LimeWire

Has the music industry touched bottom?

July 8, 2011: 5:00 AM ET

The music business will never be what it was before the Internet but a slight rise in album sales is a sign that it can at least endure.

FORTUNE -- It has taken much longer than it should have for online distribution of music to come together. Rather than accept the inevitable, the recording industry spent years suing its own potential customers for illicit downloads and resisting efforts to create legitimate digital distribution channels – all in the hope that it could keep selling $18 CDs.

Heartland Music Presents Creedence Clearwater ...

Who'll stop the falling album sales?

Sales, of course, fell fast. So when Nielsen SoundScan announced on Wednesday that album sales had actually ticked up by 1% in the first half of 2011, it was notable. When it comes to music sales, anything other than yet another breathtaking drop is notable. The figure is "an anemic ray of sunshine" for the industry, as NPR's blog The Two-Way puts it in an artfully mixed metaphor. It marks the first time since 2004 that sales have risen. And the 2004 uptick was the first since 1999.

Interestingly, despite strong sales by newer artists like Lady Gaga, Eminem and Adele, it's not new music that's driving sales – it's the old stuff. Greatest hits collections by dinosaurs like Journey and Creedence Clearwater Revival helped drive a 7% increase in catalog sales, while sales of current albums actually fell 4%, the Los Angeles Times notes.

Digital album sales – a number derived by dividing individual track sales by 10 (the average number of tracks on an album) --  were up by 10% over the first half of 2011.

Several factors have come together to make the increase possible: increased use of online services and mobile technologies, the economic recovery and the court-ordered shutdown of  LimeWire, which had been the most popular peer-to-peer service for illicit downloads.

Though most reports characterize the increase as good news, industry observer Bob Lefsetz of the Lefsetz Letter wrote to his subscribers: "Trumpeting this as good news is like saying we're winning in Afghanistan if the body count is less than it was the previous week. We lost that war. And the major labels lost the Internet war."

The truth, though, is a lot more complicated than that (both in the music biz and in Afghanistan). Sales are still nowhere near were they were before the rise of the Internet, and they may never be again. And price points are much lower. The profit margins the major labels enjoyed in the pre-Internet era will likely never return. But that doesn't mean the business, including the majors, can't endure, albeit in smaller and more humble form.

Music consumers have shown that, if online music purchases are convenient, user-friendly, safe and relatively cheap, many listeners will gladly pay rather than enter the ugly and headache-inducing world of peer-to-peer downloading.

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