New Life for Music?

Maybe the music industry isn't dead after all.

Nielsen SoundScan reported last week that 155.5 million albums were sold in this country during the first half of the year, a 1% increase from the 153.9 million albums that were bought last year at this point.

It may not be much of an advance, but it's the first uptick the industry has seen in seven years. Industry sales peaked in 1999. Sales have fallen every single year with the exception of 2004, and that was primarily the byproduct of a brutal 2003, since 2004 sales were well short of 2002.

Before you run out and snap up shares of a profitless Warner Music Group (NYSE: WMG), hoping that you're nailing the bottom, I have some bad news, good news, bad news, and good news for you.

Bad news
We're talking about album units here, and there has been a lot of promotional activity on that front this year. In other words, it wouldn't surprise me to see that the average album is selling for far less than it did in 2004, and not just because album downloads typically set music fans back less than $10 apiece.

Amazon.com (Nasdaq: AMZN) was selling Lady Gaga's Born This Way CD for a mere $0.99 the day it came out in a move to promote its new digital-locker platform. The move was so popular that it nearly took the site down, with downloads taking several hours in some cases instead of minutes. Best Buy (NYSE: BBY) was selling physical CDs for just $7.99 or including it at no additional cost to new mobile customers.

It's Amazon and Best Buy that took the subsidized hits. Labels didn't necessarily suffer. However, it may not be fair to consider this organic demand given the low consumer-facing prices.

Good news
It's not all that bad to have lower prices on digital music. Margins are huge on downloads. Even the mighty Apple (Nasdaq: AAPL) returns roughly two-thirds of every sale to the label and performers. It's much better than dealing with physical inventory that needs to be distributed and then bracing for the unsold returns.

Bad news 
Digital delivery is awesome, but it also narrows the playing field. Major label releases will naturally have the greater traction, but the Internet has made any aspiring artist's demo a mere mouse click away.

Direct sales and ad-sharing revenue from Google's (Nasdaq: GOOG) YouTube can help fortify a garage band that may have never made the cut with a major.

Good news
The future isn't necessarily rosy, but I didn't want to close on a sour note. Piracy sites are starting to shut down, and things are also improving in overseas markets.

Google stood out in China three years ago, embracing a legal digital-music service when labels were litigiously eyeing the rampant MP3 file searches available through Baidu (Nasdaq: BIDU) and Sohu.com's (Nasdaq: SOHU) Sogou. The white hat isn't firmly planted these days, but China's dot-com darlings are trying harder to do the right thing.

Our appetite for music consumption isn't going away, and the incremental revenue streams through new distribution channels continue to gain in popularity.

Is the music industry bouncing back, or is this just a blip? Share your thoughts in the comments box below.