Richard Greenfield of Pali Capital sent out this morning a research note to clients predicting a decline in total U.S. industry music sales of 3% for 2007, compared to his earlier prediction that music sales would remain basically flat this year. Driving Greenfield’s pessimistic view are new data from Nielsen Soundscan that indicate a steeper-than-expected fall-off in physical album sales in Q1 07. While the sales of music via CDs and other physical media dropped by 3.4% in Q1 06, they are poised to drop by a dramatic 20.1% during Q1 07. Although Pali doesn’t think sales will drop by that much for the full year, the firm is predicting that physical music sales will decline by 10% this year.
Although in years past the rise of mobile and Internet music sales has basically compensated for the decline in CD sales, it’s unlikely that digital music sales will increase fast enough this year to wipe out the huge drop in physical music sales, Greenfield says. “Digital growth year-to-date is only 63% compared to 131% growth year-over-year at the same point in 2006,” he writes. Overall, music sales are on track to drop 7.5% this year, based on Q1 07 estimates.
One big factor slowing down the growth in digital music sales is, of course, piracy, and Greenfield blames the record companies for dithering around with their DRM policies, making it difficult for consumers to buy music.
Digital piracy remains a big problem and no matter what company executives say about piracy containment/leveling out, digital piracy is a growing problem, particularly in the face of DRM and the lack of service/device interoperability. While the music industry continues to talk about removing DRM (selling unprotected MP3s) to end interoperability problems, we believe the industry is likely to move slowly. The most concerning issue is the growth of bandwidth as piracy has shifted from stealing an individual song on Napster to stealing albums on Kaaza to now using Bittorent to steal entire Discographies.
Cynthia Brumfield at 8:21 AM|Comments(0)
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