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Latest US Digital Music Forecast November 19, 2007

Posted by David Card in Media.

Jupiter’s latest digital music forecast is live. Digital is where the growth is, but it won’t be enough to “save the industry.” That is, sales of downloads, on-demand subscription services, and ring tones, won’t compensate for declining CD sales, and consumer spending overall will still wither. Some highlights:

Combined, spending on downloads and subscriptions — what we call “digital music” — will surpass $1.3 billion in 2007 and grow to $3.4 billion in 2012. That means digital music, which accounted for only 9% of consumer spending on music and ring tones in 2006, will total a whopping 34% in 2012. That’s because the bottom continues to drop out of CD sales, and the overall pie ends up shrinking.

We’ve raised our downloads forecast, and there are some hints of substitution among (relatively) early adopters. Downloads will grow over 35% in 2007, to $1.1 billion. Downloads will continue at a very healthy 20% CAGR through 2012, when they’ll hit $2.8 billion.

On-demand services like Rhapsody and Napster look a little sluggish, but should cross $235 million in 2007. They’ll also show a 20% CAGR through 2012, growing to just under $600 million. They’ll remain a niche product for aficionados, at least for the next five years.

Overall, it’s not a pretty picture for some parts of the industry, and the forecast hammers home the idea that labels must act more like management companies, and tap into the broadest collection of revenue streams and licensing as possible. Advertising and creative packaging and bundling will have to play a bigger role than they have. And the $3 billion-plus touring business is not exactly up for grabs — it’s already competitive and not very profitable. Music companies of all types need to use the Internet for more cost-effective marketing, and A&R risk has to be spread more fairly.

Clients can check out the report here; the press release is here.

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