Recording industry tries to change its tune

Then there's Universal Music's Total Music, which is expected to extend what Universal is doing with Nokia's Comes With Music to everything from personal computers to digital music players, with the cost of the music built into the price.

Internet users collectively download about 1.1 billion songs from file-sharing networks every month, according to BigChampagne. So the music industry's success could be tempered if those people see little value in digital music without copy-protection strings or services offering feels-like-free music.

Sales of digital tracks at iTunes and elsewhere surged 45 percent last year compared with 2006, according to Nielsen SoundScan. But digital music still accounts for a small portion of overall music sales, and U.S. album sales in CDs and other physical formats dropped 15 percent during the same period.

Combined, the number of albums sold declined 9.5 percent.

"The industry for the last several years had hoped that eventually the pain would subside and they expected that eventually the market slowdown would level off," said James McQuivey, media and technology analyst at Forrester Research.

Instead, he said, the recording industry saw CD sales falling even faster.

In a research note issued in November, Pali Capital analyst Richard Greenfield suggested retail floor space for CDs would probably shrink this year by as much as 30 percent.

Like many other music retailers, Related Cos.' Virgin Megastores North America has diversified its product offerings in recent years, adding clothing, novelties, electronics and other items to help offset CD sales declines.

After two years of moderate declines, Virgin's same-store music sales rose 5 percent last year compared with 2006, while overall sales jumped 15 percent. CDs now represent only 40 percent of overall sales, said Kevin Milligan, Virgin's vice president of product and merchandising.

Despite mixed results trying to breathe life into the CD by adding video and other multimedia extras, the recording industry will roll out a host of new variants to stores this year.

One, dubbed the CD-View Plus, lets customers access a trove of additional content when they go online. Another is digital gift cards, which enable users to download specific albums, something Starbucks already sells.

"There's a lot of experimentation going on," said Jim Donio, president of the National Association of Recording Merchandisers, a trade group that represents hundreds of retailers, record labels and other music-related firms.

Music fans are also likely to see more albums released in multiple versions, such as pricier deluxe or limited-editions, and more albums pre-loaded onto small, portable storage devices such as thumb drives attached to rubber bracelets.

Consumers may also see a bigger push this year for CD singles, dubbed "ringles," that include mobile phone ringtones and other digital content, Milligan said. Universal Music and Sony BMG, which is a joint venture of Sony Corp. and Bertelsmann AG, are among the labels that have plans to release ringles, he said.

"Everyone is looking for a formula that will provide healthy growth for the industry, which I believe will come," Donio said. "The other side of this will be loaded with new kinds of opportunities, for arguably a marketplace that probably doesn't look anything like it looks now."

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