There is no doubt a shift going on resulting in declining CD sales. Here are some factors I have considered.
Speaking for myself, I do not buy CDs like I used to for a number of reasons. Being older, a father (of a teenager now)divorced and on a fixed income, I do not have the financial resources to explore and buy CDs.
Those that I choose to buy must be of a proven commodity. I'm just not willing to shell out for what may be interesting, in some case marginal, may be really good, may be really great or may be really bad. I get a lot of references for good CDs to buy from friends that are still single and still have more disposable income. I do try and buy CDs to support artists I like and not accept burned copies from friends. However burning copies of CDs is certainly one factor now that the technology is affordable in mass.
Also, there are not that many outlets that have a large markdown area of used CDs. It is not like the old days where one could get vinyl for .99 cents to $3 and one would discover the wonderful disgards from someone else's collection (artists that one could then go on to support through actual CD sales) or even potential source material for looping. I'd say this is mostly due to the mass retailing of music via the corporations. There is no room for the littles stores and little folks anymore.
As an artist and musician, I also rarely listen to that much outside music, even if it is music by friends. Projects take up my time and when mastering, I usually am involved in what I'm working on, not outside music. For me it is a case of being focused on my work and not able to focus on works by others. I do realize this is a bit elitist on my part and not very supportive of the community. As independent artists, we need to be able to reach outside our community for sustained sales growth.
These are factors to be considered.
The biggest factor is the Internet with free file sharing etc. It is creating a paradigm shift.
Consider that the music industry as a business model has worked on the 80/20 principle common in retail. Eighty percent of your sales comes from just twenty percent of your products. There are studies that show the music industry works closer to a 90/10 model. This means that the major labels are accepting that ninety percent of what they put out will not make money or drive sales. They are focused on that ten percent of "big hits" to drive sales and profits that can then help them find via AR find the next big thing. They know they are not going to make money on ninety percent of what they put out. I'd say that while some good independent labels may be closer to a 70/30 model, it still comes down to retail sales to drive growth and profits that can be put back into more product. Then comes the Internet and free file sharing that undercuts the sales, growth and profits. Margins even for independents become even thinner thus even with independents, narrowing their visions to those artists they know they can sale. What happens then is that more and more niche market music gets driven underground to the Internet where artists have to be able to offer free downloads just to get people to hear or view their work. Truly a downward spiral is taking place.
As an artist, I support any technology that will allow artists from the most extreme fringe to the most commercial to protect their work from being able to be shared for free. Our art is what we have, who we are and deserves copyright protection. As someone on the fringe, I realize that I will have to offer my music for free if I am going to have any chance of getting people to listen to my work. Such technology will come in time and the hackers will work to find a way around it.
So what are we as artists to do? We must embrace the paradigm shift. With downloadable music, now the business model shifts to better help niche or fringe music. Studies have shown that with the Internet, a reasonable business model is 10/90. Just ten percent of your sales and profit can come from across ninety percent of your product as an artist or company. This could generate a lot of revenue if one has a lot of product out there available. This means it can pay and profit to explore and offer niche or fringe artists for labels even if they are only popular in certain areas. Cost to distribute a song via the Internet for download for pay is under twenty cents per. One could offer fringe or other extreme music for under forty cents and even if that song sold just 2,000 downloads in Moscow, Idaho because there was some hotbed of activity for a band or artist there, an artist or label would profit from having that artist or band available for download. Please, no one take offense to the referenced use of Moscow, Idaho. For labels, they could offer their music in a tiered structure depending on popularity. As independent artists, we must seize on this paradigm shift now before the major labels do. I believe the major labels are so entrenched in their old business model that they are way behind the curve of this trend. This means the opportunity for independents is open and the field is wide open. ITunes is not even realizing the potential for profit from offering the fringe.