Legal Downloads Up, CD Sales Down

The consumer and retail tracking NPD Group released the results of a study on how people acquired music in 2007. NPD's data show a marketplace undergoing transition—although, depending on who's parsing the numbers, that could be read either as great news or the end of the world as we know it.

NPD says that the "amount of music that consumers acquired in 2007" was up 10%, although it did not indicate if that figure reflected money spent on music, tracks, or complete recordings. The study said that legal music downloads increased by 10%, but that total CD sales declined by 10%—and since 10% of all CD sales is a much larger figure than a 10% increase in downloads, that there was an overall decline in music purchases.

NPD also estimates that one million consumers "dropped out of the CD buyer market" in 2007, a trend led by teenagers, 48% of whom did not purchase a single CD in 2007. The study said that 29 million consumers acquired music legally on the Internet, a trend led by adults aged 36–50. The number of people downloading from P2P sharing networks actually went down slightly, although NPD indicated that individual users downloaded more files this year.

Here's a tidbit that might surprise you: The number one and number two top-selling music retailers in 2007 were Wal-Mart and iTunes.

The Los Angeles Times ran with the teen angle, with a headline that read, "More teenagers ignoring CDs" and quoted a teenager who said that going to the store, buying the CD, and then loading it was "too much trouble." This led, naturally, to a discussion of illegal downloading, which the Times said, quoting NPD data, is on the rise. "In the last year, consumers paid for 42% of the music they obtained . . . that was down from 48% the year before."

NPD doesn't say how it measures illegal sales.

That teenagers no longer purchase CDs is not news to anyone who spends any time around them. They buy individual tracks and consume music on the go via PDPs rather than stand-alone hi-fis. At the last few cocktail parties I've attended, the chatter of the 36–50 crowd was indeed about music servers, so it's no surprise that legal downloads are on the rise. That's why iTunes has rocketed to the number two retail slot, Next year, expect Amazon to be on the list twice, once for physical product and once for downloads.

What sticks in my craw is that figure about 42% of music acquisitions being paid for. There are new business paradigms functioning these days and among them is the revolutionary concept of "free." Bands post songs on Facebook at no charge for their fans, hoping to create buzz. That music isn't stolen, but it wasn't purchased either. What category does that fall into?

The Internet has also spawned marketing phenomena the old distribution system could have never conceived of. Take Jonathan Coulton, for example. He quit his computer programming job in 2005 to concentrate on becoming a musician, began offering his music for free on the Internet, and, later, asked his fans to pay a set price or "make a donation" for his music. Coulton has created a sizable and fiercely loyal following—one that cares too deeply about his music to steal it. That's thinking your way out of an industry in free fall.

The Internet, says tech guru Kevin Kelly, is all about instant reduplication of data and ideas, which has created a tremendous amount of wealth. However, he argues, our old model of wealth-production was based on selling "precious copies" of things. If the Internet is just a super-efficient copying machine, how do you compete with free copies?

His answer? Deliver qualities that can't be copied. He defines these as immediacy, personalization, interpretation, authenticity, accessibilty, embodiment, patronage, and findability. Coulton's business model incorporates at least seven of those qualities. No wonder it worked.