Online music forecast slashed, despite new services

Though new online music services this past year have sparked headlines, they have failed to fuel a much faster uptake of online music purchases, according to Jupiter Research analysts.

Online CD sales in the U.S. will remain essentially flat in 2003, at $750 million, or 7 percent of the entire recorded music market in the country, according to research presented by Jupiter Senior Analyst Lee Black at the company's Plug.IN Conference & Expo in New York, ending Tuesday.

Online music sales in the country -- including songs downloaded digitally and songs purchased online but delivered by regular mail -- will grow to $3.3 billion in 2008, when the Internet will account for 26 percent of U.S. music spending, he said. This cuts back Jupiter's forecast earlier this year, which had online music growing to about $5 billion in sales by 2007, he said.

"I went back to the baseline, talked to all the various players -- the retailers, the online services -- to come up with the figures," Black told the IDG News Service. "There seems to be an upbeat mood here (at the conference) among some people, but essentially -- unlike what might be expected in other types of markets -- supply has not quickly risen up to meet demand."

For example, a number of conference speakers here noted that while a number of recently launched services, including Apple Computer Inc.'s iTunes Music Store, have rekindled interest in legitimate online services, restrictions on the services may be curbing consumer enthusiasm for them. Due to the difficulty of obtaining necessary licenses from publishing copyright owners, Apple's service allows consumers to burn songs onto CDs, but the service is only available to users who can supply a valid U.S. billing address. 

iTunes competes with services such as MusicNet and Pressplay. Pressplay's parent company, Roxio Inc., bought the assets of Napster, forced out of business by legal problems, and will relaunch Pressplay as Napster 2.0 by the end of the year. 

However, at least in part as a result of restrictions on downloading, legally sanctioned services have failed to win over the majority of users of non-industry-sanctioned file-swapping services. Only 17 percent of adults say that legal consequences threatened by the music industry have induced them to cut back on illegal file-sharing, according to Jupiter Research, a unit of Jupitermedia Corp. in Darien, Connecticut. The Recording Industry Association of America Inc. (RIAA) has recently unleashed lawsuits against individual file-swappers.

At the conference, Jupiter did not offer a forecast for online music in Europe or Asia, but online music in Europe has "been stuck" at least much as it has in the U.S. according to Jupiter Research Senior Analyst Mark Mulligan. "It's hard to say when the licensing problems will be resolved," he said.

However, there are some bright spots on the horizon for both Web-savvy consumers and industry insiders. As major music companies gradually license music to the new online services -- albeit initially with restrictions -- digital distribution inevitably will grow. Digitally downloaded music (compared to music shipped physically) will grow as a percentage of all music purchased online, from only 9 percent this year to 48 percent in 2008, Jupiter forecast.