Compact Disc Sales Plummet 20% Since Start of Year

In an indication of what the Wall Street Journal calls a "seismic shift" in the way people now acquire music, CD sales for Q1 2007 are 20% below what they were last year. Digital song sales, which were expected to salvage the industry, have risen 54% in 2007 from last year to 173.4 million, but that is not nearly enough to compensate for the 20% drop in CD sales to 81.5 million units. Overall music sales, both digital and physical, are down 10% this year. Adding insult to injury, one billion songs a month are traded on pirate networks. Eight hundred specialty music stores closed down last year, including Tower Records' 89 locations. The rampant success of Apple's iPod indicates that consumers are as interested as ever in acquiring music, but it also suggests they prefer to buy without either entering a store or handling a CD. If they must go to a store, they head for Wal-Mart or Best Buy, which offer CDs at deep discounts. Best Buy has been reducing the floor space allotted to CDs, and if Wal-Mart follows suit, the picture will grow even gloomier for music companies.

Sources: Wall Street Journal
Commentary: Media Companies Slow to Bridge the Digital Divide • Warner Music Discusses its "Digital Milestone" and the Future of Physical
Stocks/ETFs to watch: Warner Music Group Corp. (WMG), Wal-Mart Stores Inc. (WMT), Best Buy Co., Inc. (BBY), Apple Inc. (AAPL).
Conference call transcripts: Warner Music Group F1Q07 (Qtr End 12/31/06)

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

Comments

[Malkiel:]

I maintain that the industry and its analysts routinely misdiagnose the meaning of these numbers and aren't really interested in getting it right because they don't want to hear the fact--that people, particularly youth, have turned away from discs and toward piracy because of the overpricing of the product. The RIAA and its members are not interested in lowering disc prices to generate more volume, which is what has been needed to alleviate interest in piracy among the youngest and most piracy-capable consumers.

There will always be a place for discs--not everyone wants to spend the time organizing collections on a computer, not everyone wants to use a portable device like an ipod--but for now the industry is killing its golden goose with stubbornness. Their right to do, but the real basis for the problem should be known and understood.

2007 Mar 21 11:53 AM

[Josh Stern:]

Let's think as investors - how do we feel about putting money into a company where the CEO and BOD have no idea which, if any, of their next generation products will appeal to their customers? Most of us would say "drop dead" to such an idea. Since music is about the most subjective and personal product there is, it's lunacy to think that the industry drive to every greater consolidation and corporate control of the product is going to increase overall sales. Anyone planning those mega-mergers should have assumed that sales would decrease and asked themselves whether some compensating efficiency or pricing power would make up the difference. Evidently it has not. The idea of the mega-media company is itself every bit as misguided as the much maligned TimeWarner AOL merger.

2007 Mar 21 03:00 PM