Digital Sales Pass £1 Billion in UK But Concern Over Retail Remains
Revenue from digital sales reached a new record in the U.K. in 2012, according to a report from the country's Entertainment Retailers Association.  Apple/iTunes

As traditional physical media and brick-and-mortar retailers continue to lose momentum, digital media hit an important financial milestone in 2012, at least in the UK.

Revenue from digital sales topped £1 billion ($1.6 million) through sales of downloaded films, music and video games in 2012 -- an all-time high. The new record represents an 11.4 percent increase from 2011, making digital media a full quarter of the entertainment market in the UK.

According to an announcement made Wednesday from the UK’s Entertainment Retailers Association (ERA), digital sales in the country reached £1.033 billion in 2012.

A separate report from the British Phonographic Industry (BPI) also noted an increase in digital music sales in 2012, finding a six percent jump in UK singles sales from the previous year.

“The final week of 2012 proved to be the year’s record week for digital sales as consumers redeemed their Christmas music vouchers and downloaded more than 1.3m albums and 5.6m singles,” BPI CEO Geoff Taylor said in a statement Wednesday.

While the new figures are no doubt impressive, the ERA acknowledged that the growth in revenue from digital sales did not compensate for the overall decline in retail activity over 2012. Physical sales, the report noted, took another turn for the worse over the same period.

Physical sales of the same types of digital media products “faced another tough year in 2012,” the report said. Music sales fell 14.9 percent, sales of DVD and Blu-ray videos fell 11.4 percent and video games dropped by 26.4 percent, the latter’s dive coming mostly from an aging current-generation console market.

In spite of the decline in physical sales, however, the ERA added that the old media “still retains a dominant share of the entertainment market.”

"Despite digital's seemingly inexorable growth, the CD, the DVD and the physical games disc show incredible resilience,” ERA’s Director General Kim Bayley said in a statement. “It is nearly nine years since iTunes launched in the UK yet over 60% of music sales are still accounted for by physical formats. It is clearly way too soon to write off the CD and in video, digital barely gets a look in. Physical formats still account for three quarters of the entertainment market."

Bayley was quick to credit the "incredible achievement" of retailers across the UK in 2012. But the overall decline in sales hints at an imperfect transition from physical to digital media in the region that could impact the entertainment industry, and the retailers that support it, well into 2013.

The ERA cited factors such as the timing of the Olympics this past summer and the “format cycle” of the current video game console generation’s life cycle in explaining the decline, adding that 2012 was “a lackluster year for releases in general.” Rather than focus on digital media in and of itself, then, Bayley reasoned that better content could help brick-and-mortar retailers as well.

“The dearth of attractive releases during summer 2012 was clearly a significant factor,” she said. “Suppliers need to do more to rebalance their release schedules and improve the quality of their releases. No retailer can afford to pay overheads on a store for 52 weeks of the year if all the key releases are going to be concentrated in the last quarter.”

Entrepreneurs, meanwhile, “will think twice about investing in new digital services if releases fail to excite the public,” Bayley added.

“Luckily the message appears to be getting through and we look forward to being able to offer the pubic a much better release slate in 2013.”