US music market shrinks, iTunes grows – reports

The world’s biggest music market, USA, has seen some positive and some worrying trends in recent months.

With iTunes ascendant and Amazon MP3 store now claiming c.8% of US digital music sales, with 15% of US internet users purchasing music from online stores in the third quarter of 2008, NPD Group reports.

This contrasts with CD purchasing figures, which continue to decline faster than digital grows. Nielsen SoundScan reports US album sales were down 21.7% in the first week of December, compared with the same period last year.

The figures also confirm continued weakness in CD sales, which fell 24.7 per cent in the three weeks up to December 7.

The proportion of US Internet users, age 13 and older, purchasing a CD in the prior month fell from 25 percent in Q3 2007 to 22 percent this year. NPD estimates that the volume of CDs purchased declined by 19 percent in Q3 compared to last year. The most dramatic declines in CD sales volume were among teens (down 34 percent) and among adults age 26 to 35 (down 36 percent). CD purchases by adults age 36 and older showed a more moderate decline of 10 percent.

“The continued growth in the customer base for paid digital downloads is positive, particularly for teens, but it’s counteracted by deepening softness in CD trends,” said Russ Crupnick, entertainment industry analyst for NPD. “Alternative distribution deals in mobile and social networking are important ways for the music industry to fill the gap left by the decline in traditional revenue streams.”

The number of Internet users sharing music on peer-to-peer (P2P) sites held steady at 14 percent in Q3 2008; however the volume of music shared via P2P sites rose by 23 percent, as P2P users reported downloading more files. Teens purchased 34 percent more paid digital downloads compared with year-ago, however growth in P2P file downloading was acute among 13- to 17-year-olds — up 46 percent. NPD noted that the practice of sharing files for the purpose of burning to a CD fell 25 percent among teens, which suggests an increased preference for having the files in a digital-only format.

“The industry has managed to constrain the number of people who are file sharing, but the expanded use of services such as Bit Torrent enable entrenched P2P users to download a growing number of files,” said Crupnick.

Video gaming also appears to have positive effects for the music industry. Twenty-two percent of music buyers (CDs, digital or mobile) overall – and 35 percent of consumers under the age of 35 — reported playing a music-based video game, such as Rock Band or Guitar Hero, in the prior three months. Many of these music gamers reported that the gaming experience had a positive outcome, such as creating music discovery or triggering a digital-music or CD purchase.

“Year-to-date through November, the music and dance genre was the best-selling genre in video games, representing 16 percent of total software sales for the year,” according to Anita Frazier, NPD’s video games analyst.

“Even though gaming competes with music for the consumer’s entertainment wallet share, music-related games are evolving into an important source for music discovery that can have positive revenue implications for the recording industry,” Crupnick said.

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