The New Napster Changes the Music Marketing Mix
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Date Submitted: 02/04/2015 01:38 PM
SURJ
Economics
Understanding the Market for Digital Music
Albert Lin
By 2008, digital music sales either as a-la-carte downloads or subscriptions are expected to reach $1.8 billion, up from $187 million in 2004—a ten-fold increase. Despite illegal file sharing activity, these figures indicate that the market for online music is rapidly growing. The success of the Apple iTunes Music Store suggests that consumers are willing to pay for online music that they can listen to anywhere and anytime. This paper begins by combining a discussion of the current market players and technologies with an analysis of relevant industry forecast data to understand what opportunities exist for current and future online music providers. Through pricing data research and consumer survey results, this paper argues that the present 99-cent per song strategy is optimal.
In 2002, digital music sales, which includes both paid downloads and online orders for hard copy music media, accounted for just over $1 billion. Informa Media forecast that by 2008 online music sales will amount to almost $3.9 billion. Purely online music distribution comprised of a-la-carte downloads and subscription services will make up $1.8 billion of all online sales in 2008, with the remaining consisting of online orders for physical CDs. Though these future figures seem promising, the music industry remains concerned about piracy, pointing to the decline in retail music sales as evidence. Since peaking in 1999 with music sales of $14.5 billion, retail revenues have declined annually on average by 9 percent. In 2003, the Recording Industry Association of America (RIAA), an organized body representing several dozen record labels including the “Big
5” (Universal, Sony, EMI, Warner and BMG), reported a gross value of $11.9 billion shipments, a loss of 6 percent from 2002. Meanwhile, unit shipments of record media (CD, LP/ EP, vinyl, DVD, music videos) have followed a similar decline from a high of almost 1.2 billion...
