By now, it is old news that the music industry -- in particular the big record labels -- are suffering in making the transition to the digital music marketplace. Sales in CDs are declining as people make the switch to digital music formats that give them greater purchasing flexibility.

But as CD sales decline, digital revenues are skyrocketing. This makes it seem as if all the hype about the music industry's demise is greatly exaggerated. After all, couldn’t this just be a switch from one revenue stream to another?

Not according to the major record companies -- Universal, Sony BMG, Warner Music Group and EMI. Every one of these companies had revenue declines in their most recent earnings reports, despite huge growth in digital music streams. Here are just a few stats and some selected commentary from each group:

Universal Music Group -- Revenue declined 1.7% in 2007 compared with 2006, and EBITDA was down 16.1%. In the first half of 2008, revenue was down 2.4% compared with the first half of 2007, and the second quarter of 2008 was down 5.3% compared with the second quarter of 2007. "Within a challenging recorded-music market and despite unfavorable currency movements, UMG significantly outperformed its competitors," says a company announcement.

Sony BMG Music Entertainment -- During the year ended March 31, 2008, sales revenue at Sony BMG decreased by 4% year-on-year primarily due to the continued decline in the physical music market worldwide not being offset by the growth in digital product sales.

Warner Music Group -- In the second quarter of 2008, total revenue of $800 million increased 2% from $784 million in the prior-year quarter, and declined nearly 4% on a constant-currency basis. Performance was tempered by the ongoing transition in the recorded music industry characterized by a shift in consumption patterns from physical sales to new forms of digital music and the continued impact of digital piracy."Warner Music continues to outperform the industry and gain share in key markets," said Edgar Bronfman, Jr., Warner Music Group's Chairman and CEO.

EMI - Group revenue for the year to March 31, 2007 was £1,751.5m compared to £2,079.9m in the previous year, which largely reflects a declining recorded music market. "Despite this, EMI Music Publishing has once again outperformed the recorded music market," the company said in its annual report.

Although each company says it is bullish about its outlook when compared to its competitors, they all cite the fact that the continued decline in the physical music market is not offset by the growth in digital product sales. So even if companies are making money from the sale of music on disc, downloads, subscriptions, licensing and newer channels such as ringtones, their revenue is declining. And if revenue is declining, any effort that the company makes is going to be called a failure.

But why isn’t the burgeoning digital market doing more to boost the bottom line? The companies aren’t making as much money selling their digital products as they did selling their physical products. The numbers from the Recording Industry Association of America (RIAA) bear this out (numbers equal total retail value, in millions; totals do not include subscriptions or royalties):

% change 2005-2006

Physical: -11.5%

Digital: +74.4%

Total: -4.4%

% change 2006-2007

Physical: -19.1%

Digital: +43.2%

Total: -11.8%

Whether the traditional recording companies will be able to make up their losses by expanding their digital offerings or by increasing their margins, or whether they will continue to lose ground to