Authorized Downloads: Music Labels Still Don't Get It, Report Contends
By Joseph Palenchar -- TWICE, 9/2/2002
CAMBRIDGE, MASS. — The music industry must exploit "the impulse-driven convenience of downloading" if it wants to resume growth, a Forrester Research report contends.
Pressplay, one of four major authorized subscription-download services, made a move in the right direction when it allowed downloaded files to be burned to disc and transferred to portable devices — at an extra cost, the report said. But Pressplay and its rivals have a long way to go before they deliver a service that consumers want.
In the long run, however, the music industry will come to its senses, Forrester asserts. By 2007, authorized downloads will generate 17 percent of music-industry revenues, or $2.1 billion, the company projects. "Like the change from LPs to CDs, the switch to digital music will revitalize the suffering industry," the report said.
That growth, however, is contingent on whether the music industry makes the search for content effortless, makes impulse buys easy, and permits disc burning and transfers to portable devices, Forrester contends.
Paid services currently in operation, said analyst Josh Bernoff, won't succeed for three reasons:
First, services that support only two or three labels are useless. "If you can't find what you want, why even look?"
Second, consumers want control of the music they buy. Not only do consumers "expect" to copy music to CDs or MP3 players for use in the car and on the go, they get frustrated by music that stops playing when a subscription ends.
Third, consumers want the flexibility in downloading that they enjoy with packaged media bought from a store or through a record-of-the-month club such as Columbia House. They want to buy a single track for a dollar, prepay for 100 tracks, download an entire album, or subscribe by the month, Forrester said.
"MusicNet and other services frustrate consumers with limited selections and onerous restrictions on burning," the report contended.
Music-industry sales aren't down because of proliferating file-sharing services such as Morpheus, Forrester claimed, but because of a slowing economy, competition from video games and DVDs for entertainment spending, and concentration in radio-station ownership. Radio-station chains generate national playlists with a limited selection of songs, Forrester explained. "Nationalized playlists mean new acts can't ring in buyers' ears," the report continued.
Forrester noted that the 1991 recession slowed music-sales growth to 4 percent from 14 percent even while consumers were still making the transition to CD. On top of that, today "music is losing its share of the entertainment dollar to more visual media," Forrester said.
Piracy isn't to blame for the industry's doldrums, the company said. Forrester surveyed 1,000 online consumers, determined that 40 percent use file-sharing services, but found that none of the four user segments it identified plan to reduce CD buying "by much."
The four segments are:
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digital music lovers, who download, rip, or burn at least nine times per month. They represent 4.5 percent of all adults and buy 15 percent of all CDs sold in the United States. They plan to decrease buying by 2 percent in the next 12 months. However, while 13 percent say downloading will decrease their purchases, 39 percent say exposure to new music will increase their purchases.
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digital music learners, who download, rip or burn three to eight times per month and represent 14 percent of all adults. These people buy 21 percent of CDs, and two-thirds say file sharing doesn't affect their purchases. More than half say they'll download more in the future, unless it becomes less convenient, in which case 59 percent said they'll download less.
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digital music dabblers, who engage in digital activities less than three times per month. They represent 24 percent of adults.
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nonusers, are the 26 percent of adults who are online but don't use digital music at all and the 32 percent of adults who aren't online.
The near future: For now, the authorized subscription services attract only a little more than 100,000 subscribers. The lack of song selection will keep subscriptions to less than 400,000 through 2003, generating only $31 million is revenue, Forrester projected.
Another $45 million in revenue, however, will come from downloads of singles through online services such as AOL and CDNow. Universal and Warner plan 99-cent downloads and $9.99 downloadable albums, with some CD burning allowed, Forrester said.
Wake-Up Call: By 2005, however, Forester expects the music industry to get behind burning and portability in a big way, including wireless downloads to cellphones. By 2007, authorized downloads will account for $2.1 billion in sales, or 17 percent of the music-industry's revenues, Forrester projects.
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