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The changing musical landscape: iTunes Radio, declining digital sales, Beyonce and more


In 2013, for the first time since the iTunes Music Store launched in April of 2003, digital music sales experienced a decline. The news comes courtesy of Billboard which reports that digital track sales dropped from 1.34 billion units in 2012 to 1.26 billion units in 2013, a 5.7% decrease overall. With respect to full-album sales, the statistics aren't as grave. In 2012 digital album sales checked in at 117.7 million units and only dropped to 117.6 million units in 2013, a minor decrease of just 0.1% year over year.

When we factor in physical music sales (apparently people still buy CDs and records), the year over year difference is much more stark.

Overall, album sales suffered an 8.4% decline, dipping to 289.4 million units from nearly 316 million units in 2012. The CD declined 14.5% to 165.4 million units, down from 193.4 million in the prior year, while vinyl continued its ascension rising to 6 million units from the 4.55 million the format tallied in 2012. That means vinyl is now 2% of album sales in the U.S; digital albums comprise 40.6% and the CD is 57.2% and cassettes and DVDs 0.2%.

So aside from vinyl, a medium that hipsters are seemingly reviving with gusto, the overall trend in music sales, digital and otherwise, suggests that folks aren't as keen on owning their music as they once were.

And for this, the blame -- or perhaps praise -- falls squarely on the shoulders of streaming radio and music subscription sites.

These days, it's abundantly clear that we're living in what you may justifiably call the golden age of music. Never before has so much music been so accessible to so many. What's more, much of this music is available for free courtesy of sites like Pandora and YouTube. Even better, for just $9.99 a month you can have songs on demand at your fingertips while you're on the go, all thanks to an addiction that some folks refer to as Spotify.

That being the case, it stands to reason that digital and album sales will continue to decrease in the coming years as consumers increasingly move away from iTunes in favor of more affordable music alternatives.

While industry executives initially refused to attribute the early signs this year of digital sales weakness to the consumer's growing appetite for streaming, in the second half of the year many were conceding that ad-supported and paid subscription services were indeed cannibalizing digital sales.

What's interesting in all this is that iTunes sales, despite the increasing popularity of sites like Pandora and Spotify, are actually gaining marketshare. Billboard points out that iTunes in 2013 accounted for 40.6% of US-based album sales. So who's really hurting in all of this? Brick and mortar retailers like Target and Best Buy. While overall digital and physical music sales are on the decline, it appears that iTunes now accounts for a bigger piece of the overall music sales pie.

Now don't think that Apple is oblivious to the changing musical landscape. While Steve Jobs often liked to say that consumers prefer to own their music, the reality is that many consumers are increasingly streaming music as opposed to purchasing it. Again, Apple is not blind to this.

Apple this past summer rolled out iTunes Radio, its own take on Internet Radio tailor-programmed to the musical tastes of each particular user. The introduction of iTunes Radio signals that Apple is well aware that a growing percentage of music lovers prefer to stream music rather than own it. Rather than helplessly watch users leave for rival companies, iTunes Radio represents Apple's effort to keep these streaming-minded folks nestled within the profitable confines of the iOS ecosystem.

All this being said, make no mistake that record companies would much rather prefer that users not only buy music, but buy whole albums. One of the revolutionary aspects of the iTunes Music Store was that it, for the first time, enabled users to cherry pick which songs off of an album they wanted to purchase. No longer were music fans forced to pay $16 for a CD that contained, if you were lucky, 2 great songs, 3 good songs, and a whole bunch of filler tracks. With the advent of iTunes, record labels frustratingly saw users downloading single tracks in lieu of full albums.

While there have been efforts to curtail this trend (ahem, iTunes LP), no one has really figured out how to get fans interested in full album sales until Beyonce recently decided to shake things up and abruptly release a new album exclusively via iTunes.

For the first few days it was available, the album was only available for purchase in its entirety. So while Beyonce may be a fan of the single ladies, the same can't be said for singles (I will willingly bear the repercussions of that bad joke). When news that Beyonce released a new album on iTunes began to spread, fans couldn't hand over money for the full-length $15.99 album fast enough. The album quickly became the fastest selling album on iTunes in history. In the first three days of its release, it was downloaded an astounding 828,773 times, setting a new U.S album sales record for first week sales in the process.

In flipping the musical script, so to speak, Beyonce demonstrated that in certain circumstances, there is still a lot of success to be had by offering full albums with a whole lot of extras. Now granted, not every artist has the cachet of Beyonce, and the number of artists who might successfully employ a similar strategy is admittedly minuscule. Still, it might just show that there's still a bit of breathing room left not only for full album sales, but for digital downloads as well.

From a broad perspective, the music industry is currently in the midst of some interesting changes. Digital music sales are declining as many consumers find themselves content with streaming services from the likes of Pandora, Songza, Rdio, and iTunes Radio. Meanwhile, the recently released Beyonce album indicates that record labels and artists are willing to try new things in an effort to lure users back to full length album purchases.

The end result here is nothing less than a bonanza for music lovers. It's important to note here that this isn't a zero sum game. Streaming music doesn't necessarily have to come at the expense of music purchases. I myself have discovered some amazing new music via Pandora and Spotify, prompting me to purchase a few of these songs off of iTunes.

Looking ahead to 2014, it will be extremely interesting to see how digital music sales perform now that we have more avenues for free music consumption than ever before.

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