Stop the Music

The wind has been taken from Napster’s sales and the “legitimate” music download sites are up and running, but Jupiter Media Metrix has cut its forecast for the online music market.

Jupiter analysts now forecast that the online music market will grow to $5.5 billion in 2006 — up from $900 million in 2001. But the economic downturn, coupled with the later than anticipated launch of the online subscription music services and lower overall consumer spending on music, caused Jupiter to lower its forecast for 2006 to $5.5 billion from a $6.2 billion forecast it made in July 2001.

Given the state of the economy, it’s not a huge surprise that projections on something like music sales would be readjusted down. According to Jupiter, the online music market will account for nearly one-third of total U.S. music sales in 2006, making online sales a major catalyst for music sales as a whole.

Digital Music
Subscription Sales
Year Dollars
(in billions)
2001 $0.0
2002 $0.0
2003 $0.2
2004 $0.4
2005 $0.8
2006 $1.0
Source: Jupiter Media Metrix

Most of the attention paid to online music over the past year has been focused on legitimate digital download sites backed by the major record labels. According to Jupiter, U.S. digital music sales — via digital subscription models and single paid downloads — will generate $1.6 billion in revenue by 2006, with $1.0 billion, or nearly 63 percent, coming from subscriptions alone. In July, Jupiter forecast subscriptions would be worth $1.2 billion in 2006.

By year-end 2003, Jupiter expects subscriptions to be the dominant digital music product format. The firm expects the growth of subscriptions as a product category will open a new front in the online music wars, pitting retailers against media companies. This could result in digital music subscriptions looking less like traditional music products and more like programmed, entertainment environments found on media sites or on TV. This intense battle for subscribers that will soon result between media companies and music retailers will fuel product innovation and lead to the $1.6 billion digital music market in 2006.

“Digital music subscriptions have the potential to revive the flagging music industry,” said Aram Sinnreich, Jupiter senior analyst. “The key to unlocking this market will be remixing the distribution chain — taking advantage of digital media’s fluidity to allow labels, music sellers and technology companies to focus on what they do best.”

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