Playing a sad song

Digital music sales have hit a wall, raising tough questions about the future of the recording industry

Antti Aimo-Koivisto/Lehtikuva/CP

It’s not a tune the beleaguered recording industry wants to hear. Despite the popularity of music download services such as Apple Inc.’s iTunes, new numbers suggest that U.S. digital music sales have been slowing dramatically in recent months, and may have reached a plateau.

Data compiled by research firm Nielsen show that some 630 million songs were downloaded during the first half of this year, which is about the same as during the same period a year earlier. By contrast, the annual growth rate in 2009 was about 13 per cent, and 28 per cent in 2008. If the trend continues, it could stick a fork in the business model cooked up by record company executives in response to falling CD sales in the file-sharing era.

Jean Littolff, the managing director of Nielsen Music, told the Financial Times this week that U.S. consumers have effectively filled up their iPods. “It’s certainly not the fact that we have lost digital stores or that consumers have fewer places to buy music,” he said. “It’s more that we’ve reached a saturation point.”

Of course, the slowing sales could also have something to do with the recession, which caused millions of Americans to rethink spending on non-essential items. Others have suggested that a dearth of exciting new music releases this year may have played a role, as did Apple’s decision a year ago to yield to the labels’ demands to sell some songs for more than 99 cents, a departure from its preferred pricing strategy. The rise of online music models such as Pandora’s subscription service, where music is streamed and not downloaded, could also have consumers pressing the pause button on buying new tracks.

An equally likely explanation, however, is that there are only so many people willing to pay for MP3 files as illegal file sharing continues to haunt the industry. The sliver of good news for record companies is that digital album sales are up 13 per cent over a year earlier. Still, they have a long way to go to offset falling CD sales.

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