Spotify, Pandora Spur U.S. Digital Music Sales Past CDs

Photographer: Matthew Staver/Bloomberg

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Photographer: Matthew Staver/Bloomberg

A Best Buy store in Colorado.

The CD’s reign as the music industry’s biggest U.S. revenue source will end this year, eclipsed by downloads and newer streaming services such as Spotify Ltd. and Pandora Media Inc. (P), according to a researcher.

U.S. digital music sales will rise to $3.4 billion this year, exceeding the $3.38 billion in revenue from CDs and vinyl, Boston-based Strategy Analytics Inc. said yesterday on its website. Globally, digital music will surpass physical purchases in 2015, the company said.

Record companies are licensing artists’ catalogs to streaming services as CD purchases shrink. Sales of digital tracks and albums will rise 6.7 percent this year, while streaming revenue will climb 28 percent, Strategy Analytics said. Together they account for 41 percent of U.S. music sales, compared with 22 percent worldwide.

“Streaming music services such as Spotify and Pandora will be the key growth drivers over the next five years as usage and spending grow rapidly,” Ed Barton, director of digital media at Strategy Analytics, said in a statement. “The industry will be hoping that digital can rebuild the U.S. music market to something approaching its former stature.”

Pandora, based in Oakland, California, gained 4.4 percent to $9.71 at the close in New York. The company, which only serves U.S. listeners, has declined 3 percent this year. Spotify, the closely held London-based service, streams music in 15 countries, including the U.S. since July 2011.

Vinyl Decline

U.S. sales of CDs and vinyl will decline 9 percent in 2012, a slower rate of decline than the rest of the world, Strategy Analytics said. Total U.S. recorded music spending this year will rise $134 million, or 2.1 percent, to about $6.38 billion, according to the researcher.

Vivendi SA (VIV)’s Universal Music Group, the world’s biggest record company, is seeking European regulatory approval for its proposed $1.9 billion acquisition of EMI Group’s recorded music business from Citigroup Inc. (C) A Sony Corp.-led investor group purchased EMI’s music publishing in April for $2.2 billion.

Sony Music is the second-biggest record company, followed by billionaire Len Blavatnik’s Warner Music Group.

To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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