That is the only explanation I can come up with for this (from Gartner VP of Research Mike McGuire...

(and yes, I'm still on vacation.  But I'm doing the ol' "Techmeme-Skim" every morning and I couldn't resist this)

“By propping up the CD business, rather than fully investing in online distribution alternatives, the major labels and the larger music industry have neither succeeded in stamping out piracy nor done much to recreate the business models of the old ‘record business,’. Music labels should instead emphasize ‘digital first,’ making all new releases and catalog issues via digital services and moving CDs to an on-demand publishing mode.”

I have a point here but before getting to it I'd like to lay out why this suggestion is stupid. On that note I'd first like to address the fact that physical CD sales are dropping in sales.  I'm going to quote from a post I made a while back...

If you look here you'll find the actual numbers for Physical CD sales in 2006 which was 703.9 Million Albums.  Using the Ars Technica numbers above (of a 14% decline) that puts the 2007 number at about 605.3 Million Albums in the U.S (you'll hear 511 Million but that number doesn't seem to cover the deep catalog sales). 

Now, assuming 12 tracks per Physical CD that means 7,263 Million Physical Tracks were sold vs 844.2 Million Digital Tracks.  That's close to 9 times as many Physical tracks being sold.

Of course physical CD sales are going to drop now that people can buy single tracks.  Some CDs only have a few good tracks on them.  But the majority of music is still being sold through physical CDs.  Meaning the majority of money being generated for the music industry is still coming from that source.

Given that, shouldn't Gartner at least consider the possibility that people might prefer physical copies of music?  I, for one, do.  Yes I rip the music and listen to it on my iPod primarily but I like having that physical copy stored away.  More to the point, I like that it's in an attractive package.  Is that so hard to understand?

Now let's take a look at some player statistics.  Apple had sold about 151 million iPods as of March 2008 and they average about 10.5 million in sales per quarter so they've probably sold about 172 million as of right now. 

That's impressive.  There's no doubt.  But when compared to the populations of the 22 countries that the iTunes store operates in it's still fairly insignificant.  That number stands at 884 million.  So even if each iPod sold represented an iPod in operation (unlikely, I've owned 3 since it's debut) they'd still constitute less than  1/5th of the population in those countries. 

Oh, and lets remember the world population is 6.6 BILLION meaning digital music is only legally available to about 1/8th of the world. 

(That's probably a tad inaccurate in that countries like China have iTunes competitors available)

So basically Gartner is suggesting the music industry shift it's focus to target a very small percentage of their overall customer base. 

My Point: OK, here's my actual point: It's important to remember why you go to people for advice.  Gartner, as a research firm, is supposed to provide guidance by analyzing trends over a long period and extrapolating those numbers into the distant future.  That allows you as a company to make long term goals based on that guidance.

No one should listen to Gartner, or any research firm, for what to do in the next year.  This is for two reasons.  First, trending is based on averages meaning it won't necessarily tell you what is going to happen next month (but it ideally should tell you where we'll be 3 years from now).  Second, you have a better source of data and that's the previous quarter's sales.  Consumers don't keep track of business cycles so your best indicator for the next quarter's sales is almost always your last quarter's sales. 

My opinion would be different if focusing on digital music required a huge investment on the part of the music industry.  But given those distribution channels already exist the music industry can simply "play it by ear" and let nature take it's course.  If physical sales do gradually dry up they can react accordingly.

There's no reason to artificially push physical CDs to their death (and if they try and the attempt fails it could be very costly).