From the WSJ:

Increases in digitally downloaded albums and songs were not enough to offset a nearly 20% plunge in CD sales in the U.S., according to year-end figures published Wednesday by the Nielsen Co.’s SoundScan service.

Emphasis added. I think this is the steepest percentage drop yet since the business went south in 2001, though with sales dropping in the double digits each year I guess it makes sense that the percentage figure would grow.

If you’re selling ten million CDs a year, a million-copy drop is ten percent; but if you’re selling only five million, that same drop would represent twenty percent.

Indeed, according to those SoundScan figures, total CD-equivalent music sales sometime in the middle of next year will reach an annual rate of half what they were at the industry’s sales height, in 2000.

Why is this good news? Because the record industry is built on three pillars of corruption, on which it built an edifice (the manufacture and promotion of physical CDs) that is no longer needed. One of the unappreciated side effects of the digital revolution in the media space is its contribution to a drop in white-collar crime.

In the radio world, the record industry used payola for decades to get radio airplay; with radio’s influence waning and industry earnings dropping, those days seem to be over. In retail, price-fixing was the norm; now the prices are being fixed (lower than what they might otherwise be) for a format (the single) the industry stopped selling to force people to buy full-length CDs, all by a guy (Steve Jobs) who doesn’t even work in the biz!

The indignity of it all. The third pillar is relations with artists, whom the labels have screwed on royalty payments, virtually with impunity, since the dawn of the modern industry. I assume this activity continues.

In the NY Times, a few people try to put a positive spin on things:

Rio Caraeff, the executive vice president of Universal Music Group’s digital division, eLabs, said other income, like the fees collected when users stream a video online, had become an essential part of the pie. Twenty percent of Rihanna’s revenue, he said, has come from the sale of ring tones.

“We don’t focus anymore on total album sales or the sale of any one particular product as the metric of revenue or success,” Mr. Caraeff said. “We look at the total consolidated revenue from dozens of revenue lines behind a given artist or project, which include digital sales, the physical business, mobile sales and licensing income.”

Yeah, for right now the labels are still getting their cut of silly money from things like ringtones. But the next Rihana isn’t going to be turning over 50 percent of her ringtone sales to a label.

That’s another repercussion of the slowdown that hasn’t been noticed.  One thing the industry did do is subsidize the losses it took on most artists with the profits it made on a handful of golden geese. Some of these geese, true, took a few years to mature. Others were sitting, um, ducks who were going to be stars no matter what happened.

Those natural superstars will still come along, of course, but I wouldn’t be surprised if some of them now come to stardom not through a label. We haven’t really seen one yet, but the time will come when there are a more than a few artists out there selling out arenas who didn’t come up through the traditional label system.

Each one of those figures would have made a disproportionate contribution to a particular label’s bottom line. That’s a loss that will have ever-deeper impacts as the years go on.

For the rest of us, it will just be fun to watch.