Jupiter: US Online Music Market to Reach $5.4 Billion in 2005, Led by Industry Shift to Digital Subscriptions

Business Wire, July 24, 2000

Business and Technology Editors

NEW YORK--(BUSINESS WIRE)--July 24, 2000

Labels Must Start Licensing Catalogs to Meet Growing Consumer Demand

Despite the absence of major label initiatives, consumers have turned online music into a mass-market phenomenon, where US online music sales are expected to reach $5.4 billion in 2005, according to Jupiter Communications, Inc. (Nasdaq: JPTR), the worldwide authority on Internet commerce. While individual downloads will continue to be effective marketing tools, the majority of digital music sales will come in the form of online subscriptions. Labels looking to prevent market erosion by digital music consumption must actively license their catalogs to third-party digital music providers and be prepared to market the resulting services in tandem with media and commerce partners.

In what has become an annual tradition, Jupiter today released its vision for the online music industry during the opening session of Plug.In: The Jupiter Online Music Forum in New York City. Jupiter projects that the online music market will secure approximately one-fourth of the total US music market in five years, with digitally distributed products representing 28 percent of total online music dollars, or a $1.5 billion market in 2005. However, the growth of networked music sharing, such as Napster, reveals a consumer readiness for subscription services, which will account for $980 million in 2005 vs. a la carte download music, which will grow to $531 million in 2005.

Aram Sinnreich, an analyst for Jupiter covering the online music industry, explained that digital music has yet to yield overwhelming direct revenues, but its impact on physical product sales has been powerful and positive. "There has been a dramatic change in the Internet music industry in the last year, but its not in the number of dollars that consumers spend, it`s the whole music experience," explains Sinnreich. "What we are seeing is the opportunity for a new format of product in the commercial music industry, enabled by digital music service providers who can wrap tools, technology and content around the core library of songs."

However, one of the challenges for subscription services will be to get consumers to shift to them from existing services such as Napster and Gnutella. The deciding factors for consumer adoption will be to address two of the subscription services' their most important features: guaranteed file quality and virus protection. Consumers identified these two features, over other content offerings such as artist chats, album art and an advertising free zone, as most important in their decision to pay for a music subscription service.

"Record labels and intellectual property owners have demonized various forms of online music sharing, even as it has gained enormous traction among consumers," said Sinnreich. The truth is that a better-informed user will purchase more music products online and off."

A Jupiter Consumer Survey of 2,200 online music fans asked where if they had ever decided for or against a music purchase based on a free download. Fourteen percent responded that the download enticed them to purchase, whereas only seven percent decided not to purchase because they already had the downloaded song.

Plug.In: The Jupiter Online Music Forum, which began today in New York City at the Sheraton Hotel & Towers. Now in its fifth year, Plug.In, sponsored by Billboard magazine and Digital Club Festival, serves as one of Jupiter's most successful events. This year's agenda features an impressive panel of music visionaries, including keynote speakers Richard D. Parsons, president, Time Warner Inc.; Rob Glaser, chairman and CEO, Real Networks; and Mike D of the

Beastie Boys. Top executives from Napster, Def Jam Records, MP3.com, BMG Entertainment, and RIAA will join Jupiter's analysts and keynote speakers to address issues such as record label strategies, digital distribution, music-oriented online content, and intellectual property that define this evolving market.

US Online Music Spending

                     1999   2000   2001   2002    2003    2004   2005
                     ----   ----   ----   ----    ----    ----   ----
Total Online Music
 Spending (millions) $387  $836  $1,469  $2,259  $3,181 $4,219  $5,364
% of Market Online    2.7%  5.5%    9.1%   13.3%   17.4%  21.3%   24.6%

Physical Product     $387  $826  $1,431  $2,109  $2,713 $3,299  $3,853
A La Carte Downloads   $0    $9     $34     $88    $189   $339    $531
Digital Subscriptions  $0    $0      $5     $63    $278   $581    $980

Source: Jupiter Communications, Inc.

Panels taking place during Plug.In sessions will address issues, including, who controls digital rights in areas such as downloads, radio, retailing, and consumer data; selecting strategies necessary to allow labels, artists, media companies, and retailers to capitalize on the Web's invaluable marketing capabilities; identifying new technologies and trends revolutionizing the music business, and exploring ways to turn file-sharing services into revenue-generating ventures; identifying best-of-breed business models for start-ups and established players; and discussions centering on whether new subscription schemes will make the role of the retailer obsolete.