CONSUMER
Digital music key to record industry: report
21-03-2006
by Ciara O'Brien
Digital music is set to become increasingly important to the record industry, accounting for 16 percent of total recorded music revenues by 2011.
That's according to new research from JupiterResearch, which has found that digital music is becoming a key revenue stream for record companies. Back in 2005, digital music accounted for 2.2 percent of total European music revenues. The report also predicts increasing consolidation within the market.
Its research found that high costs for music rights, low operating margins and intense competition are threatening the long-term prospects of some of the European digital music services that are currently in the market.
It seems that there are too many services chasing too few customers in Europe, with revenues reaching EUR192 million in 2005 and about 200 digital services offering their wares. The research company has estimated that there is an average revenue opportunity of EUR960,000 per service; however, with Apple's iTunes' dominance in the market, the real figure is much lower.
With the number of overheads facing digital music services, JupiterResearch has come to the conclusion that the current market model is biased towards device manufacturers and ISPs, i.e. firms that do not depend on digital music revenues alone.
"With European CD sales still declining in 2005 digital music is an invaluable means for record labels to register revenue growth, and consumer demand is clearly growing: by the end of 2006 14 million Europeans will pay for digital music," said Mark Mulligan, JupiterResearch research director.
"Digital music has the potential to be a vital part of the music market in 2011, but to enable the market to get to that stage greater imagination is required from all elements of the value chain to make selling digital music an economically viable business for all partners, not just for record labels. Record labels must strike the balance between securing solid digital revenues and ensuring retailers can run profitable businesses."
According to figures from the International Federation of Phonographic Industry's (IFPI) Digital Music Report 2006, music sales made via the internet and mobile phones rose from USD380 million in 2004.
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