The Digital Music Market Outlook: Evolving business models, key players, new challenges and the future outlook

The Digital Music Market Outlook
Evolving business models, key players, new challenges and the future outlook

Report Overview

The increasing adoption of broadband and mobile technologies and the widespread adoption of smartphones and portable music playing devices continue to drive the digital music market. The music industry landscape is undergoing major structural changes as companies from other industries become integrated into music distribution, and business models transform to adapt to changing market demands. Piracy remains a major concern in the industry, with losses from ilegal downloads running into billions of dollars.

‘The Digital Music Market Outlook: Evolving business models, key players, new challenges and the future outlook’ is a report published by Business Insights that analyzes the growth of the digital music market and recent transformations to the industry structure and business models. The report examines the growth drivers and inhibitors of the market, emerging geographies, industry challenges and the future market outlook. It also provides detailed profiles of the leading digital music service providers including an examination of their operations, service offerings, financials and strategic outlook.               

Key Findings

The global digital music market will grow from $4.81bn in 2009 to $13.74bn by 2013, representing a CAGR of 30%.

The industry is characterized by rapidly changing structure and an evolving value chain. New players are entering the market for digital music distribution and rapidly expanding their revenue streams to match consumer demands. Various partnerships and tie-ups are emerging between players across the value chain.

Music piracy remains the most critical challenge that the industry is faced with. Another major issue is that of interoperability across various digital music services and devices, which is being dealt with by shifting towards DRM-free music downloads.

The global digital music market has significant growth potential. The relatively more developed markets include the US, Japan and western European countries such as the UK, France and Germany. Emerging markets that present enormous potential include China, India and Brazil.         

Use this report to...

• Understand the global digital music market with this report’s study of the market in terms of product innovation and evolving market structure.
• Analyze the growth trends in the market to predict key areas of opportunity including market structure, dynamics and trends in the developed markets (US, Japan, UK, France and Germany) and emerging markets (China, India and Brazil).
• Examine the challenges facing the global digital music market with this report’s study of the evolving business models and the major transformations taking place in the market abd their impact on leading companies.
• Benchmark your performance against leading digital music service providers by using the company overviews of key players in the industry, including their services, operational and financial performance indicators and strategy provided in this report.       

Explore issues including...

New players entering the market: As the industry envolves new players are entering the market for digital music distribution. Increasing competition is prompting the companies to respond to the changing customer demands and differentiate their services to retain their customers.

Changing market dynamics: The availability of free music on the internet has prompted companies to adapt their business models as per the changing market dynamics. Ad-supported sites and social community websites are gaining more prominence in the industry.

The growth of piracy: Piracy is a major problem for the global digital music industry. The number of illegal downloads has increased from 20bn in 2005 to 40bn in 2008, corresponding to 95% of the total music downloaded in that year.

Lack of interoperability: The inability to inter-operate between various digital music services and devices has been a major issue hindering the growth of the industry. Record labels have taken a significant step towards resolving this issue by offering DRM-free tracks that can play across different platforms and devices.         

Discover..

• What are the current trends in the digital music industry?
• Which regions are more developed markets and which are the emerging areas presenting potential growth opportunities?
• What is the industry structure and how is it changing as the pattern of music consumption is changing?
• How are the industry players responding to recent changes in the market?
• What are the key challenges facing the industry and how are they being dealt with?
• Who are the leading players in the market?
• How do the leading companies compare in terms of their market share, operational and financial performance, service offerings and strategy?
• How is the industry expected to evolve and what is the future outlook?

Table of Contents

• The Digital Music Market Outlook

Executive summary 10

• Digital music – the new era 10
• Key markets 11
• The value chain and evolving business models 12
• Key challenges 14
• Future outlook 15
• Key players 17

Chapter 1 Introduction 20

• What is this report about? 20
• Methodology and definitions 21

Chapter 2 Digital music – a new era 24

• Summary 24
• Global market overview 25
• Market size and growth 25
• Segmentation - online and mobile music components 27
• Digital music more popular among younger consumers 29
• Growth drivers 31
• Increasing penetration of broadband and mobile technologies 31
• Soaring sales of smartphones and portable players 33
• Expanding online catalogues and DRM-free strategy 34
• Key trends 34
• Innovative marketing drives the market forward 34
• Move towards DRM-free tracks 35
• Partnerships emerging across the value chain 35
• Artists reaching out to fans directly 36
• Growing involvement of local governments and ISPs in controlling piracy 36

