'Generation Free', with the last relying heavily on pirated music.

Emma Pike, Sony's VP communications and artist relations, said that 'Digital Converts' account for 11% of the (music-buying) population but 23% of the total spend.

"Quite a lot have tried legal digital but stopped; we need to think of ways to shift consumers into that environment," she said.

One way of encouraging physical fans to adopt digital is to offer them free digital copies of the physical recordings they pay for, suggested Steven Hill, head of marketing and new projects at indie label Warp Records.

"We're increasingly trying to give our customers both because I don't see why we have to segment people into boxes by saying people are 'digital' or 'physical' buyers," he said.

HMV Exploring Bonus Download Option

An audience member Gennaro Castaldo, head of press and PR at U.K. entertainment retailer HMV, disclosed that HMV customers will "soon be able to buy the physical [release] and find a digital file also waiting for them when they get home." He agreed HMV would need the labels' support for such a strategy.

Keynote speaker Keith Jopling, the music industry strategy and business development consultant, stated that digital music still needs to make greater inroads in the U.K. "Only 13% of the U.K. buyers consume music digitally, which strikes me as a small number, considering that 40% of the [total] population buys music," he said.

During the event's panel debate, Steve Bunyan, director of marketing at compilations specialist Union Square Music, declared that "physical isn't going away." However, he queried how the industry will generate revenues when making digital copies is so easy. "If one CD ends up on 10 different iPods, how do we make money?"

Although Simon Singleton, manager of London-based retailer and live-events organizer Pure Groove, said its store is phasing out CDs in the coming months, "we found there are strong loyal vinyl fans and that won't decrease."

Paul Conroy, the former Virgin Records U.K. managing director, revealed that he was developing a venture that created premium quality artist-branded merchandise and gifts for Universal Music Group. "We've seen a gap for high-end collectibles from a company that has the biggest collection of repertoire," he said. "I am talking about 'beyond the box set.'"

Yet, he also had scathing remarks for the current trend of U.K. mass merchants that force CD prices to be so low, it is putting independent stores out of business. But he blamed the music industry for allowing it to happen.

"We have cheapened music so badly," he said. It was greed and short-termism because we wanted gratification today and we screwed up."

The Music Tank session was held at PRS for Music's headquarters.