Digital Music's Future is in Marketing

Music industry players must adopt a less defensive tack and use digital distribution as a tool to market and sell music, according to research conducted by Jupiter Communications.

Revenue from the digital distribution of music is projected to reach just $147 million by 2003, Jupiter found, comprising 5.7 percent of online music sales. In the near term, however, Jupiter found that downloadable music can serve as a powerful driver of the larger market of physical online music sales, which is expected to exceed $2.6 billion by 2003.

The next few years will serve as a prelude to mass-market acceptance of downloadable music, which is currently held back by bandwidth constraints, lack of music availability, the presence of a free alternative (e.g., MP3), and a dearth of portability solutions (e.g, penetration of CD-R and portable devices). Digital distribution marketing initiatives will serve to sell more CDs than digital files over the course of the next few years.

“Industry players have been so eager to dampen any momentum that MP3 had as a format that the great benefits of digital distribution, including use of MP3, remain vastly underexploited,” said Mark Mooradian, senior analyst for Jupiter Communications.

Music labels, along with other media and entertainment ventures on the Web, must for the first time, gather consumer data about their bands’ audience in order to build new business models through avenues such as merchandising and touring, Jupiter found. Record labels must adopt a direct marketing mind-set and understand exactly who their audience is in order to build these new business models, according to Jupiter.

“Control of customer data stands to be the single greatest issue of contention between artist management and labels in the next two years,” Mooradian said.

Online music sales represented roughly 1.1 percent of the $13.7 billion total US recorded music sales for 1998. Beyond digital distribution, Jupiter research shows that the most profound revenue change in the near term will come from established media such as CDs, tapes, and records. By 2003, online sales of traditional recording media will account for $2.6 billion, capturing 14 percent of the total US retail music market.