Atlantic makes label history as digital sales surpass CDs

By David Chartier | Published: November 26, 2008 - 01:15PM CT

The music industry has come a long way from battling the threat of P2P and through the rise, and ongoing fall, of music DRM. Today, Atlantic has announced one of the most significant milestones in this transition, and one that many record label execs probably considered impossible just a few years ago: the last quarter was the first time in which Atlantic's US digital sales outpaced physical CDs.

The accomplishment, as Ars Technica readers know, was anything but easy, and it stands in stark contrast to the results of its own parent label, Warner Music Group. While Atlantic has reported that US digital sales accounted for 51 percent of its revenue in fiscal Q4 (ending September, 2008), Warner's digital sales made up only 27 percent of its US music revenue, according to the New York Times. But, thanks to lower income tax expenses and a digital revenue of $167 million (up 28 percent from the previous year), Warner's Q4 earnings were up 20 percent overall, reaching $6 million.

Atlantic hit its stride this year, surprising analysts by garnering the highest overall market share in the industry thanks to artists like Death Cab for Cutie, Led Zeppelin, and T.I. Achieving digital success no longer means just albums and songs, though. "I think we’ve figured it out," Julie Greenwald, president of Atlantic Records, told the New York Times. "It used to be that you could connect five dots and sell a million records. Now there are 20 dots you can connect to sell a million records." Greenwald is referring to the new revenue streams that labels can—or increasingly, absolutely need—to leverage, such as ringtones, merchandise, and concert tickets, most of which can also be offered online.

Of course, the dawn of Internet distribution and all the freedom it affords musicians is also giving labels a hard time, and reason to reconsider their methods. Artists like Nine Inch Nails and Radiohead areleaving the labels behind, while others are pressing for more control over their own work.

Overall music sales are still on a gradual decline, as well. Forrester Research predicts US sales to decline to $9.2 billion in 2013 from $10.1 billion this year. It's true that physical CD sales are still dropping faster than digital sales are picking up the slack, but the music industry also finds itself doing battle with the movie and video game industries for each consumer dollar.

Within the music sales ecosystem, however, it is far more likely that the digital single, and not P2P file sharing, is the culprit for a lot of the lost revenue, and the single may simply represent the demands of the market finally being answered. Consumers are no longer throwing down the cash for full albums just to get the two or three songs they want. They simply buy those two or three singles at the low, DRM-free price of 99¢ or less.

Still, Atlantic's sales milestone should serve as an indication that the labels can weather the digital transition. The survivors may ultimately be smaller, and they may have diversified into ringtones, t-shirts, and putting content on the web with partnerships like MySpace Music, but they will have to have evolved with the market. It's good to see the first of the labels begin to grow a new pair of legs.

http://arstechnica.com/news.ars/post/20081126-atlantic-makes-label-history-as-digital-sales-surpass-cds.html