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Record Sales Rise as Lady Gaga, Adele Find a Future With Spotify

Singer-songwriter Lady Gaga. Source: Universal Music Group via Bloomberg
Singer-songwriter Lady Gaga. Source: Universal Music Group via Bloomberg

Nov. 14 (Bloomberg) -- Music lovers are doing something they haven’t done in years: They’re buying more albums.

The number of albums sold this year has increased for the first time since 2004, led by deep discounting and releases from the likes of pop priestess Lady Gaga, British singer and songwriter Adele and rapper Lil’ Wayne. That’s an accomplishment in an industry that’s been in steady decline, even though total revenue is still slipping.

The trend may signal a brighter future for the music industry, according to Jean-Bernard Levy, chief executive officer of Paris-based Vivendi SA. The company’s Universal Music Group on Nov. 11 agreed to buy the recorded-music assets of EMI Group from Citigroup Inc. in a deal valued at 1.2 billion pounds ($1.9 billion).

“There’s a clear rebound in music sales this year,” Levy said in an interview in New York before news of the deal. “We don’t want to claim victory. But the music industry may be at a turning point.”

Industry wide, sales of record albums, which include digital downloads, compact discs, some vinyl LPs and cassettes, are up 3 percent, according to Nielsen SoundScan, the music industry’s sales tracking system. A total of 255 million albums have been sold in the U.S. so far this year, compared with 247 million this time last year. At this point last year, overall album sales were down 13 percent from the previous year.

In addition to the sale of a traditional album compilation of songs, either on a CD or through downloading, the industry now also counts what is called TEA, or a “track equivalent album.” One TEA is counted for every 10 single tracks that are downloaded, even if it’s the same song downloaded 10 times. When TEAs are factored in, album sales are up 5.2 percent over last year, according to SoundScan.

Hitting Bottom?

Record companies are benefiting from new Internet music outlets, from Apple Inc. and Amazon.com Inc. to streaming-music services such as Spotify Ltd. and Rdio Inc. At Vivendi SA, whose assets also include the Activision Blizzard video-game business, the Brazilian broadband business GVT, and the French pay-TV operator Canal Plus, digital music sales increased 13.5 percent during the first half of this year, the company said.

The improved sales are a sign that the record industry, which in 2000 saw album sales in the U.S. peak at 785 million units, may have finally hit the bottom, said James Donio, president of the National Association of Record Merchandisers, the New Jersey-based trade group that represents retailers, record labels and distributors. “We are hopeful that we will end 2011 up.”

One powerful factor driving album sales are lower prices, said Levy. Consumers who over the last several years rejected album prices of $14 to $15, and purchased singles instead, are now coming back to albums at lower prices.

“There is a significant market for the download of a total album for $9.99,” he said.

Lower Price Strategy

The lower pricing strategy is getting more music into the hands of consumers, though revenue from album sales remains lower than a year ago, according to Eric Garland, chief executive officer of BigChampagne.com, a Los Angeles-based music and media metrics firm.

Levy and other industry executives see the pricing strategy as an investment. By making it easier for customers to buy albums they hope to gain market share and generate more interest in the music, eventually allowing them to profit from sources such as digital music platforms, merchandise, and concerts.

Music buyers are also rediscovering the appeal of listening to an artist’s work in the form of an album, Donio said.

“The album format in digital form has taken a little time to migrate and this is a very significant year for that,” he said.

Concept Album

Adele’s “21,” for example, has so far sold 4.3 million copies in the U.S. this year, more than any other artist.

“An album like Adele’s is a concept album, enjoyed when the songs are not disaggregated,” Donio said. “She is doing well selling individual songs, but in cases like hers, the album is a work of art.”

Sales of singles, which fell off in 2010, have also been increasing according to SoundScan. Single track sales are up 10 percent to 1.055 billion so far for the year, compared with a drop of 0.4 percent this time last year. This increase has come as prices for singles have gone up. After Apple Inc.’s iTunes for several years sold downloaded singles for 99 cents each, the music industry last year gained more control over iTunes pricing, boosting the price to $1.29 for many singles.

New promotional platforms are also pushing sales, according to Garland of BigChampagne.com. These include online retailers such as Amazon.com and television shows such as “Glee,” which airs on News Corp.’s Fox and drives sales when characters perform their versions of songs.

Gaga Overwhelms

When Lady Gaga released her second album, “Born This Way,” in May, Amazon.com held a one-day 99 cents sale that was so popular it overwhelmed the company’s Web servers. Released by Universal Music Group, Lady Gaga’s album has now sold 1.9 million copies in the U.S., according to SoundScan.

Consumers also discover music through the growing popularity of services such as Rdio and Spotify. Though consumers can get music for free from these platforms, the services engage consumers and encourage them to make purchases, making them less likely to take part in illegal downloading, according to Donio.

Pirates Into Purchasers

Spotify, which has 8 million users worldwide for its free, advertising-supported service and is also embedded into Facebook Inc.’s social network, has grown rapidly, generating licensing and advertising fees for record labels. Since its launch in the U.S. in July, Spotify has also reached a total of 2 million subscribers who pay $5 to $10 per month for a premium service, according to Ken Parks, chief content officer for the London-based company.

The Spotify service, Parks said, is helping to turn one-time music pirates into paying consumers.

“What Spotify has done is re-energized the base of music lovers,” Parks said in an interview. “Data shows that in all of the markets where Spotify operates, digital music sales have grown. We’re generating a lot of revenue for the industry from a generation that wasn’t buying music.”

To contact the reporter on this story: Brett Pulley in New York at bpulley@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom in New York at pelstrom@bloomberg.net

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