The writing’s been on the wall for some time when it comes the sales of physical music, with profits from CDs and DVDs on a steady decline in recent years while the sales of digital music has been on a steady incline, as well as the booming popularity of online music streaming services such as Spotify and Deezer.

Internationally, major record labels in America have already turned the corner as digital sales begin to take the lion’s share of their revenues, with research showing that online and digital downloads are set to break records in the US. Statistics that followed on from those from the British music industry that showed that digital music sales in the UK had surpassed that of physical sales, such as CDs and vinyl, for the very first time.

Now Australia looks set to follow in the footsteps of the both the US and the UK, with research showing that music downloads will overtake physical sales of albums and singles for the first time early next year.

As NineMSN points out, combined physical sales fell from $484 million in 2006, to $242 million in 2011, while digital music sales have risen five-fold to $141 million in the same time, statistics that the Australian Financial Review reasons should mean that 2012 analytics will demonstrate a rise to 30% this year, overtaking that of physical sales.

“The trends show sales by value will be over 50 per cent digital for the calendar year 2012,” says ARIA CEO Dan Rosen, speaking to AFR“That would put us in line with the US and the UK, which is great news.”

Mr. Rosen said that the rising digital sales would help stabilise Australian music after almost a decade of decline and rampant piracy, leading to the dire predictions that the internet would kill the record industry, citing illegal file-sharing and death of the album format.

A genuine concern given recent statistics that showed that Australians download music illegally more by population than any other country, ironic given that it followed another study that revealed that music is cheaper to purchase now than it’s ever been.“The trends show sales by value will be over 50 per cent digital for the calendar year 2012… That would put us in line with the US and the UK, which is great news.”
– Dan Rosen, ARIA CEO

Regardless, digital downloads have become the primary revenue for Australian artists, who have seen a 14% growth in royalties to $237 million as APRA|AMCOS recently revelaed, is obviously due to the sale of physical becoming an increasingly niche product. With major retail chains like JB Hi-Fi, Big W, Kmart and Myer being the last of a dwindling amount of stores that stock and regularly sell CDs and DVDs.

Many more, including major IT and electronics retailers like Harvey Norman and Dick Smith, have already dropped physical music from their range, shifting their focus instead to accessories for the digital consumer, such as iPods, headphones, cases, related speakers, docks and other items.

Of course the shift to to online for digital music downloads actually sees another fragmentation occurring, with the rising popularity of online streaming services, now a $1 billion industry. With Australia seeing the introduction of a number of different services in the market in the last 12 months, including Deezer, JB Hi-Fi Now, Rdio, Mog, Rara (one of the first), and market leader Spotify (and many more on the way). All offering free digital streaming music platforms, with many offering commercial-free subscription offers for around $7 to $20 a month.

ARIA’s Dan Rosen reasons that the streaming services are winning back many fans who had relied on illegal file-sharing, thanks to their accessibility and convenience. “They make it easier for people to do the right thing,” Rosen told AFRechoing his previous sentiments in a frank interview with Tone Deaf earlier in the year.

Saying the digital music providers aren’t so much cannibalising digital sales, but are “merely the latest evolution in how people consume recorded music – from the phonograph, to vinyl, cassettes, CDs, through to digital downloads.” The record industry body, which recently held its 26th ARIA Awards ceremony, are also officially recognising the cultural shift by launching a new streaming chart this week, to recognise the rising importance and popularity of streaming services.

There are fears however that the likes of Spotify, Deezer, Rdio et al. are cannibalising digital music sales, while the extraordinary success of Mumford & Sons’ Babel shows that it can have a galvanising effect, others aren’t so sure – including Chris Johnson, manager at the Australian Music Radio Airplay Project.

“While it’s a positive sign that digital music sales are on the rise, it’s likely that new ‘all-you-can-eat’ subscription music streaming services will decimate the need to buy music altogether,” said Johnson.

MGM Distribution’s Sab Chase agrees, adding that additionally there is also the issue of how the artists and musicians – who supply the content the models run on – are getting their fare share of the profits.“While it’s a positive sign that digital music sales are on the rise, it’s likely that new ‘all-you-can-eat’ subscription music streaming services will decimate the need to buy music altogether.”
– Chris Johnson, AMRAP

“The new usage model is going to be the preferred way consumers access their music, having it available any time they want as opposed to purchasing it and carrying it around,” said Chase. “But there is pressure on the return an artist can get because of the fracturing of the model as new technologies come in with unproven income benefits.”

Chase is concerned that the boom may be temporary and that the sustainability may come at the cost of musicians. “If your music can be streamed millions of times for under $1000 it’s hardly going to keep a creator alive,” says Chase. “The negotiations between creators and technology companies might take 15 years to get to the point where we see a sustainable result for both sides.”

It’s an issue that’s beginning to critical mass as more and more artists begin to look at the success of streaming services in direct contrast to the little that is lining their pockets, with indie darlings Grizzly Bear making an excellent case study for the way that even the most popular artists are missing out on the financial success.

The friction between artist, label, and music providers has also reached bloody new heights in America, where musicians have rallied against internet radio streaming service Pandora for their war on songwriters in their lawsuit against US royalties body ASCAP. While over in the UK , the new online digital store Google Music has been attacked as being ‘hypocritical’, with BPI saying that on the one hand the search engine titan makes it easier to access illegal content, while on the other is offering a legal alternative.

Just as Australia is set to follow in the path laid by the US and the UK with digital sales overtaking physical sales, it may follow too that similarly high-profile cases could take place down under; particularly given the growth of royalties fares – the large portion of which come from digital – that Australian artists so desperately rely on to make a living.