February 2010: Paid Music Content

After a decade of declining revenues, the US recorded music industry is more determined than ever to reverse its sagging fortunes and return to the luster of the 1990s. However, until new monetization experiments—especially around subscription-funded, cloud-based streaming—start bearing fruit, eMarketer’s forecast for consumer music spending remains guarded.

The US recorded music industry has tried many business approaches, including a la carte downloads, subscription services, ringtones and ad-supported streaming. With the exception of Apple’s successful iTunes Store, no digital music service has delivered enough revenue to create a healthy, well-balanced market.

US consumer spending on digital music will increase at a compound annual growth rate (CAGR) of 11.04% in the next four years, reaching $4.56 billion in 2013, up from $3 billion in 2009.

All of this growth will come from the online segment, which comprises track downloads, full album downloads, music videos, digital kiosks and subscription services. Spending on online music will grow to $3.82 billion in 2013, up from $2.22 billion in 2009. By contrast, the mobile component of digital music will remain stuck around the $750-million mark through 2013.

Despite the growth forecast for digital music, total recording industry spending will show a sharp decline as physical sound carriers (i.e., CDs) continue to spiral downward. Spending on CDs will dwindle to less than $1 billion by 2013, down from $4.32 billion in 2009. These are staggeringly low figures for a format that, at its peak in 1999, attracted $14.6 billion in US consumer spending.

eMarketer expects the tipping point between physical and digital formats to occur sometime in 2010. At that time, the dollar volume spent on digital music will eclipse spending on CDs. This forecast tracks with an NPD Group estimate that showed US paid downloads at 35% of US music sales in the first half of 2009.

As the industry’s level of desperation grows, so does its willingness to experiment. In recent months, some of the leading players—including Apple and MySpace Music—have made strategic moves toward cloud-based streaming. The idea is to allow users to store music collections on remote servers and access the content on all connected devices: computers, smartphones, netbooks, e-readers and game consoles.

Anticipated increases in broadband connectivity, Wi-Fi access, smartphone ownership, high-capacity cellular networks and data plans will create the right environment for cloud-based music services to succeed.

Further, US consumers are growing accustomed to accessing digital content on remote servers via Web browsers. Extending this paradigm to music files is a logical step, and one that content owners are determined to make work. If they get the pricing right and they make the experience compelling, music labels could be headed toward a more prosperous decade than the one they are leaving behind.

Find out more about eMarketer’s digital marketing and the new report “Paid Music Content: The Answer Is Blowin’ in the Cloud

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