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Last Xmas for CDs, please, researcher tells music biz

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Market watcher Gartner is playing Scrooge for the music industry - or at least that part of it that is still in love with the CD as revenue generator.

The research company this week called in the music biz to leave this old optical technology behind - the CD has been on sale for more than 26 years - and fully embrace downloading instead.

Indeed, it said, it's that insistence on sticking with the CD that's preventing music companies make the most of the online sales opportunity.

"By propping up the CD business, rather than fully investing in online distribution alternatives, the major labels and the larger music industry have neither succeeded in stamping out piracy nor done much to recreate the business models of the old ‘record business'," said Gartner's Mike McGuire.

"Music labels should... move CDs to an on-demand publishing mode," he suggested.

Look at the numbers. In 2007, online sales yielded 23 per cent of music revenues in the US, though only 15 per cent throughout the world as a whole. This year's numbers aren't in yet, but they're clearly going to show both figures rising sharply. Since 2005, downloads have gone from nine per cent of music revenues to 23 per cent last year, and it's hard not to see a similarly sharp increase between 2007 and 2008.

CD sales have declined over the past three years by the same amount. That's left labels struggling even harder to forecast demand so that they can get the right number of CDs manufactured, packaged and distributed. It's Gartner's contention that they haven't done so too well. While that many not have mattered in the 1990s - retailers would 'soak' up the excess units on their store shelves - it has now become a real liability.

Contrast that with downloads where, once the source file is encoded, production costs cease no matter how many or how few are sold. Put the money wasted on CD over-production and lost through under-production into marketing online music and the business will blossom.

Throw in the ability to better monetise back-catalogue - which the labels have still to fully embrace, though that may be as much down to Apple and iTunes' willingness or ability to load up the servers with limited-interest content - and the industry can drive down costs, lower the price of entry for consumers and beat the pirates that way.

With an all-digital approach, labels are free to sell through almost any online outlet, from iTunes to social networking sites to - heck - irreverent technology news sites who happen to mention a track or an album in a review.

Now there's a thought... ®

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