Chapter 3 Key markets 38

• Summary 38
• Developed markets 39
• US 39
• Japan 44
• UK 52
• France 56
• Germany 57
• Emerging markets 57
• China 57
• India 59
• Brazil 60

Chapter 4 The value chain and evolving business models 64

• Summary 64
• The virtual music value chain 65
• Artists 67
• Record labels / production companies 67
• IP rights protection body 68
• Physical retailers 68
• Digital music retailers 68
• Consumers 70
• A-la-carte downloads vs. subscription services 71
• Key emerging business models 73
• Advertising supported services 73
• Artist led distribution channels 75
• Linking with brands, merchandise and mobile games 76
• Music access services by ISPs and mobile operators 78
• Partnerships across the value chain 79
• Flexible pricing 81

Chapter 5 Key challenges 84

• Summary 84
• Introduction 85
• Piracy – plague of the digital music industry 85
• Depth of the problem 85
• Piracy spans across geographies 87
• Steps to curtail piracy 88
• Role of ISPs and government support 89
• Legal action against P2P networks 90
• Initiatives by record companies 90
• Interoperability issues – finding an effective DRM system 91
• Determining the right price for digital music 92

Chapter 6 Future outlook 94

• Summary 94
• Strong growth to continue 95
• Developed and emerging markets 95
• The future face of music – music to go 96
• Graduating to full-track downloads and music videos 96
• Evolution of business models 97
• Subscription model is the key to the future 97
• Ad-supported services will become more popular 97
• Labels reaching out to consumers directly 97
• Cashing in on live music 98
• Capitalizing on popularity of social networks 98
• Emergence of new business models 98
• Changes in the pricing mechanisms 99
• Technology innovations and advances 99
• MP3 player market to grow with innovations 99
• Technology enabling music on the go 99
• Convergence of multiple formats, devices and channels 100
• Audio formats and quality 100
• Music piracy 100
• Music piracy most rampant among younger consumers 100
• Collective efforts required to curtail music piracy 101

Chapter 7 Key players 104

• Summary 104
• Digital music retailers 105
• iTunes Music Store 105
• Overview 105
• Service offerings 105
• Operational and financial performance 107
• Strategy 109
• eMusic 110
• Overview 110
• Service offerings 111
• Operational and financial performance 112
• Strategy 113
• Napster 114
• Overview 115
• Service offerings 115
• Operational and financial performance 116
• Strategy 117
• Rhapsody 118
• Overview 118
• Service offerings 119
• Operational and financial performance 120
• Strategy 122
• Amazon MP3 123
• Overview 123
• Service offerings 123
• Operational and financial performance 124
• Strategy 124
• 7digital 125
• Overview 125
• Service offerings 125
• Operational and financial performance 126
• Strategy 126
• Wal-Mart Music Downloads 127
• Overview 127
• Service offerings 127
• Operational and financial performance 128
• Strategy 128
• Appendix 130
• Index 130

