Music sales growth is thanks in part to increasing digital downloading, but the CD market has been hit by price deflation

The growth in music sales last year was driven by the increasing popularity of digital downloading, according to Verdict Research.
However, like DVDs and videos, the CD market has been hit by deflation during the year. Although at 2.5%, the drop in prices has been less dramatic than for DVDs, which have been hit by 3.5% deflation, says the market analyst (see below).
The latest volley of price cutting has focused on Coldplay’s X&Y CD, which has thrown Tesco and Sainsbury into a head-to-head contest.
In recent adverts in the Daily Express, Sainsbury was offering the CD at £6.99 when bought with Coldplay’s Parachutes or A Rush of Blood to the Head. Tesco pitched it at 2p cheaper when buying any other CD from the album chart.
Despite the price cuts, Verdict says total music sales, including downloading, rose 3.8% last year. But figures from Video Box Office show sales of CDs fell, with singles sales dropping by 8.3% to £296m and the value of albums down 2.6% to £1.89bn.
Carol Evans, sales and marketing director at the Official UK Charts Company, says: “Overall, music sales remained robust in the first quarter of the year. Albums continued to grow in volume terms, music DVD increased considerably and continued growth of downloads had a significant impact on the singles market.”
The worst-performing sector across retail channels was compilations, which had the sharpest drop in sales, according to further data from the Official UK Charts Company.
Cheaper downloading is hurting disc sales, says Verdict. In fact, it says downloading has now become so cheap that even illegal downloading sites cannot compete. The situation is even forcing some to clean up their act. “Napster has entered a joint venture with Dixons following the threat of legal action in the US,” says Nick Gladding, senior analyst at Verdict.
But, despite these figures, supermarkets are still growing their share of the album market.
According to The Official UK Charts Company, grocery retailers have a 30% share of the market [52 w/e June 3, 2005]. Tesco says it sold nearly 90,000 copies of the G4 CD in the first three weeks of launch.
According to Verdict, specialist high-street retailers are continuing to hold their own against the supermarkets. But the real losers are increasingly the middle-market retailers, such as WH Smith and Woolworths, that are struggling to find a point of difference.
“Within the high street, there is still a potential for HMV to grow. Where there is a strong brand and a specialised product choice, retailers should thrive. But WH Smith and Woolworths have been poorly equipped to fight the multiples and specialists,” says Gladding.
However, he says they are hitting back. “Woolworths is pursuing price competition, whereas WH Smith is targeting multibuy promotions.”
The Official UK Charts Company says the key opportunity for music sales this year has been February’s Brit Awards, which it claims added £7m to the albums market across all retail channels. Sales of Keane’s Hopes and Fears and the Scissor Sisters’ self-titled debut album in particular were boosted by the event.
The five bestselling albums in the first quarter of 2005 were Scissor Sisters by the Scissor Sisters, G4 by G4, The Killers’ Hot Fuss, Keane’s Hopes and Fears and Green Day’s American Idiot. These all helped drive sales in UK grocers.