Peter Kafka

Recent Posts by Peter Kafka

Not Dead Yet! The CD Still Rules Music (But iTunes Is Closing the Gap).

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[CORRECTION: My assertion about NPD's unit sales data below is incorrect: The tracking service counts 12 digital download singles as the equivalent of one CD. That makes Apple's share of the market that much more impressive, since singles make up the majority of iTunes sales.]

Ready to toss dirt on the old, unloved CD? You’re going to have to wait a while. Compact discs are increasingly hard to find (at least in physical stores), but someone out there keeps buying them: The ancient format still makes up the majority of music sales in the U.S.

Here are the data for the first half of the year, via the NPD Group consumer-tracking outfit: CDs made up 65 percent of the music market, while paid digital downloads accounted for 35 percent. The digital share has increased from 20 percent two years ago, and Apple’s iTunes (AAPL) alone makes up 25 percent of overall sales*, so you’re going to hear lots of proclamations about Steve Jobs’s ascent to the to top of the music industry.

But hold off on that, just a bit. Because those numbers are skewed even more in favor of the CD than they appear at first glance: They’re measuring unit sales, not dollars. And given that the majority of digital sales are in the single format (i.e., a dollar or so a pop), that means CDs (at $10 or so a pop) still account for the vast majority of music revenue.

Which is why the industry is still tied to CDs, even though no one you know buys them anymore. And it explains why the industry is working on two separate digital formats (dubbed “Cocktail” when sold by Apple, and CMX when sold by anyone else) designed to induce buyers to pay for CD-like bundles.

It won’t work. At best, they’ll convince some digital album buyers to upgrade, but the music business is once again a singles business, and it’s going to remain that way. But you can’t blame the industry for trying.

By the way, there are decent odds you’ll hear about Cocktail at Apple’s September event, which Digital Daily’s John Paczkowski says is scheduled for Sept. 9. Mark your calendar.

*If you’re keeping track: Wal-Mart (WMT) and Target (TGT) trail Apple in the overall market. And iTunes still dominates the digital download market with a 69 percent share, while Amazon (AMZN) is a distant second with eight percent.


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