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)
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