Digital Downloads in Double Digits

Yahoo reports on music sales for the first half of 2006:

Physical album sales continued to decline in the U.S. during the first six months of 2006, down 4.2 percent in comparison to the same period last year.

However, Nielsen SoundScan figures indicate that digital sales might boost the business as a whole. Sales of digital albums soared 126 percent during the first half of the year, while digital tracks rose 77 percent.

Looking at the entire sales picture–comprising physical albums, digital albums and digital tracks–overall sales to date this year have gained about one-tenth of a percentage point over the first six months of ’05.

A total of 270.6 million physical albums were sold domestically through the end of June, representing a drop of 12 million units from last year’s six-month total of 282.6 million.

Digital albums improved by 8.2 million units, with 14.7 million units sold since January versus just 6.4 million units in the first half of 2005. Digital tracks gained by 122 million units; 281 million tracks were sold in the first six months of the year versus 158 million in the same period last year.

If we assume, as Ars did in January, that an album is equivalent to 12 stand-alone tracks, we can calculate the rough market share of downloads as a proportion of all music sales in the US. For 2004, downloads comprised 2.3 percent of the market, while for 2005, it was 7.3 percent. This year, it appears there were 270.6 million physical albums sold, 8.2 million digital albums, and the equivalent of 23.4 million albums worth of individual tracks. Adding that up, there were 31.6 million online sales out of a total of 302.2 million sales, or 10.5 percent for the first half of 2006.

It looks like sales growth isn’t quite keeping pace with last year’s growth rate, but it’s still a safe bet that downloads will be the dominant revenue source for the music industry by the end of the decade. It’s also worth noting that download revenues are probably much higher margin than physical CD sales, so even if industry revenues remain flat, industry profits are likely to rise significantly as more and more users shift to online downloading.

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