2010 Tipping Point Between Physical and Digital Music Formats

Dollar volume spent on digital music will eclipse spending on CDs

NEW YORK (Jan. 20, 2010) -- 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 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 such as 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.

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.

“In its struggle to regain its footing, the US recorded music industry has tried many business approaches, including a la carte downloads, subscription services, ringtones and ad-supported streaming,” said Paul Verna, eMarketer senior analyst and author of the report “Paid Music Content: The Answer Is Blowin’ in the Cloud.”

“With the exception of Apple’s successful iTunes Store, no digital music service has delivered enough revenue to create a healthy, well-balanced market,” Mr. Verna said.

Source: eMarketer