Services & Software

Digital music gains, but CD losses a pain

Internet users are giving up on CDs, undercutting overall music demand, says NPD. The good news: they're increasingly willing to pay for downloads.

Consumers are increasingly willing to pay for songs they acquire over the Internet, but declining interest in CDs is dragging down overall music consumption among Internet users.

During the third quarter, there was an increase both in the number of people buying digital downloads and in the number of tracks sold, according to market researcher NPD Group. Legal music downloads were up 29 percent from the same period last year, and sites such as iTunes and Amazon MP3 chalked up an additional 2.8 million music buyers, to a total of 15 percent of Internet users.

That jibes with reports from Warner Music Group and Universal Music Group. Both labels have recently seen vigorous growth in sales of digital music. Warner, for instance, said last month that in the third quarter, digital music sales rose 27 percent to $167 million.

Peer-to-peer sites, meanwhile, saw an increase in the overall volume of song files being shared, up 23 percent for the same quarter last year, though some of that increase was attributed to a greater number of downloads per user, according to NPD. The number of P2P sharers among Internet users, NPD reported, stayed flat at 14 percent.

Not surprisingly, teenagers were a big factor in the gains--they accounted for 34 percent more paid downloads than in the third quarter of 2007, and P2P downloading spiked 46 percent among 13- to 17-year-olds.

Also, credit popular video games such as Rock Band and Guitar Hero with spurring consumers to make a music purchase of some sort. In many cases, "gaming can help remind customers of the music they grew up with...and to re-engage with the artist," said Russ Crupnick, entertainment industry analyst for NPD.

But the music labels, knocked off their stride by the advent of the digital music era, still face challenges.

Among Internet users, according to NPD, overall music demand was down 2 percent year over year in the third quarter of 2008. That figure takes into account purchased CDs, purchased digital music downloads, files obtained via P2P sites, and music files borrowed to rip to a computer or burn to a CD.

Largely, that slippage is a result of the continuing drop in sales of CDs (down 19 percent in the third quarter), most notably among teens and young adults, but also including adults over the age of 36.

"The value of each music customer is declining," Crupnick said. But, he added, "anytime you can add 2 (million) to 3 million buyers year over year, that's very encouraging."