Is the CD Becoming Obsolete?

Glancing at a report on Forbes.com this morning, there was an article showing that CD sales are expected to be down 20% 2008 (slightly higher than the 15% drop initially predicted). Why such a drop? Well, there has been a recorded drop of 18% so far in 2007 and the trend seems to be steady and indicative of future trending.

But what's really happening?

A couple things are to "blame". For one, there seems to be a case of shrinking floor space as sales decline. This will likely get worse as stores heavily monitor what items are making money and carefully guard real-estate in their stores, making adjustments to compensate for industry trends and swings. If sales continue to shift online, look for the physical presence of CDs to drop. This will also have an interesting chicken -and-egg effect that extends beyond shrinking sales and reduced floor space... Music Studios will be even MORE inclined to stick with their bubble-gum and "sure thing" artists, reducing the choice in music and furthering the stale choices already proliferating the industry. As a result, independent labels will likely continue to thrive (moreso perhaps) and pick up steam, though much of this in online music sales.

Compare this with new information released by Apple on Friday stating that iTunes is now the third largest music retailer in the country - this according to stats from the first quarter of 2007. iTunes has 9.8% of the retail music marketshare with Wal-mart taking 15.8% and Best Buy 13.8%. That's a LOT of music sales.

In contrast, and to give you a perspective of the change, Amazon.com has a 6.7% share while Target has around 6.6%. iTunes compared its sales to physical store purchases by converting every 12 single downloads as a single album sale. That seems more than fair and gives you an idea of how effective online music is becoming as a compelling alternative to physical sales - at least for people who listen to their music more on the go than in the home. And that's a majority of consumers these days. As automakers respond to the iPod revolution with MP3-compatible players and external docks and connections for MP3 players, even the CD's largest consumer - the commuter - is looking at different options. The market is getting very very competitive and the face of the industry is in the middle of a clear change.

While overall music sales is expected to drop by about 9% in both 2007 and 2008, what's truly happening (according to this report) is a gradual shift away from physical media to downloadable formats. What this indicates, so far, is that US sales of digital music will be growing at an estimated rate of 28% in 2008, however physical sales will drop even further, resulting in a net overall decline.