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DAYTON — The growing popularity of digital music downloads could send compact discs the way of cassette tapes. Music retail stores might soon follow.

Overall music sales were up 14 percent from 2006, according to Nielsen SoundScan's 2007 music sale figures for the U.S.

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Downloaded song and album sales hit record levels in 2007, rising 45 percent and 53 percent, respectively. But explosive digital growth wasn't enough to make up for the loss in physical CD sales, which fell nearly 19 percent.

The steady decline of CD sales in recent years has led to the demise of such retail chains as Tower Records and the Musicland Group, which operated Sam Goody, Media Play and Suncoast Motion Picture Company stores. Locally, independent retailers such as Renaissance Music Media and the original Dingleberry's have closed.

"Most of the independent and national chains that sold CDs have gone away," said Hans Buflod, president of the local CD Connection chain. "It's changed drastically, especially in the last five years."

Compact disc sales boomed during the 1990s as consumers replaced their existing vinyl record and cassette tape collections with digital audio discs.

Sales slowed with the arrival of CD copying technology and Internet music downloads, Buflod said.

CD Connection had seven area stores at the format's peak of popularity. The chain has since consolidated to just two stores in Kettering and Huber Heights.

"We have to adapt to the changes in technologies in what we sell and how we sell it and where we sell it," Buflod said. "So we constantly rethink the way we're doing things. That's why we have two stores now."

Industry woes

The music industry blames illegal file sharing for the drop in physical album sales.

"It just kills me," said Adrienne Savage, manager of the Dingleberry's store in Yellow Springs. "There will be younger, maybe high school or college age kids ... in here and you overhear something like, 'I'll just download that' or 'I'll just find that on LimeWire.' That's always a little disheartening to hear."

However, a 2007 study by Felix Oberholzer-Gee of Harvard University and Koleman Strumpf of the University of Kansas found that file sharing has had a negligible effect on the decline in CD sales. "Moreover, by exposing users to new music, sharing may actually have increased sales," they wrote.

Gary Staiger, owner of Omega Music on North Main Street, blames record companies for phasing out the CD single.

"When you put out a crappy album that only has two (good) songs on it and you can go buy the two songs for a buck a piece (online), why would you spend $15.99 on the whole album," Staiger said. "Consumers have brains."

Competition from other sectors is a more likely explanation, according to Oberholzer-Gee and Strumpf's statistical analysis of file sharing activity in 2002.

"A shift in entertainment spending toward recorded movies alone can largely explain the reduction in sales," they wrote. "The sales of DVDs and VHS tapes increased by over $5 billion between 1999 and 2003. This figure more than offsets the $2.6 billion reduction in album sales since 1999."

In addition, computer game sales rose by 40 percent and mobile phone usage by teenagers tripled during that period.

Adapt to survive

Gem City Records in the Oregon Historic District has followed those trends by adding an extensive DVD department, along with vinyl records, T-shirts and rock memorabilia.

"We are seeing a decline in new, physical CD sales," said Rob Perkins, CEO of Value Music Concepts, the Georgia-based company that in 2006 purchased Gem City Records. "But we are seeing an increase in the sale of used product. We're seeing an increase in the sale of LPs. And we're seeing increased sales in DVDs and video games.

"So you've got to be nimble in your product mix, but first and foremost, we want to be the music store to the audiophile and the collector."

CD Connection has expanded into used CDs, DVDs and video games.

"Now new CDs are a minor part of what we do," Buflod said. "People are much more into movies and games, and especially used ones."

Omega Music is surviving thanks to an antiquated music format. "We still sell a lot of old-school flat, round plastic discs with little holes in the middle — records," Staiger said.

Dingleberry's in Yellow Springs also does well with new and used vinyl, Savage said. "These younger people who are fine with downloading stuff, they don't mind buying the record — especially these really old used records."

Uncertain future

Mass merchant retailers such as Wal-Mart and Best Buy reportedly have been reducing shelf space for CDs by as much as 25 percent. Yet they still represent 40 percent of all CD sales, down just 1 percent from 2006, according to Nielsen SoundScan.

Chain music stores for the first time dropped below 40 percent market share, falling to 36 percent from 41 percent in 2006.

Independent record stores held steady with 6 percent of the marketplace. Some independent retailers, such as Massachusetts-based Newbury Comics, have opened new stores.

"There will be physical buyers for a long, long time," Perkins said. "Some people just want to touch it and feel the product and communicate with folks that are addicted to music, just like they are. That's what these independent stores provide. We have people who spend an hour at a time in our store just looking at the product and speaking about music."

Not everyone shares Perkins' optimism. "This marketing model is over," Staiger declared.

As proof, the band Radiohead in October abandoned its record label and bypassed retailers by allowing fans to download its latest album, "In Rainbows," from the group's Web site at a price determined by the individual consumer. The album was released Jan. 1 on CD to conventional retailers.

"I think that's a trend that will continue," Buflod said. "I think at some point in the future all music and all video and probably all books, as well, will all be available for download directly from the manufacturer."

At that point, not only are CDs and DVDs obsolete, "but you don't need music stores, for sure," he said.

Contact this reporter at (937) 225-2419 or dlarsen@DaytonDailyNews.com.