iTunes helps lead digital music shift

PORT WASHINGTON, N.Y. The growing popularity of Apple's iTunes service became apparent today when The NPD Group reported that it was the second-largest music retailer in the United States, just behind Wal-Mart, based on the amount of music sold during 2007 (based on a 12-track CD equivalency for music track downloads).

iTunes growth also reflects the changing landscape of music retail, as legal downloads now account for 10% of the music acquired in the United States. According to NPD, 29 million consumers acquired digital music legally, via pay-to-download sites last year, which is an increase of 5 million over the previous year. Sales growth was largely driven by consumers age 36 to 50 – a segment that was aggressively acquiring digital music-players in 2007.

According to The NPD Group, a sharp increase in legal digital download revenues could not offset declines in CD sales, which resulted in a net 10% decline in music spending (from $44 to $40 per capita among Internet users). As a result the overall portion of music acquisition that consumers actually paid for fell to 42% in 2007 from 48% in 2006.

“The continued growth in legal download sites is encouraging, yet the industry struggles to improve the value of each digital customer,” said Russ Crupnick, entertainment industry analyst for The NPD Group. “With so many baby boomers and gen-Xers entering the market, there are certainly opportunities to sell more digital albums, promote older catalog titles, or create bundles that will raise revenues. In the near term that’s going to be the best means available to narrow the gap on dwindling CD revenues.”