Digital downloads pass the £1bn mark, but sales of albums and video games collapse

A collapse in album sales has hit the music industry hard with a slump of 19 per cent last year, with sales of video games also suffering badly.

In its annual update, the Entertainment Retailers Association revealed digital downloads of music, video and videogames passed £1bn in the UK for the first time in 2012.

But the milestone, achieved off the back of an 11 per cent rise in downloads, could not mask a tough time for the British entertainment industry as a whole, as a result of a larger fall in the market for physical CDs, DVDs and games, which still account for three-quarters of all sales.

In a tough year due to the squeeze on the "leisure wallet", total sales of music, video and videogames fell by 12 per cent to £4.21bn.

Sales of physical videogames were down 26 per cent – a decline mirrored in music, where CD album sales fell by 11 per cent, according to figures for 2012 yesterday from the music industry body the BPI.

They showed that an ongoing rise in digital downloads of singles, which rose by 4.7 per cent in 2012, could not offset the falls in the much larger market for CDs. These still remain popular with many customers, accounting for 69 per cent of album sales. The falls have heaped trouble at the door of the struggling retailer HMV, whose shares fell a further 10 per cent yesterday. A bright spot was the success of British acts, who – in the form of Emili Sandé, Adele and Ed Sheeran – accounted for the top three best-selling albums in the UK. The most surprising figure was the sharp decline in the consumption of video games, one of the UK's strongest and most valuable creative industries and a major exporter.

The drop was attributed to fewer big name releases, a decline in shop space and gamers' boredom with the existing generation of consoles, an industry body revealed yesterday. The Entertainment Retailers Association partly blamed the Olympics for putting video games producers off releasing blockbusters last summer. Kim Bayley, its chief executive, said another factor was "the end of the console cycle", with years having passed since Microsoft launched its XBox 360 in 2005 and Sony its Playstation 3 in 2006. The market for all electronic games including special forces 'shoot 'em ups' and more gentle puzzles, tumbled by 17 per cent to £1.59bn.

The best-selling games last year were new versions of old franchises such as Call of Duty's BlackOps 2 and Fifa 2013.

Tony Wadsworth, the BPI's chairman, said "British artists continue to resonate strongly with music fans in their home territory" but also saluted the success abroad of Mumford & Sons.