Music business stages a comeback with first rise in sales for five years

Revenue from the digital market more than compensates for the slow decline of the CD, while DVD sales boom. Nick Clark reports

The UK music industry yesterday cheered a return to growth in 2009, as the rise of digital sales offset a decline in CDs. Yet for many the celebrations were muted, with the slight rise in revenues coming after five years of decline.

Total trade income in the UK music industry rose 1.4 per cent to £928.8m last year, according to a new survey from the BPI, the music industry trade body. The stabilisation came against the backdrop of what the BPI called the "worst of challenging trading conditions and the continuing damage from online piracy".

Top-selling albums included the year's best seller I Dreamed a Dream by Susan Boyle, new releases from Robbie Williams and Michael Bublé, and remastered versions of The Beatles albums. The death of Michael Jackson also prompted a huge leap in sales.

Dan Cryan, a senior analyst at Screen Digest, said: "The recorded music business has had a pretty rough time in the past few years, so saying 2009 wasn't that bad is actually pretty good news."

Geoff Taylor, BPI's chief executive, said the survey was "testament to continuing investment by UK labels in talented artists despite challenging economic conditions, and the innovation labels have shown in licensing new digital services". But he cautioned: "Let's put it in broader perspective: 2009's modest result follows a five-year drop in annual income, and total industry income has not exceeded £1bn since 2006. It is an encouraging dynamic, but too early to spot a trend."

Industry observers have long predicted the sharp decline of the CD, and while there was a further fall, it was not as steep as previously thought. Revenues from physical formats, mainly CD sales, were down 6.1 per cent to £740m last year.

Mr Taylor said: "People have underestimated the CD as a product for the digital age. It's a long way from death; the industry still sells over 100 million a year." He said some buyers want a physical copy of albums, or like the artwork, adding they remain good value.

The sales of CDs were hit by the collapse of retailers including Zavvi and Woolworths last year, as well as the demise of distributors EUK and Pinnacle. This was partly offset by companies such as Game and the fashion chain Peacocks moving into CD sales.

One physical format did prosper last year. The BPI survey found that sales of music DVDs rose 16.1 per cent to £33.1m, helped by 570,000 sales of Take That's The Circus – Live in the run-up to Christmas. The rise of digital music made up for the declining sales of CDs. The income from tracks downloaded over the internet as well as mobile music, subscriptions and ad-supported services, now makes up a fifth of total music revenues. It was up almost by half last year, to £188.9m from £127.8m in 2008.

Digital downloads now represent about 99 per cent of all singles bought. Last year saw £83.7m from individual tracks, while album revenues hit £67.3m.

Mr Taylor said: "The pace of growth of new digital services is encouraging, but the size of the market continues to be constrained by competition from illegal downloads. Those digital revenues are a fraction of what they could be, given the amount of music that is downloaded illegally. It really shows the potential for the market."

The BPI believes in a "holy trinity" of solutions to help combat piracy. The rise of easy-to-use, legal downloading and streaming services including Spotify and Last.fm is crucial, it said. This is complemented by an education drive, including its recently launched Music Matters campaign. "Yet there must also be a disincentive to steal music, and that's where the Digital Economy Bill comes in," Mr Taylor said.

The controversial Bill, which was passed earlier this month, has been designed to curb those illegally downloading content. Jupiter Research has estimated that piracy will cost music companies £1.2bn between 2007 and 2012.

Nick George, a partner at PricewaterhouseCoopers, said: "The music industry is getting to grips with the digital model and education is also helping. There is also a feeling that piracy is not seen as quite as cool and innovative as it was." He predicts the rise and rise of digital music. He said there was a proliferation of devices that play music, from computers and netbooks, to MP3 players, mobile phones and even the new tablets. He added that the age range on digital use was also broadening.

Licensing from TV and films is not included in the BPI survey nor is the growth area of video games, where labels have boosted revenues through the rise of games such as Guitar Hero and Rockstar. That and live events are expected to bolster revenues.

Mr Cryan said: "Given the levels of decline and the underlying conditions on the high street, the signs are good."