Digital music sales, which over the years have provided optimism for the music industry in the face of crumbling CD sales, are starting to flatline as consumers turn to a growing number of free and legal ways of listening to hit songs whenever they want.
Sales of individual digital songs grew just 1% in 2010, down from 8% in 2009 and 27% in 2008, according to a report released Wednesday by market research firm Nielsen SoundScan.
The slowing digital numbers are a sign that the market for digital music is maturing, said Eric Garland, chief executive of Big Champagne, a digital music consulting firm. Garland believes the numbers point to another change in the market -- the emergence of free and legal alternative sources to music online, such as YouTube, Vevo and Pandora.
“What's changed is that people are listening to vastly more free music without breaking the rules,” Garland said. “That can have a cannibalization effect.”
The decline in the growth rate of digital song sales occurred as record labels pushed for iTunes to raise the price of top-selling songs 30%, to $1.29 from 99 cents, on the company's iTunes store, which accounts for the majority of digital music sales. That's preventing a corresponding slowdown in revenue growth.
“The vast majority of the top 200 digital tracks are now $1.29,” said David Bakula, a Nielsen music analyst. “So while sales of singles are flat, their revenue is absolutely going up.” Nielsen does not report dollar sales.
The increase in the price of singles has made the cost of $9.99 albums look more attractive, boosting digital album sales 13% last year compared with 16% in 2009 and 32% in 2008.
Apple continues to account for most music sales online, commanding a more than 60% market share, according to industry research firm NPD Group. Amazon.com, which generated numerous headlines in 2010 for deep-discounting albums by the likes of Taylor Swift, Kanye West and the Arcade Fire to $3.99, is a distant second. Fire-sale pricing aside, albums are still about one-third of overall digital music sales.