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 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 Inc., 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.
Meanwhile, overall album sales — which mostly encompass traditional CDs — continued to sink, as the industry suffered another double-digit drop. Total album sales were down 12.7% in 2010, matching the decline posted last year. Album sales in 2008 and 2007 were down 14% and 15%, respectively.
"This felt like a really tough year," said Jeff Castelaz, who runs successful Silver Lake-based independent Dangerbird Records. "This was the year everyone had to get used to the new normal. There's no doubt it's harder to sell a record. There's so much noise and fragmentation. It's harder to say, 'If we get a band on a radio, we'll sell 50,000 singles.'"
There were still, of course, a number of mega-selling albums. Eminem's "Recovery" (Shady/Aftermath/Interscope) was the top-selling album of 2010, moving 3.4 million copies.
The rapper was followed by two representatives from the country world, as no rock artist had one of 2010's top-selling albums. Behind Eminem, Lady Antebellum's "Need You Now" (Capitol Nashville) sold 3.1 million and Taylor Swift's "Speak Now" (Big Machine) sold 2.9 million.
Swift was the year's top-selling artist, which combines numbers sold from her 2010 effort as well as prior albums. All told, Swift racked up 4.5 million in album sales. Eminem placed second with 4.3 million, but again, nary a modern rock act was among the year's best-selling artists. The Beatles finished at No. 10 with 1.7 million units sold.
Rock fared better in the digital realm. Train's "Hey, Soul Sister" was the year's top-selling digital download with 4.2 million purchases, and the Arcade Fire and Mumford & Sons" both snuck into the top-selling digital albums chart. The latter was again led by Eminem's "Recovery," which sold 852,000 downloads.
Yet the underwhelming digital numbers cast a shadow over any million-selling albums, as the online sector has long been the one targeted for growth.
"From a unit standpoint, we're not going to see double-digit growth in digital sales," Bakula said. "It's partly a penetration issue. Everyone who has a digital music player pretty much has one now."
Heading into 2010, many in the industry hailed Sweden's music-sharing platform Spotify as a potential savior, and the company's founder, Daniel Ek, was even given a keynote speaking slot at noted industry conference South by Southwest.
Yet Spotify's U.S. delay has long been tangled in copyright negotiations with major labels, as the service is based on a so-called freemium model, allowing listeners to stream music free and pay for a more comprehensive service.
Services offering legal ways of streaming music online may not be helping matters, however.
"I'm just concerned that we're growing young people who not buying music," said Dangerbird Record's Castelaz. They're not even renting it. They're borrowing it on YouTube."
Representatives from Universal Music Group and Warner Music Group did not respond to requests for comment. A spokesman for Sony BMG said executives who could comment were unavailable due to the annual Consumer Electronics Show getting underway in Las Vegas.