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Forrester Sees $2 Bln Digital Music Market by 2007

Video may have killed the radio star, but Forrester Research on Tuesday said Internet piracy was not to blame – as record labels have claimed – for the 15 percent drop in music sales in the past two years.

“There is no denying that times are tough for the music business, but not because of downloading,” said Josh Bernoff, principal analyst at Cambridge, Massachusetts-based research firm Forrester Research Inc., who released a report on the digital music market.

Based on surveys of 1,000 U.S. online consumers, Forrester said it sees no evidence of decreased CD buying among frequent digital music consumers and said the record labels could restore industry growth by making it easier for people to find, copy, and pay for music on their own terms.

Forrester predicts that by 2007, digital music revenues in the United States will reach more than $2 billion, or 17 percent of the music business, from about $3 million in 2001.

Forrester pointed to the economy and competition from other media for the music market’s downturn, rather than the emergence of free song-swap services like now-idled Napster and several similar sites in its wake, which the recording industry has claimed in several copyright lawsuits have hurt sales.

“Plenty of other causes are viable, including the economic recession and competition from surging video game and DVD sales,” Bernoff said.

The big five record labels, including Bertelsmann AG’s BMG, EMI Group Plc, AOL Time Warner Inc., Vivendi Universal and Sony Corp., and several independent companies in the past year have launched several online music subscription services, called Pressplay, MusicNet, FullAudio and Rhapsody.

While makers of these services continue to improve their offerings to lure users, they are far from the point of mass appeal enjoyed by the unauthorized services.

Forrester said the labels will learn to fulfill Internet consumer demands in the next few years, predicting that by 2005, labels will endorse a standard download contract that supports burning and a greater range of devices.

Downloading will start to soar in 2005 as finding content becomes effortless and impulse purchases easy. Labels will make content available on equal terms to all distributors, while online retailers will become hubs for downloading, Forrester said.

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