Online Music Sales Grow, Labels Prepare for Digital Downloads

U.S. consumer online music spending will grow from $1.0 billion in 2001 to $6.2 billion in 2006, a 43 percent annual growth rate over the next five years, according to Jupiter Media Metrix, which also found that online music sales will represent 7 percent of total U.S. music sales in 2001 and 32 percent in 2006.

As for the online music industry’s latest hot topic — digital music sales via single paid downloads and digital subscription models — they will comprise 3 percent of total online music sales in 2001 and 30 percent in 2006, with spending growing from $29 million to $1.9 billion over the same period. While single paid downloads will comprise the majority of digital music sales in 2001 ($25 million for downloads vs. $3 million for subscriptions), digital music subscriptions will dominate in 2006 (approximately $700 million for downloads vs. $1.2 billion for subscriptions).

“The online music market has a long way to go, despite the achievements of the past year,” said Aram Sinnreich, senior analyst at Jupiter Media Metrix. “Legal precedents have been set and label-backed digital music services are preparing to launch, but this is only the beginning of the changes the music industry must undertake. The next hurdle will be in providing digital services at acceptable price points with the features that consumers want most, such as the ability to make copies of downloaded songs, listen to them on any device and burn CDs.”

Label-sponsored digital music subscription services will raise the bar in terms of offering the high quality service that consumers want, Jupiter found, but will not provide the features necessary to retain long-term customers. According to a June 2001 Jupiter Consumer Survey, consumers overwhelmingly rank quality of service as the most important requirement of a digital music subscription. Specifically, the attributes most likely to convince consumers to pay for such a service include: guaranteed music file sound quality (38 percent); virus-free music files (33 percent); and a high-speed file transfer connection (32 percent).

The soon-to-launch label-backed subscriptions score high on quality of service, but they fare poorly in their ability to provide the features most important to consumers. According to Jupiter’s survey, the two most important features of a paid digital music subscription service are the ability to make copies of downloaded songs (48 percent) and the ability to listen to songs on any device (36 percent). Neither of the two major anticipated services — MusicNet and PressPlay — will allow these features at their launch.

“Consumers have clearly indicated that the most important factor influencing their decision to subscribe to a digital music service is quality,” said Danielle Romano, an analyst at Jupiter Media Metrix. “Label-backed initiatives like MusicNet and PressPlay are doing the right thing by focusing on quality of service as a key differentiator from the free services out there. However, these ventures must continue to experiment with new features that consumers want in order to capitalize on the potential market left over from Napster.”

Consumer interest in purchasing online music subscriptions has increased in the past year. According to a June 2000 Jupiter Consumer Survey, only 41 percent of online music buyers — defined as those who bought music online in the previous 12 months — were interested in purchasing subscriptions. But that figure since has risen. According to the June 2001 Jupiter Consumer Survey, 59 percent of music fans are interested in an online music subscription.

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