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Digital music a long way from displacing CDs

But consumers will favour downloads over subs

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It's going to be a long time before digital music downloads challenge CD sales, even in the online world. That's the conclusion of a report by market watcher Informa Media Group (IMG), published this week.

Come 2010, IMG says, global online music sales will exceed $6bn. An impressive number, but still only 15.2 per cent of total spending on music worldwide.

But still a healthy sum to share among the likes of Apple's iTunes, Napster, Virgin Digital, Wal-Mart, Tesco and co., surely? Well, not quite. That figure represents not only sales of digital downloads and subscription revenue, but CDs purchased from Amazon and co.

Digital downloads will account for half of the total - $3.1bn.

That amounts to 7.7 per cent of total music sales, leaving CD, DVD and their successor physical formats taking 92.3 per cent of the market.

Those figures look to a market five years off. Closer to today - next year, in fact - sales of digital downloads will total $422.7m, more than double the $179.5m that will be spent this year, IMG reckons. Subscription revenue in 2004 will total $103.7m, the researcher estimates, rising to $191.7m next year. For the two methods of delivery, those figures represent growth of 135.5 per cent and 84.9 per cent, so clearly IMG believes that punters will increasingly prefer one-off downloads over tethered subscription packages.

Over time, it says, downloads will prevail but the difference between the two will narrow. By 2010, download sales will total $1.98bn, subscriptions $1.12bn.

Crucially, there's room there for all of today's services to play. Apple's share will undoubtedly slide from its current strength, both in terms of online music services and music player hardware, but it's clear there's money to be made servicing iPod customers' digital music needs.

In that sense, the subscriptions versus a la carte downloads battle - or the format war, for that matter - doesn't matter. As long as Apple can continue adding content and continues to sell iPods, its customers will have access to a good back catalogue. As long as that's the case - and Apple doesn't introduce prejudicial pricing, of course - it doesn't matter very much that they can't buy songs from Napster, say. That's more of an issue for Napster and co., where there is direct competition.

IMG concurs: "Although Apple has been criticised for not opening up the iPod to accept other formats or sell downloads in a secure format other than AAC, iPod users are likely to buy downloads from the iTunes music store and so incompatibility is not a problem," its Music on the Internet report says.

"Leading download sites sell tracks for the same price and as such, consumers are unlikely to shop around for a better deal," it adds.

Apple shares this week reached a four-year high on the back of investment bank Piper Jaffray forecasts that iPod sales are starting to pull computer buyers from the Wintel world over to the Mac.

Meanwhile, Fulcrum Global Partners analyst Robert Cihra predicted iPod shipments will double sequentially to 4m units during the December quarter. ®

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