Atlantic Becomes First Major To Sell More Digital Units Than CDs

Atlantic Becomes First Major To Sell More Digital Units Than CDs
Well, the moment has finally come. A major label has come forward saying its digital sales have surpassed those of CDs. Atlantic Records announced this week that sales from digital products, such as iTunes downloads and ringtones, account for 51 percent of the Warner affiliate's revenue in the last quarter.

"We’re like a college basketball team on an 18-2 run,” the New York Times quotes Atlantic’s chairman and CEO Craig Kallman as saying.

The "milestone,” as the Times put it, comes as overall music sales in the U.S. have shrunk to $10.1 billion this year from $14.6 billion in 1999, according to the Recording Industry Association of America, and are projected to decline to $9.2 billion in 2013.

Yet, despite the increasingly gloomy outlook, Warner Music Group reported on Tuesday that digital revenue for the full fiscal year has rose 39 percent to $639 million, or 18 percent of the company’s total revenue, the Times reports. And with big-name artists like T.I., Death Cab for Cutie and Kid Rock leading the way, Atlantic appears to be the first major label to say most of its revenue is being fostered by digital sales, despite plummeting dollar figures from CDs.

"That’s a lot,” David Card, a digital music analyst at Forrester Research, said of Atlantic’s digital sales numbers to the Times. "That’s very high. No one is near that.”

So how did Atlantic supposedly do it?

"I think we’ve figured it out,” Atlantic president Julie Greenwald said. "It used to be that you could connect five dots and sell a million records. Now there are 20 dots you can connect to sell a million records.”

Greenwood added that those dots now involve several small bits of revenue from several sources, such as ringtones, ringbacks, satellite radio, iTunes sales and subscription services, with the company paying a closer eye on spending and dedicating less cash to artist promotion.

However, as The Daily Swarm has pointed out, not everyone is so convinced by Atlantic’s recent "digital success.” Music analyst Bob Lefsetz today (November 26) wrote a rather scathing blog entry about the New York Times article, as well as Atlantic’s self-congratulatory back-patting.

"To say that Atlantic is making more money from digital than from CDs is like saying Harley-Davidson makes more money off tchotchkes than motorcycles,” Lefsetz writes. "Like HP trumpeting its printers are selling like hotcakes but its computer sales are down. Like HBO saying that they sold a ton of Sopranos DVDs but ten million people canceled the service.

"The point is, Atlantic Records is in the recorded music business. And sales at the iTunes Store are not making up for the fall-off in CDs, they’re factoring in ringtones, satellite radio, all kinds of revenue. The question is, when are they going to come up with a reasonable way to monetize music?

"They didn’t license P2P. They sued their customers…

"The labels destroyed their business, and now they’re asking us to forget that as they move into a new business. It would be like GM saying car sales are down, but more people visited our Website and our advertising revenue is up! Huh?”

For more on Lefsetz’s view, it’s perhaps best to get it straight from the horse’s mouth. But overall, he seems to say the outlook is as grim for Atlantic as any label, fancy new figures or not.