Jupiter: Online Music Singing a Sad Song

The market for online music is not doing as well as analysts atJupiter Media Metrix (Nasdaq: JMXI) hadthought six months ago, said the firm, which on Tuesday lowered its outlookfor the industry.

Reasons for the downward revision included a weak economy and delayed launches of new subscription products.

Jupiter said it now expects online music sales to total US$5.5 billion by2006, up from $900 million in 2001 but below the $6.2 billion the firmpredicted last July.

Hope for Subscriptions

There is hope for the industry, said Jupiter senior analyst Aram Sinnreich.Subscription-based services that let consumers download music over theInternet will revive “flagging” music sales as the market for such servicesgrows and matures, he said.

“The key to unlocking this market will be re-mixing the distribution chain –taking advantage of digital media’s fluidity to allow labels, music sellersand technology companies to focus on what they do best,” Sinnreich said.

Online music sales will be a “strong catalyst” for the overall musicindustry, said the Jupiter report, which predicted that nearly one-third ofall U.S. music sales will take place online by 2006.

Subscription services will account for $1 billion, or 63 percent, of the$1.6 billion in digital music downloads predicted for 2006, said Jupiter.Subscriptions will surpass “single-paid” downloads as the market evolves,the report said.

Delayed Launches

Subscription services like those provided by Pressplay, MusicNet andFullAudio will begin to generate revenue in 2003, said Jupiter, which isforecasting $2 million in sales for that year.

Pressplay, backed by Sony and Vivendi Universal, last month announced a limited rollout of its subscriptionservice. MusicNet, a Warner-EMI-BMG venture, also became available lastmonth over America Online.

The oldest and most controversial file-sharing site, Napster, has been essentially shut down since last July. The company, which has a license agreement with MusicNet,postponed its planned October launchas a subscription-based service and aims to start up again early this year.

Music Wars

The Jupiter report says that once the services get going, they will grow inpopularity and create a huge market for online music.

The growth of the market for subscription services will “open a new front inthe online music wars, pitting retailers against media companies,” thereport said.

As the market evolves, the subscription services will “lookless like traditional music products and more like programmed, entertainmentenvironments found on media sites or on TV,” the report said.

“This intense battle for subscribers that will soon result between mediacompanies and music retailers will fuel product innovation and lead to the$1.6 billion digital music market in 2006,” said Jupiter.