The CD is the record industry's biggest problem and, yet, its biggest source of revenue - and it took another big hit in 2009. The format's sales dropped 17.9% from 2008. That's a predictable figure considering the previous two years of double-digit losses (-19.7% in 2008 and -18.8% in 2007). Compounding the problem: Digital growth slowed in 2009 and gains were nothing close to what was needed to make up for lost CD revenue.

(The 17.9% decline is for the first 52 weeks of 2009. The previous five years, used here for comparative purposes, each had 52 weeks as well. SoundScan considers 2009 to have had 53 weeks. If the 53-week 2009 period is compared to the 52-week 2008 period, CD sales dropped 16.4% -- a one-and-a-half-point improvement. An alternative 52-week period could also be used by taking the 53 week sum and subtracting the first week of 2009. The year-to-year change using the alternative 52-week CD sales figure is -18.2%.)

Given the situation at retail, an 18% decline for the CD is not terrible. Consider all that has happened: Virgin Megastore closed its last six stores (including both of its Manhattan locations); Trans World shuttered many stores (at the end of November, Trans World operated 92 fewer stores that a year earlier, and will shut down more by the end of this month); Circuit City went out of business; independent retailers across the country closed (although new independent stores are popping up); national chains and mass merchants scaled back on the space devoted to CDs; Starbucks pulled back on the format; and last but not least, the Eagles did not have a Wal-Mart exclusive in 2009. Ouch.

In spite of its many woes, the CD - and physical product in general - is not dead. As I wrote in May 2008:

"Labels, keep on pressing CDs and LPs. Physical products and physical distribution are not going to go extinct any time soon. Retail will continue to be gloomy but there will be outlets to sell your physical product, and there will continue to be distributors to get your product into those stores. The bottom line is nobody should mistake digital adoption for complete physical abandonment."

Regardless of the strategies chosen by artists and labels to best serve those fans who still desire physical product, they should continue to supply CDs and LPs to the market. Most importantly, they should ignore the advice given by Gartner in December 2008 to stop manufacturing CDs in order to focus on digital distribution opportunities. Labels will best serve their artists, employees and investors if they strive for a balance between the physical and digital worlds. Gartner is right that labels should more fully embrace digital opportunities, but killing the CD is not the best option.

For years, the industry has grappled with declining CD sales by seeking ways to gain buyers' interest. An NPD study presented at NARM 2006 found that additional content was desirable but consumers don't expect to pay more for bonus content on a CD. (It is now clear, however, that consumers will pay more for extra content and perks in deluxe digital albums.) And a 2008 NPD study looked at consumer responses to alternative formats. Based on positive feedback from consumers, some variations on the CD format stood a decent chance of success. The CDVU, a CD format similar to an enhanced CD, tested well with heavy physical buyers. Even the MVI format scored well - although it was most popular with the same teenagers who are buying less and less physical product.

Like many other attempts to upgrade the CD, the CDVU and MVI did not pan out. CDs sold today are basically the same as those sold ten years ago - although the packaging tends to be a bit different. And sales of vinyl LPs continue to grow - up 33% to 2.5 million in 2009, according to Nielsen SoundScan.