Digital finally overtakes physical in US music market

It’s a moment that many industry observers have predicted for the best part of a decade: the US music market is now more digital than physical, by volume at least. Yet commoditisation increasingly demands entirely new strategies in order to monetise digital music.

According to figures from Nielsen SoundScan and Billboard magazine, digital music unit sales accounted for 50.3% of all music purchases in 2011, the first time that threshold has been crossed in the world’s largest music market.

The US is more advanced in digital than most of Europe. In the UK digital albums still account for less than a quarter of the market, although downloads of individual tracks far outstrip CD singles.

One in three albums is digital in the US, while Americans bought 100m more digital tracks overall in 2011 than the prior year, up over 8%.

But in spite of the digital growth, there are signs that the decline of CDs is slowing. Total album sales were up for the first time since 2004 and physical album sales fell 5% in 2011, significantly less than the 19.5% decline reported in 2010 over the prior year.

Music analyst Mark Mulligan says this about the flip from physical to digital dominance:

“This is obviously an important milestone, but it is as much of a reflection of how much the total market has declined as it is of how strongly digital is performing. In this context, the big slowdown in CD sales decline is important, though … we are looking at volumes so heavy discounting will affect revenues more markedly.”

Mr Mulligan says that around 25% of music fans are now buying digital, “way ahead of many European territories”. “So these figures show the US consolidating its role as the most powerful digital music market but also raise questions about why other markets aren’t performing as strongly digitally.”

But while it’s the biggest, the US is not the first global market to make the shift. For the real leaders in digital music, look to Asia, where digital sales in China, Indonesia, South Korea and Thailand overtook physical back in 2009, according to the IFPI.

Future music products need “SPARC”

To get paid it is increasingly not enough to focus on what’s coming out of these

Yet digital music is very hard to make money off of. Consumers have indicated they are willing to pay more for digital music products, but don’t, suggesting the music industry is doing something wrong.

As I’ve written about earlier, artists and their management need to think differently in order to create music experiences that people are willing to pay for. Increasingly, the cash flow in the music industry is in B2B, yet B2C should not be neglected. B2B is not enough to sustain the music industry and after all this is where demand for music needs to start.

To further quote Mark Mulligan, a radical shift in music product strategy is the only feasible response. To meet demands of the emerging mass market of digital natives, digital music products must have SPARC. That is to say, they must be:

  • Social: Put the crowd in the cloud.
  • Participative: Make them interactive and immersive.
  • Accessible: Ownership still matters but access matters more.
  • Relevant: Ensure they co-exist and join the dots in the fragmented digital environment.
  • Connected: 174 million Europeans have two or more connected devices. Music fans are connected and expect their music experiences to follow suit.

In this sense, calling it a product is imprecise, it’s much more an experience, consisting of the actual sound, but also so much more. In a world of near absolute access to all music for free, anywhere, at any time, music has been commoditised. This requires differentiation through expanding and enriching the music product, so as to foster a music experience based on the principles of SPARC.

Indeed, music products must harness disruption — that isn’t in question. What is, is whether they do so quickly enough to prevent another massive chunk of the marketplace from disappearing for good. And as the canary in the coal mine for media businesses at large, music companies offer lessons for product strategists across all content genres. Be it books, TV or movies, sooner or later the needs of the younger generation of digital natives must be met.


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