List of Figures

• Figure 1.1: Key players in digital music retailing 17
• Figure 2.2: Global digital (online and mobile) music market forecast ($bn), 2005-2013 25
• Figure 2.3: Global digital platforms’ share in overall music market (%), 2004-2008 26
• Figure 2.4: Top ten countries’ split of digital music (%), 2007 28
• Figure 2.5: UK key music-related activities (% respondents) 29
• Figure 2.6: UK respondents in favor of free music 30
• Figure 2.7: Global broadband subscribers and penetration (m, %), 2004-2007 31
• Figure 2.8: Global mobile subscribers and penetration (bn, %), 2004-2008 32
• Figure 2.9: Global iPod sales ($bn and units), 2006-2008 33
• Figure 3.10: US digital music market forecast ($bn), 2005-2013 40
• Figure 3.11: US digital platforms’ share in overall music market (%), 2005-2008 41
• Figure 3.12: US digital music market breakdown ($m), 2005-2008 42
• Figure 3.13: US digital music market breakdown (m), 2005-2008 43
• Figure 3.14: Japanese digital music market forecast ($m), 2005-2013 45
• Figure 3.15: Japanese digital platforms’ share in overall music market (%), 2005-2008 46
• Figure 3.16: Japanese music market share of online and mobile channels (%), 2005-2008 47
• Figure 3.17: Japanese mobile music market breakdown ($m), 2006-2008 48
• Figure 3.18: Japanese mobile music market breakdown (m), 2006-2008 49
• Figure 3.19: Japanese online music market breakdown ($m), 2006-2008 50
• Figure 3.20: Japanese online music market breakdown (m), 2006-2008 51
• Figure 3.21: UK digital music market forecast ($m), 2005-2013 52
• Figure 3.22: UK digital platforms’ share in overall music market (%), 2006-2008 53
• Figure 3.23: UK digital music market breakdown ($m), 2006-2008 54
• Figure 3.24: UK digital music market breakdown (m), 2006-2008 55
• Figure 3.25: Chinese digital music market ($bn), 2006–2010 57
• Figure 3.26: Indian mobile music market ($bn), 2006–2010 59
• Figure 4.27: The music industry value chain 66
• Figure 4.28: Categories of digital music service providers 70
• Figure 4.29: Digital music sales by channel (%), 2007 71
• Figure 4.30: Internet advertising market size ($bn), 2007-2011 73
• Figure 7.31: Key players in digital music retailing 104
• Figure 7.32: iTunes revenue ($m), 2004-2008 108
• Figure 7.33: Napster revenue ($m), 2004-2008 117
• Figure 7.34: Rhapsody revenue ($m), 2005-2008 121

List of Tables

• Table 2.1: Global digital (online and mobile) music market size ($bn), 2005-2013 26
• Table 2.2: Global digital platforms’ share in overall music market (%), 2004-2008 27
• Table 2.3: Top ten countries’ split of digital music (%), 2007 28
• Table 2.4: Global broadband subscribers and penetration (m, %), 2004-2007 31
• Table 2.5: Global mobile subscribers and penetration (bn, %), 2004-2008 32
• Table 3.6: Broadband penetration in developed markets, 2008 39
• Table 3.7: US digital music market forecast ($bn), 2005-2013 40
• Table 3.8: US digital platforms’ share in overall music market (%), 2005-2008 41
• Table 3.9: US digital music market breakdown ($m), 2005-2008 42
• Table 3.10: US digital music market breakdown (m), 2005-2008 44
• Table 3.11: Japanese digital music market forecast ($m), 2005-2013 45
• Table 3.12: Japanese digital platforms’ share in overall music market (%), 2005-2008 46
• Table 3.13: Japanese music market share of online and mobile channels (%), 2005-2008 47
• Table 3.14: Japanese mobile music market breakdown ($m), 2006-2008 48
• Table 3.15: Japanese mobile music market breakdown (m), 2006-2008 49
• Table 3.16: Japanese online music market breakdown ($m), 2006-2008 50
• Table 3.17: Japanese online music market breakdown (m), 2006-2008 51
• Table 3.18: UK digital music market forecast ($m), 2005-2013 53
• Table 3.19: UK digital platforms’ share in overall music market (%), 2006-2008 54
• Table 3.20: UK digital music market breakdown ($m), 2006-2008 55
• Table 3.21: UK digital music market breakdown (m), 2006-2008 56
• Table 4.22: Internet advertising market size ($bn), 2007-2011 74
• Table 7.23: iTunes Music Store Snapshot 105
• Table 7.24: iTunes revenue ($m), 2004-2008 108
• Table 7.25: eMusic Snapshot 110
• Table 7.26: Napster Snapshot 114
• Table 7.27: Napster revenue ($m), 2004-2008 117
• Table 7.28: Rhapsody Snapshot 118
• Table 7.29: Rhapsody revenue ($m), 2005-2008 121
• Table 7.30: Amazon MP3 Snapshot 123
• Table 7.31: 7digital Snapshot 125
• Table 7.32: Wal-Mart Music Downloads Snapshot 127