Behind the music: Should the music industry put digital first?

Judging by the media coverage dedicated to digital music one might think the physical format is on its last legs. In fact, even the days of downloads may be numbered as growth in the sector has slowed down considerably over the past year. It seems nobody cares about owning music any more – people are happy to access music via the cloud and stream it from services such as Spotify.

It's as if nobody wants to talk about CDs for fear of sounding like a dinosaur. But while 90% of discussion about the music industry concerns digital consumption and how to monetise it, actual sales show the majority of music fans are, in fact, such dinosaurs. In 2010, according to the BPI, 82.2% of album sales were CDs, with downloads trailing at 17.5% (vinyl and USB sticks took up the remaining 0.3%) – despite there being fewer record stores. Revenue from streaming services is pretty insignificant. In 2009 it represented £24.5m out of £928m earned from recorded music.

This year the digital slice of the pie has grown to 25% but much of that increase is due to record labels working to move consumers towards digital. When Take That's The Circus was first released in 2008, digital sales accounted for just 4%. Universal released an iTunes "Season Pass" for the Circus tour and found a large proportion of fans had no idea how to download music, with many asking what iTunes was. According to the label, Paul Smernicki – who was then Polydor's director of digital and D2C – spent the following 18 months encouraging Take That fans to embrace digital, using Facebook, the band's website to create content they could share online. For the band's follow-up, Progress, the digital share of sales was 20%. Smernicki has since been promoted to director of digital for Universal Music UK.

At the World Copyright Summit, vice-president of the EC and commissioner for digital agenda, Neelie Kroes lamented that Europe was lagging behind the US where 50% of record company revenue in 2010 came from downloads compared to 20% in Europe . But why this obsession with converting consumers to digital? Only 40% of the UK population buys music. The majority of people hear it on the radio or in a club, but don't feel it's important enough to spend money on. Why not let music fans buy what they like in all formats? It may be a "chicken and the egg" scenario, but the more record stores have closed down the less people spend on music.

Jon Webster, chief executive of the Music Managers Forum, agrees. Downloads of singles have exploded, and some would argue this is because of ease of access and paying for them. Why not sell singles in newsagents, he says. Sure, there are gift vouchers for iTunes at supermarkets, but they're impersonal and, as Universal discovered, not all people know how to use them – or even have iTunes on their computers.

Numbers to be released next week by the Entertainment Retailers Association (ERA) suggest a rise in vinyl sales, further proof that many people still love the physical format. The ERA analysis of Official Charts Company data shows vinyl sales are up by 55% percent in the first half of 2011. Radiohead lead the pack with more than 20,000 LP sales of The King of Limbs. In total 168,296 vinyl albums were sold in that period, making Radiohead responsible for 12% of all vinyl sales. It's not a huge amount, but people paid an average of £16.30 per LP, compared to £7.82 for a CD and £6.80 for a digital album.

"Vinyl will definitely outlast CDs because of the resonance, the sound," said the head of Warner Music Group, Lyor Cohen, in a recent interview with Forbes. "The quality is closest to the way the artist wants you to hear it."

Anecdotal evidence shows there are even people who buy vinyl without any intention of actually playing it – to own it is enough. Labels such as XL Records and Universal, with their Back to Black releases, supply digital download codes with vinyl albums so people can choose to listen to the music either way. In 2010, Rough Trade teamed up with the turntable manufacturer Rega for a special-edition turntable.

"Whether it is the 'warmer" sound many music fans appreciate, the large-scale artwork of a 12in sleeve or its sheer retro appeal, vinyl seems to be capturing the imagination of buyers despite the fact it typically costs twice as much as a CD version of the album," says ERA director general Kim Bayley. "Much of the focus in the music industry has been on cutting prices, partly in response to the rise of internet piracy. The success of vinyl shows music buyers will pay a premium if we deliver them a package they really love."

There may be another reason for the digital focus. "Many people are motivated by the possibility of a promotion," says an industry insider. "I'm not sure anyone would be promoted at a label for being the vinyl guy."