Music landmark as billionth download is sold

A global revolution in the music industry was dramatically highlighted yesterday as the world's biggest online music store celebrated its billionth song download.

An unsuspecting 16-year-old from Michigan made history on the iTunes website by downloading Coldplay's "Speed of Sound" - which cost him 99 cents. The landmark purchase edged record companies closer to a new era where online sales threaten to overtake sales of CDs in shops.

The title of the song Alex Ostrovsky chose was also an unwitting reminder of the dizzying pace of change for record companies confronted by new technology and online piracy.

It took the music industry decades to move from the 78 to new formats such as audiotape and CD. Now the pace of change is accelerating and the industry is presented with a bewildering array of opportunities to license and sell its content.

Global music sales have slumped by one-fifth since the Millennium, hit by online piracy and increasing competition from satellite television, mobile phones and computer games. Sales of singles, for so long the most famous music format, have halved in Britain.

By contrast, Apple's online "best jukebox in the world" has been a phenomenal success since its launch in the US just three years ago. By March 2004, iTunes reached 50 million downloads. By July 2005, downloads had increased ten-fold to 500 million and little more than six months later the figure has reached one billion. Apple's chief executive, Steve Jobs said: "I hope that every customer, artist and music company executive takes a moment today to reflect on what we've achieved together during the past three years."

For the music industry, a greater prize awaits executives if they can arrest the decline in sales since the rise of the internet allowed computer users to swap songs for free. For many customers, downloading songs from the internet onto MP3 players has replaced a trip to a record store.

Music companies were slow to wake up to the threat posed by early file-sharing sites like Napster, but have now embraced the new technology and created legal ways to download music. Nevertheless, illegal downloads still dwarf the legal websites. Partly because the record industry now takes court action against file-sharers, the record industry claims the amount of illegal downloads is being "contained". In the UK and Germany the number of people using the legal sites has exceeded the number of pirates for the first time. More singles are now legally downloaded off the internet than bought in shops and downloads will be included in the official singles chart later this year. Apple's iTunes accounts for 70 per cent of legal downloads in the UK and US.

People pay less for legal downloads - six per cent of British music sales - than they do in music shops for CDs. Prices of CDs are falling to encourage people to buy them rather than borrowing friends' and "burning" them onto a blank disc. The surge in British homes getting broadband, which allows songs to be downloaded up to 20 times quicker, is expected to propel sales further. Meanwhile, the music industry is making money from songs downloaded to become mobile phone ring-tones.

Consumers will see big changes in the way they buy music over the next decade, say the music retailers. Shops are planning to install free-standing download units for iPod users who do not have computers or broadbrand or who want to add to the iPods "on the go" while shops will broadcast promotional songs onto the phones of customers.

Kim Bayley of the retailers' organisation Bard, which represents the likes of HMV, Virgin and Amazon, believes physical sales will survive: "The fan just enjoys the packaging a lot of the time. They like to see it and hold it and say: 'This is new U2 album with all the extras'."

For now, the music industry is savouring a victory in its battle to charge for the songs that an individual with basic computer equipment can now access and copy in seconds.

Julian Marshall, the news editor of music magazine NME, said: "People have known for the past five or six years how to get music off the internet but now the music industry has found a way to make money from it."

A dollar well spent for the billionth music downloader

It was the early hours of the morning when the telephone rang in the home of a Michigan teenager, Alex Ostrovsky. He presumed it was a tele-marketer and was preparing to give them a dressing down for ringing at that unholy hour.

Instead, the caller was a representative from Apple, informing the 16-year-old that he had become a footnote to history. Unknown to Alex, 45 minutes earlier - just a little after midnight - he had downloaded the billionth song from Apple's iTunes music store when he had paid 99 cents for Coldplay's "Speed of Sound" from their album X&Y.

"I thought he was a tele-marketer it was so early in the morning. We get calls from people from around the world and they don't really know what the time is," Alex said, speaking from his home in West Bloomfield. "I was really sceptical. I didn't even know there was a competition. But he knew the details of my mum's credit card which I have to use for the iTunes account."

Alex said that until now he has not been a habitual downloader. Indeed, until he got the song from Coldplay's third album in the early hours of Thursday morning, he had probably downloaded fewer than 50 tracks from the online store and was more used to sharing and swapping CDs with friends. Previous downloads had included tracks by Queen, Foo Fighters and Aerosmith.

But he was motivated to make his historic download after going to a Coldplay gig in Detroit on Wednesday evening where the band was supported by the singer Fiona Apple. Alex and his friends had front-row seats.

In addition to receiving the track, Alex has received an iMac computer, 10 iPods and a $10,000 (£5,700) gift card for the iTunes store from Apple.