Music biz back to playing the blues

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Since the days of Napster (version 1.0), the music industry has been mired in a funk. But then legitimate digital music services came along to help salvage sales, and the industry rejoiced.

Now comes a return of bad news. Last year saw a 21% drop in the number of people in the U.S. buying music -- both digital and physical -- compared with 2007, according to figures released Thursday by NPD Group, a market research firm.

The NPD numbers echo similarly dour news released last month from the IFPI, a London-based consortium of 1,400 record companies. A 12% uptick in digital music sales in 2009 was not enough to reverse an overall 10% slide in global sales of recorded music in all formats, according to the IFPI.

The NPD figures shed some light on possible reasons sales have declined. Here are some highlights:

The good: Those who bought digital music spent an average of $50 in 2009, up from $33 in 2006. NPD also found the number of songs posted on peer-to-peer networks such as ThePirateBay dropped significantly as consumers cited their fear of malware on these unregulated sites. And Internet radio services, such as Pandora, increases the likelihood of purchasing songs.

The bad: Listeners of free, ad-supported on-demand music services such as LaLa or MySpace Music end up spending 13% less on music downloads. Why buy when you can listen to any song, anytime you wish, for free?

The ugly: The number of people in the U.S. who bought music fell by one-fifth, to 93 million, in 2009 from 116 million in 2007. In other words, the market seems to be shrinking, even as digital music revenue is poised to eclipse physical music sales this year.

The upshot: Russ Crupnick, NPD’s music analyst, said, ‘In the short term, the numbers are outright scary. But the good news is that there are a lot of dedicated digital music buyers out there. We just need more of them. It doesn’t have to be a death spiral.’

-- Alex Pham