South Korea leads global transition to digital music

USA: South Korea is leading the world in the transition from physical to digital music, with digital services accounting for 56 percent of all consumer spending on full-track music in the country in 2012, according to data from IHS Screen Digest.

The pace of South Korea’s transition to digital music leads all other countries, including major economies such as the United States, currently in second place; and the United Kingdom, ranked third. However, based on current trends, the United States is expected by 2016 to ascend to the market’s top spot, followed by the UK.

“Consumers across the world are migrating their music-spending away from the physical formats such as CDs and toward online digital systems, such as iTunes and Spotify ,” said Dan Cryan, research director for digital media at IHS.

“However, the rate of the transition varies widely from country to country. South Korea now leads the world because its consumers began shifting away from buying physical formats earlier than in other countries, not always for reasons that were legal. Nonetheless, digital music sales will rise more quickly in the United States than South Korea during the next few years, allowing the United States to take the top spot by 2016.

Physical rot creates space for digital growth
South Korea’s sales of CDs and other physical formats have been in continuous decline for more than two decades. The decline there started far earlier than in most other countries, and owes much to piracy. But those developments paved the way for an earlier transition to legal digital product.

The jump in the country’s digital music penetration started in 2006 by surging to 32 percent of consumer spending, up from about 6 percent in 2005. Between 2004 and 2012, digital helped cause the Korean music market to more than double in value from $126 million to $274 million.

iTunes rocks the USA
While as the US has not developed as quickly as South Korea,. digital music took off early in the world’s largest music market, making way for a relatively fast transition. Like many of the major music markets, the physical-music sector in the United States was hit hard by a mixture of piracy and the rise of movies on DVD, which brought about almost unprecedented competition for consumers’ entertainment spending.

But the result was nothing like the decline seen in markets like South Korea or Greece. Early growth in the US market was driven by Apple Inc.’s iTunes music store, which went on to become the worldwide No. 1 full-track music store of any type. Still, growth of the digital retail sector in the United States is slowing, and expansion during the next few years will be propelled by subscription services like Spotify.

Japan: still buying discs  
Japan in 2012 ranked near the bottom of all countries being tracked for digital music transition, at No. 20 out of a total of 21 nations. Only 13.7 percent of music sales in Japan were digital in 2012.

The physical-music market has held on for much longer in Japan compared to almost any other country. Japan is the only country that still sells tangible amounts of physical singles, a category that is all but non-existent elsewhere.