Just One More Year Until Digital Music Beats Physical CD Sales

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Newsflash: Digital music sales will overtake CD sales in the US for the first time in 2012, according to a new study released by Strategy Analytics.

I know what you’re thinking: Didn’t that already happen? Like, forever ago? Strange but true, CD sales are still the biggest moneymakers for the music industry. Until next year, when everything changes.

Physical CD sales are expected to drop another 40 percent next year to $2.7 billion, while digital music–mostly sold through iTunes–will make an estimated $2.8 billion. Not that it’s any kind of net positive: The entire music industry’s expected to take a pretty substantial hit, dropping from $6.2 billion in overall 2010 sales to a humbler $5.5 billion next year.

While downloading music nowadays seems more popular than going to the store and buying an album, b0th mediums have different revenue models, and the problem is digital music isn’t as profitable. Sure, digital offers more revenue streams, but when you buy a physical album, you’re paying $15 to $20 a pop. Digital downloaders, by contrast, tend to pick and chose the tracks they like. Instead of buying the entire album, they’ll fork over $2 to $3 for a few select songs. Put in plainer math: Singles make up 39 percent of downloads, while albums are only 32 percent of the whole pie. (Music sold through subscriber services like Zune Pass and free, ad-sponsored tunes comprise the remaining 29 percent.)

That’s changed the way some record companies tabulate their sales. “We don’t focus anymore on total album sales or the sale of any one particular product as the metric of revenue or success,” Universal Music Group’s digital division executive vice president Rio Caraeff told the New York Times in 2008 (Caraeff’s now the president and CEO of VEVO). “We look at the total consolidated revenue from dozens of revenue lines behind a given artist or project, which include digital sales, the physical business, mobile sales, and licensing income.”

Curiously, the same article quotes an analyst who claims that digital music revenue will never replace the money generated by CD sales–not even by 2013. For the most part, though, the article shows that even three years ago, the industry saw the writing on the wall: That digital sales would be their only way out of the music-buying slump.