An article in Digital Music News today reported on music sales figures in 2007. The piece referenced IFPI figures that show a 5.6% decline in global sales figures for the music industry over last year. According to the IFPI, total revenues for the industry slid in 2007 to $29.922 billion.

Of course, the continuing decline is a difficult situation for the music industry. But, where things go from here is a matter of debate. Optimists predict that gains in digital will soon overtake losses elsewhere, halting the slide. Pessimists paint the picture of an industry with ever declining sales, on the slow slide to zero.

Frankly, I'm an optimist. I'd wager that the year-over-year declines will slow down, and we'll reach an equilibrium in the next 24 months.

Sitting on the other side, players like Bob Pitmann (and several close colleagues) suggest that tracks are headed straight to $0.00 (and should be given away), with the premise of eking out a business on the back-end (in concerts and merchandise).

No way that's true. Concerts and merchandise will certainly make money, but sales (CD and digital download) will be a large portion of music industry revenues for a long time running. I'm pretty sure I'll buy a lot more music than I'll ever pay for concerts.

And, the Pitmann model doesn't offer a believable accounting of how up-and-coming artists get from obscurity to being a LiveNation prospect. How does an aspiring new artist get to that level without the development, distribution and marketing that the major labels offer?

Sure, there are the Ingrid Michaelsons that break without a label, but I believe that the Ingrids of the world are anomalies; the exception, not the rule. For every Ingrid Michaelson, there are many artists like Sara Bareilles... an incredible talent, who was challenged to break out of the LA scene, until SonyBMG catapulted her into the national limelight.

Back to music sales. I know that many will disagree with me, but I believe MP3 sales are a business with real room to grow. Granted, it's slowing at the moment, but that's because we've reached the limits of what Apple can do as a single outlet, without the broader marketplace having yet been ignited.

In response to yesterday's post, a respected colleague of mine asked me how the MP3 experiment was going. The somewhat cynical tone of the question conveyed his belief that the move to MP3 has failed to generate any new growth.

There's no doubt that we have yet to see real growth in track sales. Yet.

Amazon has only been open for business for a couple months. I'd wager that Amazon is doing respectable sales for its first six months, on par with iTunes over its comparable period. Remember, iTunes started slowly... It only sold 12 million tracks in its first six months. Very seldom does a venture generate $100M sales right out of the gate.

The MP3 market is in its very early stages. Napster just opened up yesterday, and Wal-Mart still doesn't have a full catalog. MP3's need to be made much more widely available before we'll see it hit its mass market potential.

I suspect we'll see a slew of MP3 deals over the next 12 months. There are a number of web outlets where it'd be great to see a seamless integration of MP3 sales:

- Social networks (MySpace, imeem, Facebook)
- Discovery networks (Pandora, iLike, Last.fm, the Filter)
- Portals (MSN, Wikipedia, YouTube)
- Radio Station Sites (CBS, Clear Channel)
- Retailers (Wal-Mart, Buy.com, BestBuy, Target, CircuitCity)
- Search Engines (Google, Ask, Yahoo)
- Wireless (Jamster, Motorola, Blackberry, carriers)

Growth of the MP3 market will be driven by ubiquity of the product, but it will also be impacted by the seamlessness of the experience. Amazon's effort is a good first run, but there is still room for improvement... possibly via browser plug-in, a more elegant interface for the MP3 store, or both.

And, players like iLike, Pandora and Last.fm could make the experience of buying MP3s much, much more integrated. Right now, they ship users to Amazon, which is downright clunky. Consumers get worked up, in a frenzy of discovery, ready to buy the first of a handful of songs, and then they get shipped to someone else's site?

A big part of the problem there boils down to economics. Selling MP3s is a break-even business at best. Of a $0.99 track, the labels take roughly 70% and the publishers take roughly 9%. (Of course, those numbers are dependent on volume discounting.) But, the short of it is that there's no room for an emerging retailer to make a return. It takes massive scale.

So, players like the iLike and Pandora made a simple business decision... punt their break-even business to Amazon and Apple.

The labels could influence that by playing with splits. That is, offering new retailers licensing terms at something around $0.60 (rather than $0.70), while holding consumer price at $0.99. It'd be interesting to see what adding 10% to retailer margin would do to the marketplace incentives.

If prices are headed to $0.00, as the pessimists suggest, it'd seem to be pretty low risk. Nonetheless, it's doubtful that the labels will take such an approach.

Coming back to the overarching point... Talk of the demise of the music track marketplace is wildly exaggerated; there's a healthy, vibrant marketplace to be had. I believe we'll see that take shape in the next 12 months.