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The following article on the decline of digital downloads is from the new Billboard magazine which features an indispensible special package on Nielsen's year-end SoundScan numbers that includes a look at labels' year-end market shares and overall music sales broken down by format and genre. Also featured, a cover story on "How the Beatles Went Viral" by S-Curve CEO Steve Greenberg; what Beyonce's coup means for radio and retail and Phil Everly remembered. Pick up this issue here. Subscribe to Billboard here.

For the first time since the iTunes store launched in 2003, digital albums and tracks have fallen in sales. The cause? It appears the bottom has fallen out of catalog sales of both, as streaming picks up steam

To be sure, current digital sales for both albums and tracks also were down in the fourth quarter, and these declines might be an indication that current will soon follow digital catalog trends. But their declines are still far below catalog downturns.

For the year, track catalog sales were down 9.2%, dropping to 665.6 million units from 733.2 million in 2012, according to Nielsen SoundScan. And the decline accelerated every quarter of 2013, with the first quarter seeing a 4.5% year-over-year decrease and the fourth quarter a 15.9% tumble.

Current track sales, on the other hand, had two quarters of growth followed by a downturn in the last two quarters of the year for a total decline of 1.5%. Overall digital track sales declined 5.7%, to 1.3 billion units from 1.2 billion in 2012.

Things started out well for digital catalog albums with year-over-year gains of 5.5% in the first quarter. Then things started turning sour, with a 2% decline in the second quarter, followed by steep declines in the second half of the year, slipping 8.3% in the third quarter and 11% in the fourth quarter. For the year, catalog had an overall decline of 3.8% to 55.3 million units from 57.5 million in 2012.

Current digital albums started strong with a 15.7% gain in the first quarter followed by a 5.8% gain in the second. Then the decline kicked in with a 1.7% dip in the third, followed by a 3.9% drop in the fourth. Overall, current albums still posted a 3.5% gain for the year, up to 62.3 million units from 60.2 million in 2012. But the weakness in the second half of the year for the category will remain a cause of concern in 2014.

Overall, album sales in all formats were down 8.4% to 289.4 million units from nearly 316 million in 2012.

DOES STREAMING OFFSET CANNIBALIZATION?

While industry executives initially refused to attribute the early signs of weakness in digital sales to the rise in streaming, in the second half of 2013 many conceded that ad-supported and paid subscription services did seem to be cannibalizing digital sales.

But the good news is that so far streaming seems to be offsetting the decline in digital sales revenue. According to Nielsen Entertainment senior VP of industry insights David Bakula, there were 118 billion streams last year, which, on a basis of 2,000 streams per album, adds up to 59 million stream-equivalent albums. In new data supplied by SoundScan to Billboard, that’s up from an estimated 44 million SEA in 2012.

If one adds last year’s digital albums sales (117.6 million) and the nearly 126 million in track-equivalent albums (where the revenue of 10 tracks equals one digital album at wholesale cost), one gets a digital albums plus TEA total of 243.5 million, which is a decline of 8 million digital album plus TEA units from the 251. 4 million sold in 2012. So the 15 million in SEA units is almost double the 8 million-unit decline.

But the incremental streams revenue is still not large enough to offset the decline in physicals product. Last year, overall albums plus TEA dropped to 415.4 million units down from 449.5 million in 2012, a drop of 34 million, or 7.6%. That means that the incremental 15 million SEA units is less than half the overall decline of 34 million album units, leaving the industry at a deficit of 19 million units, when everything is converted to the wholesale cost of an album.

Still, the industry has reasons to be optimistic.

“Despite shifts in how music is consumed, we see continued growth in overall music consumption,” Bakula says. “With more than 118 billion streams in 2013 reported by our data providers, which is the approximate revenue equivalent of 59 million albums purchased, the industry remains vibrant as consumption continues to change.”

Within album sales, CDs declined 14.5% to 165.4 million units, down from 193.4 million in 2012, while vinyl continued its ascension, rising to 6.1 million units from the 4.6 million the format tallied in 2012. That means vinyl is now 2% of U.S. album sales, while digital albums make up 40.6%, CDs 57.2%, and cassettes and DVDs 0.2%.

Despite the decline in album sales, the number of million sellers in 2013 rose to 13 titles versus the 10 that passed the milestone last year, when Adele’s 21 led the way with 4.4 million units followed by Taylor’s Swift’s Red with 3.1 million. In 2013, only one album sold more than 2 million units, Justin Timberlake’s The 20/20 Experience, with 2.4 million units.

The top-selling track in 2013 was Robin Thicke’s “Blurred Lines” (featuring T.I. and Pharrell), which scanned nearly 6.5 million units, followed by Macklemore & Ryan Lewis’ “Thrift Shop” (featuring Wanz) with 6.1 million and Imagine Dragons’ “Radioactive” with 5.5 million. Last year, Gotye’s “Somebody That I Used to Know” (featuring Kimbra) was the top-selling song with 6.8 million units.

In 2013, 106 songs hit the million-unit mark versus 108 titles that achieved the feat in 2012. Likewise, the top 200 best-selling tracks in 2013 scanned 279.4 million units, outpacing the 289.3 million units of 2012’s top 200 best-sellers by 3.5%.

In terms of market share, Universal Music Group came in first with 38.9% in albums plus TEA, thanks to its acquisition of Capitol Music Group, while Sony Music Entertainment finished with 29.5% and Warner Music Group tallied 18.7%. While these market-share totals are by distribution ownership, independent labels collectively garnered a 12.3% share. However, if ownership by indie labels is taken into account, then the indie sector’s share is 34.6%.

Looking at genres, R&B (which includes rap) was the only one to post an increase in 2013, with album sales growing 1.2% to 50.7 million units from 50.1 million in 2012—all the more impressive in a year when album sales declined 8.4%. The only other genres to outperform the U.S. album market were EDM, which declined 0.3% to 8.8 million units, and rock, down 5.9% to 100.8 million.

Despite the decline in digital album sales, download stores like iTunes gained market share—growing to 40.6% of U.S. album sales—while sales at mass merchants (Target, Walmart) dropped by 16.3% to about 78 million units; such stores now make up nearly 27% in market share. Chains (Best Buy, Trans World) had a decline of nearly 20% to 39 million units, accounting for a 13.5% share. Album sales at nontraditional CD merchants like Amazon, Starbucks and concert venues increased by 2.4% to 36.5 million units, and sales at indie merchants dropped by nearly 12% to 18.3 million. Respectively, the former comprises 12.6% of album sales while the latter accounts for 6.3%.

-- Edited by admin on Monday 13th of January 2014 02:04:45 PM

-- Edited by admin on Monday 13th of January 2014 02:05:00 PM

-- Edited by admin on Monday 13th of January 2014 02:05:28 PM