Low digital penetration, a healthy CD market and a stable economy have all helped push Germany to number three on the IFPI league table. Sitting just behind the United States and Japan, it's one of the world's largest music markets - as well as the biggest in Europe - and beats the UK in physical sales for the first time in more than a decade.

The UK's recent slip down the rankings has been attributed to an increasingly strong network of digital download platforms as well as the recent disappearance of high street heavyweights such as Woolworths and Zavvi, victims of the global credit crunch. All this has resulted in a dwindling interest in physical products. CD sales in the UK for 2010 totaled $1.38 billion, a staggering 11 per cent drop compared with 2009.

In contrast, physical music sales in Germany accounted for a whopping 81 per cent of all recorded music purchased, buoying the market with a healthy $1.14 billion.

The news is welcome but scarcely unexpected, especially for those working in the independent sector. German indies commanded an impressive 26.7 per cent of the physical album sales market in 2010.

"I'm not entirely surprised," Christof Ellinghaus, chief of Berlin-based indie label City Slang, told Deutsche Welle, "One strategy that people have been following in the UK much more aggressively than over here is to lower the prices of CDs to keep physical retail attractive. Unfortunately the outcome is the complete opposite, and retail has never been in a more dramatic state in the UK."

British music executive Grant Box, co-manager of independent label Snowhite, has had experience of the music business both in his native England and in Berlin where the label he co-runs is based.

"With Germany being populated by 20 million more people than the UK, it's a surprise that there were ever more sales in the UK than in Germany," he said, "The UK is a trend-setter and more and more people in the UK are downloading music from iTunes and other platforms which will happen here but slightly later in the same scale."

While physical sales in both countries continue to fall as digitally-generated revenue cuts into more traditional sales markets, both countries have quite different consumer landscapes.

While iTunes is the dominant platform for digital music in both territories, subscription numbers are higher in the UK. In Germany the shift from traditional buying to digital has been much slower. Ongoing negotiations between subscription services and the German authors' collection agency GEMA has been cited as one reason the growth of the digital market has been sluggish. A recent revival of interest in domestic music has also helped keep the physical sales market healthy.

Germany seems unusually hesitant to embrace digital music buying. The current market is valued at only 13 per cent in value terms. With emphasis increasingly shifting to digital platforms, the UK's infrastructure is already better suited to ride the change while traditional, cautious Germany may well soon lag behind again.

Music producer and label chief Mark Reeder has been active in the German music business since re-locating to Berlin in 1978. Having cut his teeth working in the flagship Virgin Records store in Manchester, he could immediately see a difference in the way music was sold in the UK and in Germany.

"Our shop would be crammed and we had the latest music blaring out, at that time mostly punk rock," he explained, "It created an energy and raised adrenaline levels and it certainly influenced our sales. When I moved to Berlin, I discovered the Germans sold their records in a much different way. In the main, the shops would be neat, some almost clinical with cold racks of records crammed together. In our shop the music was loud but in German record shops the music just doodled somewhere quietly in the background and some shops didn't even play music at all!"

But why are Germans seemingly so hesitant to make the switch to digital? Mark thinks the explanation may lie in the age of the people predominantly buying CDs.

"On the whole, Germans are usually very loyal when it comes to buying records by their favorite artists," he said, "Usually they will buy every release regardless of it being good or bad. Germans obviously like something physical to have, hold and own. A CD is still something of value. But I think in Germany, like in the UK, young people are much more likely to download a track rather than buy it."

While Germany can celebrate this leap ahead over the UK at the moment, its long-term position may not be so secure. The Mercury label - one of the world's largest imprints and home to artists such as Elton John, Justin Bieber and The Killers - recently announced it would cease production of CD singles, a further sign that the market is increasingly turning its back on physical products and looking towards a digital future.

So what is the future of the physical format in Germany? It won't necessarily disappear, but will possibly become more of a niche commodity.

"We'll continue to do both (digital and physical releases)," explained Desi Vach, co-manager of Snowhite, "The customer should have the choice whether they want a digital track or something they can hold in their hands. We'll still release on CD and of course on vinyl with really lavish packaging. That's our point of service as a label."

City Slang's Christof Ellinghaus points out that his label will also continue to produce luxury line releases for hardcore fans who want a physical product and that with digital sales there comes a disadvantage: "It's really a track-based business which is a shame as many of our artists like to think of their work in the context of an album," he said, "But we do love the way you can link from just anywhere to a point of sale, be it from Youtube or Facebook. The direct link to a Spotify or iTunes or any other outlet really is it. It doesn't make things much easier, does it?"

Text: Gavin Blackburn
Editor: Rick Fulker