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The death of the CD: now underway

It seems like the death of the CD is happening before our very eyes. After a couple years of decline and then a couple years of flattening off, CD sales are nosediving– down 7% this year so far. A drop of 7% might not seem like much, but in business it can be devastating, especially in this bloated, stagnant industry which needs growth just to stay on its feet. That drop is only going to accelerate as iPods continue their march towards total domination. And as CD sales fall, stores will cut back on shelf space for music, which will contribute to a cycle of complete collapse.

Even factoring in paid downloads (which are rising very quickly), overall music sales are down 2.5% this year. That’s just as bad news for the major labels because they are almost certainly getting a smaller percentage of online music sales than in-store sales (iTunes has a music selection that’s orders of magnitude larger than Walmart, which means people can actually find and buy non-corporate music). And trends like iTunes podcasts could steal listeners away from purchased music.

So despite all the noise the major labels are trying to make about online services, the death of the CD will be the death of the major label system as we know it. Here’s a more detailed analysis of why we think that’s true.

Record sales fluctuate depending on what albums come out when. But if this year’s drop in CD sales is really iPod related (and I bet it is), then the decline is going to keep accelerating and the second half of the year will probably be worse. 50 Cent already dropped his album, so who else do they have left? But this year is a mere hint of what’s coming. Wait until Christmas when every 12 year old gets an iPod Shuffle and every 16-60 year old gets an iTunes phone (and is anyone going to be giving CDs this year?). The next 18 months could see the most dramatic changes in the music industry in decades; by March, we’ll probably know for sure. It’ll be fun to watch the corporate music beasts wither away.

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