The CD is lying in a shallow grave, and the music industry is about to dig another one for digital downloads.

That’s because people just aren’t buying music the way they used to, according to the 2014 Nielsen Music Canada report, which tracks music sales.

And those sales are down across the board in Canada: CD sales dropped seven per cent from 2013 to 2014, while digital album sales dipped five percent and individual digital track sales sank 12 per cent. Those stats slipped even father in the U.S. last year.

'Vilifying Spotify and Pandora is lunacy.' - Mike Renaud, Hidden Pony Records

But in an industry that has floundered for years while searching for stable, legal delivery methods, digital streaming services like Pandora, Spotify, Grooveshark and Rdio have emerged as behemoths that are about to eclipse all the traditional ways we’ve been listening to music.

According to the Nielsen report, there were six billion streaming plays in the second half of 2014 alone. Considering the best selling digital track of 2014 — Pharrell’s hit Happy — had just 538,000 downloads, it’s not hard to see where we’re headed when it comes to music consumption.

There’s been plenty of discourse from major labels and big artists on streaming music: Beck, Thom Yorke and will.i.am have all vilified it as a method that pays distributors huge amounts at the expense of artists.

But lost in all that noise are Canada’s smaller, independent record labels. They operate on a love for independent music — but with a small staff and even smaller profit margins.

Digital streaming has changed almost every facet of the business. So where does that leave the little guy?

Adapt or die

In music, like most other industries undergoing any kind of "digital revolution," it means adapt or die. Lane Dunlop, a partner at Hamilton’s Sonic Unyon records, says it's about tempering your expectations and knowing what’s realistic in 2015.

"Everyone’s expectations need to be scaled back, and do what you can to make the best of a pretty dismal situation in the music industry," he said. Not so long ago, a mid-level indie band could sell 10,000 albums in Canada. "Now, selling 1,000 is a major achievement," he said.

It’s unlikely that Sonic Unyon could exist simply as a traditional record label in 2015, but the company’s owners have found success by branching out their business. Hamilton’s Supercrawl festival has become one of the biggest in Southern Ontario with Sonic Unyon as the organizers, and the company’s new Because Beer festival shows signs of promise, too.

"The label work is still incredibly important to us," Dunlop said, but it’s clear the company has been bitten by the festival bug, and business is growing in a way traditional album sales simply aren’t anymore.

Mike "Parkside" Renaud is the president of Hamilton’s Hidden Pony Records and Management, another company that has shifted priorities away from what the public might see as a "traditional" indie record label.

"Really, we’re managers who happen to have a record label," Renaud said. "But the album is gone. That’s it. The album from a commercial perspective is dead."

Branching out

While management might be Hidden Pony’s bread and butter, keeping the record label side just makes sense. Having a label designation opens up more crucial arts funding through the Canadian government, and it makes sure Renaud doesn’t have to go looking for a record label for each new band Hidden Pony represents.

Other small to mid-sized record labels, like Arts and Crafts, Dine Alone and Six Shooter records, are using alternative methods outside of straight record sales to keep profits coming in.

"It’s those sorts of things that sustain us," Renaud says.

So are music streaming services actually generating any revenue for content creators? That all depends on who you talk to.

Dunlop says for Sonic Unyon, the profits are pretty negligible. "Nobody is going out for dinner on it, put it that way," he said.

"But it’s the direction music consumption is going in – and as a label or artist, you have to make it work. There’s no point in complaining."

Renaud on the other hand, welcomes streaming because he doesn’t see it as comparable to traditional record sales or radio play royalties. If anything, cash made from streaming is money that would’ve been lost in the pirated ether of torrents and illegal downloads, he says.

"They’ve figured out a way to compete with free," Renaud said. "It’s now easier to stream something than it is to buy something. There’s whole generations of people who have never paid for music – so this is a good thing."

'They're not the villain'

It’s not a perfect model. Canadian labels and bands make less on streaming plays than bands in the U.S. because of copyright law, but several organizations are lobbying the government to change that. Still, Renaud says, Hidden Pony’s artists make more from using digital royalty services like Sound Exchange than they would have from selling 20,000 copies of an album.

So what about all the press slamming Pandora’s royalty payouts when Happy only reportedly made $2,700 in royalties for Pharrell after being streamed some 43 million times on Pandora in the first quarter of last year?

The majority of the public sees the streaming entities as the villain, but the bulk of their expenses come in the form of royalties, to the tune of 70 per cent, Renaud says. Artists should be looking at them like a "discovery tool" for their music, he added, to drive up fan engagement and push more people into shows who might also buy merchandise.

"They’re not the villain. It blows my mind," he said.

"Vilifying Spotify and Pandora is lunacy."

adam.carter@cbc.ca | @AdamCarterCBC