Digital calls the tune in music retailing

2011 marked the first time that digital music accounted for more than half of all music sales, according to a new report from Nielsen and Billboard. Consumers bought 1.27 billion digital tracks last year, and such major e-commerce players as Apple, Google and Amazon are striving to win the hearts of online music fans.

The music industry’s future is here. CDs are out, digital downloads are in.

For the first time ever, digital music sales accounted for a greater percentage of purchases than physical sales, according to the Nielsen Co. and Billboard’s “2011 Music Industry Report.” Consumers bought 1.27 billion digital tracks last year, which accounted for 50.3% of all music sales. Digital track sales increased 8.5% in 2011. Meanwhile, physical sales declined 5%.

Adele’s song “Rolling In The Deep,” which sold 5.8 million downloads, and LMFAO’s song “Party Rock Anthem,” which sold 5.5 million downloads, became the first two songs to surpass 5 million digital purchases. And 112 digital songs sold more than 1 million downloads, the first time more than 100 digital songs surpassed the 1 million download mark, the report says.

Shoppers have long turned to digital music to buy a single track but purchased a physical CD when they wanted to own an entire album. However, that behavior is rapidly changing. Digital albums accounted for 31% of all album sales in 2011, up from 26% in 2010 and 5.5% in 2006.

The year-over-year jump in digital album sales was even more pronounced in certain categories, such as electronic music (up 42.3%), rap (41.8%), R&B (27.2%) and country (27.1%).

The shift in consumers’ music consumption has been accompanied by a number of moves by some of the biggest names on the web—Apple Inc., Google Inc. and Amazon.com Inc.—aimed at establishing themselves as consumers' favorite source for digital music. Each launched products last year—iCloud, Music and Amazon Cloud Drive, respectively—that store consumers' music on the web and stream it back to them for their listening pleasure.

Amazon.com is No. 1 in the Internet Retailer Top 500 Guide; Apple is No. 3.

Part of the problem (for CD fans) is that digital downloads are accounting for half of the revenues with merely a fraction of the overhead--digital downloads reach the consumer incurring with no manufacturing expenses, no shipping expenses, and far less labor expenses. Let's face it--if I had some music I wanted to market to the masses, why would I invest cash into producing a bunch of CD's (and artwork, and packaging) that will probably never get any shelf space outside of a few small independant record stores when I can use the internet to reach hundreds of millions of people instantly?

I wonder when the labels will pull the plug on Amazon, Apple, etc; I would think the labels could host their own servers just as well & cut out the middle man.

Carrying that point another step; I wonder when the labels will pull the plug on Amazon, Apple, etc; I would think the labels could host their own servers just as well & cut out the middle man.