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?

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 overal