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Quick Hits: Digital Music Downloads Edge CDs


Brief scrutiny of today's headlines.

Atlantic Records says revenue derived from digital music downloads now surpasses compact disc sales.

Atlantic, a unit of Warner Music Group (WMG), says digital sales totaled about 51% of its revenue. That includes downloads on Apple's (AAPL) iTunes and cellphone ring tones, The New York Times reports.

It's not quite time to stack your CDs next to Grandpa's 45s, but the emergence of digital sales raises basic questions for the music industry.

It's still unclear that digital sales can replace the lost revenue from declining CD sales. In response, the music industry is looking at ring tones, subscription services and continued sales to iTunes. Music company executives also may place greater emphasis on concert ticket sales and merchandise from the tours of big name performers.

Analysts expect US music sales to fall to $9.2 billion in 2013 from $10.1 billion this year and $14.6 billion in 1999.

Cheaper production and distribution costs probably don't translate into broader product offerings because no-name groups don't generate significant profit margins. However, digital technology creates the potential for a wider audience for garage bands that can make their music available on file-swapping sites. This is great news for aficionados of various niches of popular music, but does nothing to help the music industry.

Atlantic has the largest market share of the music industry and its competitors are likely to derive a greater percentage of their revenue from digital in the future – and that may not be good news, at least not yet.

The problem, as NBC Universal's (GE) CEO Jeff Zucker said, is "trading analog dollars for digital pennies."

So far, no one has come up with an answer to that.
No positions in stocks mentioned.
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