According to the latest digital music research undertaken by analysts at JupiterResearch their latest survey strongly supports two critical JupiterResearch forecasts: subscription services will eventually outpace a la carte downloads and CDs won’t be replaced by digital music in the next five years.

The study, “Consumer Survey Report: Music, 2004“, was based on a survey of over 2,300 online adults, and also compares results with a survey of over 2,100 online teens, ages 13-17 and suggests that by 2009 digital music sales will still represent just 12% of consumer music spending.

The majority of online adults, 51%, think physical music is more valuable than digital. “CDs offer higher sound fidelity, aren’t burdened with awkward copy protection and are compatible with pretty much every way people listen to music,” said JupiterResearch VP and Senior Analyst David Card. “MP3 players and portable rentals could turn around that value perception, but it will take time,” added Card.

“Digital music is a young person’s game,” said Josh Green, Analyst at JupiterResearch. “Forty one percent of 18-24 year-olds burn CDs and 31% use file sharing. For the over 25 crowd, those numbers are only 14% and 4%,” added Green.

A seperate study conducted by the Online Publishers Association in partnership with comScore Networks earlier in the month revealed that online music sales, seriously came into fruition in the beginning of 2004, and pushed the entertainment and lifestyles category of online content up by 78.3% in the first half of 2004 to a grand total of $182.8 million in spending.

It was the first time that the OPA had included online music in its online content measurements. The OPA report also noted that nearly all online content spending in the US is attributable to subscription payment programs, at 90% of sales.

In another report, published a week before the Jupiter study, Simon Dyson, editor of the ‘Music on the Internet’
survey for the Informa Media Group confirmed predictions that it’s going to be a long time before digital music downloads challenge CD sales, even in the online world. The IMG report says that by 2010 global online music sales will exceed $6bn. An impressive number, but still only 15.2 per cent of total spending on music worldwide.

Dyson, told BBC News, 2004 had been an “important” year for the digital music sector. But he warned that converting illegal peer-to-peer file sharers was central to the industry’s long-term success. He added that legal action being taken by record companies against illegal downloaders had so far failed to make an impact. But the IMG report differed from Jupiter in its predictions regarding subscription music services saying that digital downloads would continue to dominate (in terms of the value of sales) against subscription-based services.

Related Research

JupiterResearch Full Press Release [Yahoo Biz]
Subscription Services to Drive Digital Music [CNet News]
Digital Music a Long Way From Displacing CDs [the Register]
Inside Digital Media Interviews [InsideDigitalMedia.com]
TEMPO:Keeping Pace with Digital Music Behavior [Ipsos-Insight.com] PDF
Researching the Digital Music Landscape [Ipsos-Insight.com]
Can Music Move Online Content Mountain? [E-Marketer.com]
Online Publishers Assoc. Online Paid Content US. Market Report Nov.04 [online-Publishers.org] 18pg PDF
CDs Still Overshadow Digital-Music Downloads [NewsFactor.com]
Industry Focus:Music [Forrester Research]
Online Music Report-2004 [IPFI.org] 20pg. PDF
Digital Music Research Network [Queen Mary, University of London]
CDs May Soon go the Way of Vinyl [CNN.com]
CD Prices Sing the Blues [CNet News]

As we suggested on Sunday BT (aka British Telecom) today unveiled full details of their latest online digital music venture.

Using Digital Rights Management specialist, Blueprint’s technology, BT plan to jointly develop a new service for hosting, managing and distributing digital music and related content online using Blueprint’s ‘Open Royalty Gateway’ and ‘Song Centre’ services.

The Open Royalty Gateway (ORG) service allows rights holders to actively manage all aspects of their content, including setting business rules, pricing, electronic contract creation, sales tracking and royalty reporting. In addition to handling ‘major label’ music content, the ORG will enable thousands of independent labels and artists, many of whom control their own rights, to encode, package and upload their content to the service, and then manage contracts using the ORG.

Song Centre will give retailers the ability to offer new experiences to consumers, combining in-store, internet and mobile. In addition, powerful referral and reward programmes, using viral recommendation, mean that consumers can earn back the cost of the music they purchase by rewarding them with a commission each time one of their friends buys recommended content.

