Jupiter: Online Music Singing a Sad Song

The market for online music is not doing as well as analysts at Jupiter Media Metrix (Nasdaq: JMXI) had thought six months ago, said the firm, which on Tuesday lowered its outlook for 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 by 2006, up from $900 million in 2001 but below the $6.2 billion the firm predicted 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 the Internet will revive "flagging" music sales as the market for such services grows 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 sellers and technology companies to focus on what they do best," Sinnreich said.

Online music sales will be a "strong catalyst" for the overall music industry, said the Jupiter report, which predicted that nearly one-third of all 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 and FullAudio will begin to generate revenue in 2003, said Jupiter, which is forecasting $2 million in sales for that year.

Pressplay, backed by Sony and Vivendi Universal, last month announced a limited rollout of its subscription service. MusicNet, a Warner-EMI-BMG venture, also became available last month 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 launch as 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 in popularity and create a huge market for online music.

The growth of the market for subscription services will "open a new front in the online music wars, pitting retailers against media companies," the report said.

As the market evolves, the subscription services will "look less like traditional music products and more like programmed, entertainment environments found on media sites or on TV," the report said.

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