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Digital Music Market to Reach $14.9 Billion

November 27, 2006

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A recent study by iSuppli has just predicted a six-fold growth in digital music market by 2010. Analysts expect it to reach a value of $14.9 billion by then, representing over 40% of record companies’ revenues.

The decline in traditional music sales has transformed the way music industry was run, generating rapid growth of mobile and broadband music services.

Music record labels have to take into account that the chain of digital distribution now also includes broadband digital music stores like iTunes, mobile network operators, MP3 player and mobile-phone manufacturers, music distributors, platform software companies and other technology providers.

Analyst Mark Kirstein points out that the digital music market is made up of both types of service (broadband and mobile) and that while mobile services were, until now, driven by ringtone sales, they are starting to expand into full-length music downloads. “Music-enabled phones already out-ship MP3 players by a factor of 2 to 1,” Kirstein said.

The researchers believe digital sales seem set for a compound annual growth rate of 40.7 per cent from $2.7 billion in 2005, while sales of physically distributed music are expected to decline to $19.6 billion by 2010 – down from $273 billion in 2005.

Digital music in 2006 represented 12% of all revenue posted by record labels. With nearly $33 billion in total recorded retail music revenue accumulated in 2005, this is an enormous opportunity for those involved in mobile and broadband distribution across the supply chain, the company noted.

To compensate for lost CD sales, record labels will need to secure new revenue streams and new music distribution channels, which can generate new grounds of competition in this market between established digital music services and mobile services trying to seize a slice of the territory.
Given that Apple’s success on the market of both players and music was a result of a creation of an easy-to-use platform that includes a decent iPod device and a well-made iTunes store, iSuppli said that more companies are expected to mimic the vertically integrated model.

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