State of the Music Industry 2009
by Alex Cosper
(September 5, 2009)

The music industry in 2009 continues to see rising digital download sales as CD sales keep falling. While major labels have seen shrinking profits all decade, indie music is gaining influence, not just with consumers, but even with music industry leaders who vote on the Grammys. In 2009 indie artists took home 56 awards, which was over half of the Grammys.

Indie Music, which is any music that is independent from the big four major labels (Universal, Sony, Warner and EMI), has been increasing its market share of total music sales in recent years. In 2008 indie labels, grouped as one category, represented a third of total album sales, according to data on MusicIndustryReport.org. Indie music has an even bigger market share of digital download sales, which was 38% for 2008. Over half of the music chosen to be heard by listeners on Pandora.com, the leading internet radio website, is indie music.

Market research firm NPD Group released a report on August 18, 2009 that in the first half of 2009 CD sales accounted for 65% of all music sales while digital downloads jumped to 35%. Just two years earlier digital downloads only accounted for 20% of all music sales. NPD Group official Russ Crupnick projected that based on trends digital music sales would come close to matching CD sales by the end of 2010.

The size of the music industry based on total unit shipments and suggested list prices to retail continued to fall in 2008, according to the Recording Industry Association of America. This estimate dropped from $10.3 billion in 2007 to $8.48 billion in 2008. The industry had hit an all time high in 1999 with $14.6 billion, but has been declining in size since except for an up year in 2004.

The four major labels have reported mixed earnings in 2009, and are all in cost cutting mode. Vivendi SA, which owns Universal Music Group, the biggest label that includes Island Def Jam, Interscope and Geffen, reported earnings on September 1, 2009 that showed a 2% decrease in sales from the previous year. In May the company reported that digital sales were up 27.2% from the previous year.

The second biggest label, Sony Music Entertainment, owner of Columbia, reported in June that sales fell 19% from the previous year when it was still a joint venture with Bertelsmann. Warner Music Group, the third biggest label, reported an 11% decline in earnings in March and a wider third quarter loss in August, despite cost cutting. EMI Group, owned by Terra Firma, experienced a sales increase of 4% as earnings were helped by cost cutting since the company laid off a third of its workforce. EMI also enjoyed the world's best selling album of 2008 (and second biggest in Ameica), Viva La Vida by Coldplay.

The leading music genres, according to the RIAA, based on shipment to retail data, are:

1. rock (31.8%)
2. country (11.9%)
3. rap/hip-hop (10.7%)
4. R&B/urban (10.2%)
5. pop (9.1%)

While rock's percentage of total market share fell from 32.4% in 2007 to 31.8% in 2008, it continued to be the top genre by a wide margin as it has been all decade. Rock peaked in 2006 with a market share of 34% while rap/hip hop has held a steady market share, although down from its 13.8% peak in 2002. R&B/urban's market share peaked at 11.8% in 2007. Jazz, which had a 3% market share earlier in the decade was down to 1.1% in 2008. Source: www.riaa.com.

Digital downloads made another big jump in 2008, surging from 11.2% market share in 2007 to 12.8% in 2008, which was double what it was in 2005. Meanwhile, full length CDs remained the top configuration falling from 82.6% to 77.8% in 2008. Vinyl LPs, once a top configuration through the 1980s, remained bottom of the list but moved up from .7% to 1.0% in 2008. Singles of all types were up from 2.4% to 3.8% in 2008. Source: www.riaa.com.

Who buys music? From a demographic perspective, the biggest group of music buyers in 2008 remained the 45+ age group, composing 33.7% of the market. Ages 10-19 make up 18.2% of the market. Ages 20-34 account for 27.3% of the market while ages 35-44 compose 20.8%. Teen numbers fell off dramatically in 2008 from 23.8% to 18.2%. Throughout the 2000s the 45+ demo has been increasing in market share while the under 45 crowd has been shrinking. Source: www.riaa.com.

NPD Group also reported that Apple's iTunes remains the number one music retail outlet in the United States with 25% market share, up from 21% in 2008, when it became number one. Walmart remained number two and Best Buy is number three. In the digital download market alone, iTunes holds a 69% market share in 2009, while AmazonMP3 is a distant number two at 8%.

Two major label artists proved, however, that you can still sell a lot of CDs without digital downloads. Those artists were Atlantic's Kid Rock with the album Rock N Roll Jesus and Columbia's AC/DC with the album Black Ice. Both albums sold nearly 2 million CDs in 2008 without being on iTunes or any other digital download music store.

In America the biggest selling album of 2008 was The Carter III by Lil Wayne, which sold 2.87 million units. It was the first time in SoundScan's 17 year history that the top album sold less than 3 million units. Just a decade earlier top albums of the year sold well over 10 million units. Since 2000 album sales have fallen almost in half.

Even though about a billion songs were downloaded in 2008, major labels have been hurt by the decline of the album. Historically, the album has been the top revenue generator for the recording industry. But with consumers choosing their own digital downloads, a new business model is shaping that concedes the album may be dead. Labels are looking for alternative revenue streams. In January Universal Music Group said that 20% of the money Rhianna makes comes from ringtones.