Music singles sales are ailing in all territories, and the labels are more willing than ever to experiment with digital music delivery, reports the British Phonographic Industry (BPI).

The BPI reports that UK singles sales fell 41 per cent year-on-year during the second quarter. Album sales helped mitigate the impact of this, with a 12 per cent rise lifting that side of the market to record levels with 228 million sales.

"CD albums, with an average retail price of £9.79, have never been cheaper in the UK", said the BPI. Single sales generated just £13 million in the April to June quarter against £23 million in the same period 2002.

Singles sales have fallen because of: "Shrinking price differentials between singles and albums, competition from other entertainment products and illegal downloading," the BPI says.

"While the download market for singles is still in its infancy the record industry has been exploring ways to deliver tracks via alternative formats and labels have trialled a growing number of alternatives," it said.

Record companies are looking to capitalize on new opportunities provided by new technology and to supplement traditional sales with alternative revenue streams.

BPI Executive Chairman Peter Jamieson said: "I am excited by the BPI's increasing activities to help its members embrace new technological opportunities. This is in tandem with our plans to introduce the download chart which will become a pivotal feature of tomorrow's music successes."

The UK digital download music chart is at present being developed with some help from Peter Gabriel's OD2 network. OD2 last week announced an alliance with Microsoft under which the latter is selling single tracks online using Windows Media Player. This service is not supported on Macs.

Apple Master Peter Gabriel helped finance OD2 four years ago. The company is not anti-Mac, but has adopted Windows technology because it offers "a level of copyright protection the labels like," OD2 director of sales and marketing Ed Averdieck last week told Macworld.

"We would like to work with Apple," he added, but revealed Apple to have declined OD2's overtures to discuss such opportunities. Apple meanwhile is focused on releasing its own iTunes for Windows service and is reportedly in negotiations to arrange distribution in territories outside the US.

Apple's US service has sold over 6.5 million tracks since April 28. Apple chief financial officer Fred Anderson calls the service a "trojan horse" that boosts iPod sales. Apple shifted its millionth iPod during its third quarter.

Looking at the US market, the Consumer Electronics Association (CES) last week announced: "Unit shipments of MP3 players attained sales of 336,452 units – an increase of 138 per cent compared to the same period in 2002. Year-to-date totals for MP3 players have reached $101.8 million dollars and 904,000 units in sales."

CES director of industry analysis Sean Wargo said: "The growth in MP3 has been monumental in 2003, with it clearly being a purchase criteria for consumers seeking on the go audio.

"The great news is that this trend has only just begun, now that the format is moving into the mainstream with the new profit based online music services," he said.

In related news, BestBuy will today announce an alliance with RealNetworks under which BestBuy customers can try out and subscribe to Real's Rhapsody digital music service at 560 stores across the US.

Customers pay a $9.95 monthly fee to listen to songs from a vast library of music from the major record labels as well as independent producers. Rhapsody subscribers can also burn songs onto compact discs for 79 cents each.

Competition in the emerging market continues to diversify as new business models are adopted. In Germany, music production companies and distributors have agreed to offer a national music download service, called Phonoline. This uses a delivery platform provided by former state-owned telecoms firm, Deutsche Telekom. Users will be able to pay through their phone bill, credit card, prepaid card or through direct debit. German music sales declined 16.3 per cent year-on-year.

Averdieck confirmed the influence of Apple's success in the market when he said: "Apple's reported success in the US has given an enormous shot of confidence to our market, showing these services can work."

He added that "initial results have been extremely positive" since Microsoft and OD2 launched their service last week.