The service has already been trialled successfully for Robbie Williams’ recent No.1 hit single ‘Radio’ with Australia’s and New Zealand’s leading music retailers, Sanity and Sounds and the service will be powering the global Robbie Williams ‘Greatest Hits’ digital download store.

Richard Bron, CEO of Blueprint, said, “The time is right for the music industry to embrace new technologies and new partners to propel itself forward. Growth is dependent, however, on consumers being able to choose from the widest possible selection of digital media content, provided by artists from all the record companies, both major and independent.”

“At the same time, we understand the clear industry requirement to be able to manage rights and digital licences, report royalties and sales to rights holders, and to offer a wide variety of digital media to consumers, using variable pricing structures.”

BT and Blueprint are hoping the package will appeal to companies keen to sell music online – be they retailers, the artists themselves, or labels – but lack the resources to build the back-end financial and rights management applications themselves. The service will use Windows Media Player and content will be encrypted with Microsoft’s Janus encryption.

Related Reading

Press Release [Yahoo Finance]
BT to Launch Online Music Site (Again)? [MusicbizNews24.com]
BT to Power Robbie Williams Back End [Silicon.com]
BT Music Site Uses WMA [the Inquirer]
BT Preps Pre-Fab Digital Music Store Service [the Register]

Universal Music today had the much trumpeted launch for what they are billing as “the World’s First All-Digital Download Label from a Major Music Company”, UMe Digital. All UMe product from individual tracks, EPs and full length albums will be exclusively distributed online.

Said Bruce Resnikoff, President of UMe: “UMe Digital is another significant development in the expansion of our business and our efforts to reach more consumers in more creative ways. Last year the music industry sold fewer than 5,000,0000 downloads; this year the industry will exceed 100,000,000. I think every label will have a download-only imprint at some point; UMe wants to be sure that it continues to be an industry leader and innovator.”

One of the first signings is Tennessee based the Shazam who rather than see their releases in traditional music retailers will see their music on digital download stores like the MSN Music Store, iTunes, Rhapsody, Virgin Digital and Napster first.

UMe New Media director Jay Gilbert anticipates that the number of recordings and artists will progressively expand from the launch roster of seven artists. Also, he added, “When artists find success with downloads, we may opt for a physical release as well.”

To be considered for Universal’s digital label, Gilbert said an artist needs to have an established fan base and a tour. “We’re really not looking to develop brand-new, unknown artists,” he said.

Certainly it could be hailed as a move in the right direction for the majors but an artist roster comprising of seasoned rockers like Dan Reed, Black N Blue, John Jorgenson and Rusty Anderson could hardly be called cutting edge in itself.

The royalty split is said to be 75/25 in favour of the label and works out at roughly 15c per download to the artist, given that the label share of a standard 99c download equates to something like 65c. In contrast, an artist taking the independent distribution route via someone like the established indie CD Baby can look forward to something closer to 50+c per download, so as in the case of a physical record deal the only benefits an artist can hope for is the unquestioned marketing muscle of a major label and the promise of possible TV and ad placement.

Some critics argue that this new digital label is more about music economics than about lending a helping hand to artists. Greg Scholl, CEO of The Orchard, a major global distributor and marketer of independent music, told technology news website TechNewsWorld

“This is a way of laying off risk when figuring out what acts they should really invest in rather than trying to have a vibrant small- to mid-artist tier business. The major labels have created a marketing and radio promotion machine that requires an artist to constantly sell significant units and garner significant air play, he explained. Once an artist’s popularity wanes, a label will drop them. “The horses that don’t perform get shot,” he said.

“What this is doing,” he continued, “is laying off some of the risk so they don’t have to invest so much to determine if it makes sense to invest more.”

Todays launch came two weeks after a similar set up was announced by Universal in the UK, where the major announced a number of similar ‘incubation’ and digital distribution deals with independents in that territory.

Related Reading

Official Press Release [Business Wire]
Universal Music Debut’s Digital Only Label [TechNewsWorld.com]
Universal Music’s Budget Route to Stardom [International Herald Tribune]
Universal Music Group Creates Digital-Only Music Label [Digital-Lifestyles]
Universal UK To Offer Digital Distribution To Indie Labels [MusicbizNews24.com]
Digital Distributors Open The Door For Independents [MusicbizNews24.com]