By Colin Lazzerini
From Discs to Downloads, Forrester Research Inc., August 2003 (20 pages; US$895).
IFPI Online Music Report, International Federation of the Phonographic Industry, January 2004.
At US$895, there is no way I could make the cover price of "From Discs To Downloads", but I was definitely curious to know what they had that was worth the cost. So I took the trouble to find out.
It's the original research data that makes it so valuable, I guess: a survey of the downloading and cd burning habits and attitudes among close to 6,000 online users. Obviously very useful info for a lot of people making delicate decisions. I managed to make do with the overview from the Forrester web-site, plenty of google-able commentary, and some media interviews with chief analyst, Josh Bernoff - plenty enough information out there to grab the salient thrusts and copy some of the detail to share with you.
The report from the International Federation of the Phonographic Industry came out in January and is available online - irony of ironies - as a free downloadable *.pdf file.
| "The music industry's internet strategy is turning the corner, with new legal online music sites spreading fast and the campaign against illegal music file-swapping making a clear impact across the world."
Jay Berman, Chairman & CEO, International Federation of the Phonograph Industry. |
The two reports, with barely five months between them, offer a crucial snapshot of an industry in Stage Three of the digital revolution.
Stage One was the age of illegal downloads, starting 1999, the year of Napster, since when the compact disc business dropped by US$2 billion, according to Forrester, of which almost $700 million was down to file-sharing.
Stage Two was the corporate counter-revolution, where whining and executive skirmishing gave way to boardroom executions, where public awareness campaigns on piracy were followed by the gathering momentum of what the IFPI calls, in one of its finest unguarded "Dirty Harry" moments, a policy of "robust enforcement", but which only achieved full operational maturity when the industry finally realised the way to beat piracy was through providing legal download alternatives.
When that operational maturity gathered critical mass, we moved on to the third stage
Stage Three is the virtual turf war that began to heat up last year - the fight for market dominance of media and delivery systems into the future.
Forrester's study happened while the combatants were lining up to jostle for early advantage in the contest to connect with the consumer.
And the consumer seems ready. Forrester reported 68% of their survey's 12 to 22 year old file-sharers saying they'd go legal if there was a chance of getting busted. The analysts reason that they are ready for downloads at reasonable prices and forecast online business of $270 million for this year. Three years from now, they say, digital music sales could be $1.5 billion. In five years, a third of all music sales will be from downloads.
They say contenders in the turf war need high product awareness and availability, together with ease of use and functions integration, in order to survive the contest, and predicted Apple's early lead on that basis.
Right now, Apple iTunes for Windows is the one to beat while other services warm up on the sidelines getting ready to take them on.
Rhapsody is preparing a renewed challenge and Sony's Connect comes off the blocks in April, with Hewlett-Packard, Microsoft, Amazon, MTV, Coca-Cola and many more set to join the fray through the year.
According to Forrester, 2004 is consequently set to be the turnaround year when music companies will see the end of declining sales, the beginning of growth and the promise of increased profitability.
| "2003 was the year we proved that consumers would pay for digital music - it is absolutely clear there is a market. This has injected a huge confidence-booster to labels, to investors and everyone who is looking at it as a business to get into."
Ed Averdieck, Sales & Marketing Director, OD2 (European online music distributor) |
The IFPI report is equally gung-ho about the immediate promise of Stage Three - they expect sharp growth in the European online music market with parallel developments in Canada, Asia-Pacific, Australia and Brasil.
Other aspects of the report include a run-down on the industry responses of Stage Two and a commentary on the subsequent business models currently evolving during Stage Three.
They describe viable online legitimacy as an "incomparably more complex undertaking than the setting-up of unauthorised distribution models" and talk about the complex technological requirements of Digital Rights Management (DRM) and Copy Control Technologies (CCT).
They highlight the extreme competitiveness of the Stage Three arena, with services reaching out to secure new marketing routes through partnership deals with broadband suppliers, with the telephony industry, with computer hardware manufacturers, with other established market-segmented life-style brand identities, even with - if Napster's deal with Penn State is anything to go by - academic institutions.
Ultimately, the future looks rosy and the empire shall continue to prosper.
Any bad news is left to the Forrester soothsayers.
They believe that the success of legitimate media services will serve to make piracy redundant. Further, they say that piracy and its cure -- streaming and paid downloads -- will drive people to connect to entertainment, not own it. And hence the effects both of piracy and the services set up to counteract it, reason Forrester, will combine to make CDs an irrelevance.
"On-demand services are the future of entertainment delivery," said principal analyst Josh Bernoff, "CDs, DVDs, and any other forms of physical media will become obsolete."
Of course, in the Forrester scenario where hard media is in jeopardy and the CD is preparing to meet its doom, this news also sounds a requiem for the record-store.
The impact on independent distribution - also in the business of dealing with physical stuff - is something neither report considers.
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