June 16 (Bloomberg) -- Global music sales, squeezed by Internet piracy and tumbling demand for compact discs, will fall at a 2.5 percent annual rate over the next five years as non- physical formats overtake CDs, PricewaterhouseCoopers LLP said.
Spending on recorded music will drop 12 percent to $26.1 billion from $29.6 billion in 2008, according to New York-based PricewaterhouseCoopers’ “Entertainment and Media Outlook for 2009-2013” report being released today.
Revenue from music distributed online will surpass physical sales by 2012, the first segment in media and entertainment to make the transition, the New York-based consulting firm said. CD sales will continue falling as consumers switch to online or wireless formats, including downloads, Internet radio and ring tones, PricewaterhouseCoopers said.
“The digital revenues aren’t able to keep pace with the decline in physical CDs,” Stefanie Kane, a partner with PricewaterhouseCoopers, said in an interview yesterday. Consumers are only buying the songs they want to hear and not full albums, resulting in a drop in profit for the music companies, she said.
Physical formats will fall 49 percent through 2013 to $11.3 billion. A 95 percent surge in non-physical music sales, to $14.2 billion, won’t offset the losses, PricewaterhouseCoopers said. A year ago, the accounting firm had predicted new-format revenue would outstrip CD sales by 2011.
Music sales fell last year at a faster rate than PricewaterhouseCoopers predicted. Sales for 2008 came in about 8 percent below the $32.2 billion the firm projected a year ago.
Advertising-supported services such as Vevo.com, a venture between Vivendi SA’s Universal Music Group and Google Inc., and Apple Inc.’s iTunes online store will drive the increase in non- physical music sales, PricewaterhouseCoopers said. Kane also cited Internet radio services such as Pandora Media Inc. and Last.fm.
While piracy will to continue hamper sales, collaboration between record companies and Internet service providers will reduce the rate of illegal downloads, according to the report.
Asia Pacific, including Japan, Australia and China, is the only region where total music spending will rise, according to the report.