The current trend of declining music sales will continue, according to Bloomberg.com, citing a study released recently by PriceWaterhouseCoopers LLC. Internet piracy and declining demand for compact discs are the main reasons behind the prediction that music sales will drop 12% by 2012.
As consumers switch to online and wireless formats for music such as downloads, Internet radio and ringtones, revenue from online music sources will overtake physical sales by 2012. Because consumers tend to purchase individual songs rather than full albums when they purchase online, download music sales just don’t add up the way cd sales do.
Internet radio services such as Pandora and Last.fm will drive the increase in online music sales, according to a PWC analyst cited in the article, and collaboration between record companies and online music services will reduce the rate of illegal downloads.
This is another indicator of the benefits of mutually beneficial partnerships between the music labels and the online music services. Despite disagreements over royalties, the relationship between the two is symbiotic. While music labels are desperate to find new ways to grow revenue, online music services are reliant on the labels for the music they play.
Performance royalty payments are, in the end, nothing more or less than a revenue sharing agreement between the services and the labels. With that in mind, labels should be working hard to drive traffic to their Internet radio partners, who should be emphasizing music download sales to their audience and realizing revenue from that as well. Creative collaboration is the path to sustained profitability in digital music’s future.