updated 08:44 pm EST, Fri January 3, 2014
First drop in digital music sales since iTunes was invented
According to a new report by Nielsen SoundScan, digital music sales dropped for the first time since the iTunes Store went online in 2003. Sales fell by 5.7 percent to 1.26 billion songs, with industry executives putting the blame on streaming services like Pandora, Spotify and Rdio -- services the record companies themselves licensed their music to in an effort to reduce their dependency on iTunes. Whether revenue from streaming has offset the sales dip hasn't yet been revealed.
In addition to the drop in single-song sales, digital albums sales are also down very slightly. Album sales fell 0.1 percent to 117.6 million units. SoundScan hasn't yet released its figures for streaming revenue in 2013, making it unclear if the shift in listener habits from buying to subscription services has offset the drops.
Conventional CDs still held the most sway when it comes to album sales, taking 57.2 percent. Digital accounted for 40.6 percent of all albums sold, with vinyl accounting for two percent of sales. Cassettes and album DVDs made up the remaining 0.2 percent. Though it took several years, iTunes eventually became the biggest seller of digital music in the US (2008) and the world (2010), a position it continues to hold today. The company has always taken a dim view to subscription services, saying listeners wanted to "own their music."
However, as higher-speed cellular and Wi-Fi became ubiquitous in major cities, a new trend emerged of users relying primarily on their mobile devices, rather than home entertainment systems, for listening to music. These on-the-go listeners craved a larger variety of music than could fit in the limited storage capacity of the typical smartphone, and the ability to discover new artists and songs -- leading to the acceptance among mainstream consumers for free and subscription "radio-like" services. Curated stations aimed at specific demographics and broader streaming channels of music available on demand everywhere became worth paying up to $12 a month for, leaving buyers with less money for digital or physical song purchases.
Apple eventually joined the fray, creating a free (but advertising-supported) service called iTunes Radio that has proven popular. In the US and one or two other countries, Pandora's user-created "stations" are also well-known, and Spotify has built up a worldwide audience with limited free options and subscription plans. Like many before it, however, operations like Spotify are still a point of contention among artists, many of whom feel they are not being compensated fairly for the use of their work. Spotify has taken to being more transparent about its payouts in an effort to shift the blame back to record companies.
Apple uses revenue from advertising to pay for the music it uses, and additionally pays artists or record companies when customers use the iTunes Match "music locker" service, which costs $25 per year and offers the added benefit of making iTunes Radio ad-free. The pricing makes iTunes Radio the cheapest of the options for streaming ad-free music services.