Although overall, digital music sales are expected to surpass compact disc sales in 2011, the trend is already beginning – at least at Atlantic Records.
Atlantic, a unit of Warner Music Group, says it has reached a milestone that no other major record label has hit: more than half of its music sales in the United States are now from digital products, like downloads on iTunes and ring tones for cellphones.
“We’re like a college basketball team on an 18-2 run,” said Craig Kallman, Atlantic’s chairman and chief executive.
At the Warner Music Group, Atlantic’s parent company, digital represented 27 percent of its American recorded-music revenue during the fourth quarter. (Warner does not break out financial data for its labels, but Atlantic said that digital sales accounted for about 51 percent of its revenue.)
With the milestone comes a sobering reality already familiar to newspapers and television producers. While digital delivery is becoming a bigger slice of the pie, the overall pie is shrinking fast. Analysts at Forrester Research estimate that music sales in the United States will decline to $9.2 billion in 2013, from $10.1 billion this year. That compares with $14.6 billion in 1999, according to the Recording Industry Association of America.
As a result, the hope that digital revenue will eventually compensate for declining sales of CDs — and usher in overall growth — have largely been dashed.
“It’s not at all clear that digital economics can make up for the drop in physical,” said John Rose, a former executive at EMI, the British music company, who is now a senior partner at the Boston Consulting Group.
Instead, the music industry is now hoping to find growth from a variety of other revenue streams it has not always had access to, like concert ticket sales and merchandise from artist tours. “The real question,” Mr. Rose said, “is how does the record industry change its rights structure so it captures a fairer percent of the value it creates in funding, marketing and managing the launch of artists?”
Ever since 1999, when the popular file-swapping service Napster was created, the music industry’s fate has been closely watched by other media companies — television, film and print publications like newspapers — whose traditional businesses are also under siege…
Tim Arango (more on the web)