Tuesday, July 26, 2005

Legal Downloads Nearing a Tipping Point?

A report from the International Federation of Phonographic Industries showed that legal, single track downloads for the first half of 2005, 180 million, topped the total for all of 2004, which ended at 157 million.

Of course, illegal downloads still dwarf the legal variety, yet they rose a relatively paltry 3% from 870 million in January to 900 million in June.

The IFPI’s factsheet suggests that consumers' fear of lawsuits and annoyance with adware, spyware and viruses have blunted the growth of illegal downloading. That may be true, but it seems a little early to claim victory over illegal downloading. 3% growth is also the historical growth rate of the US economy, which could indicate that p2p services are simply hitting maturity.

The fact that illegal and legal digital music delivery are both still growing indicates that the overall digital music pie is still growing and thus neither side can claim definitively to be taking market share from the other.

As BigChampagne CEO Eric Garland told TechNewsWorld:

"Ultimately, we have to bridge the gap. Subscriptions look like a winning model," he said. "But consumers in our focus groups said that although they welcome subscription models, they will not stop downloading free MP3s. So they are willing to pay for music, but they still consider swapping files an important part of the equation."

What I found remarkable was the growth of legal download services, which have tripled to 300 in the past year.

There had been some expectation that consolidation and attrition would whittle that number down, but a countervailing force is the room for differentiation that exists for services. While major services such as iTunes, Napster, Yahoo! and Real's Rhapsody tout the 1 million-plus tracks that each have in their catalogues, other services differentiate by focusing on specific types of music, such as Christian, Indian, Indie Rock, etc., or by focusing on larger or more open file formats, such as lossless (FLAC, WAV, etc.), MP3 and DRM-less.

Going forward, I’m keeping an eye on subscription rates. As consumers move from music collectors to music samplers, I expect subscription services to occupy a bigger piece of digital music’s revenue stream.

Subscriptions to digital services are up sharply so far in 2005, according to IFPI, with a total of 2.2 million people now subscribed to music services globally. This is up from 1.5 million subscriptions estimated in the group's Digital Music Report in January.

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