Online music sales to hit $5.4bn by 2005

The online music market is set to balloon to $5.4 billion by 2005, Net-oriented market research company Jupiter Communications bullishly predicted today. And that's just the US market.

By that time, just under a quarter of all music sales in the US will be made online, up from just 2.7 per cent in 1999. Last year, the online music market was worth $387 million.

Impressive numbers, it's true, though given they're being used to highlight Jupiter's online music conference, you could be forgiven for wondering if the company is preaching to the converted and telling online music operations what they want to hear.

For instance, Jupiter says: "Labels looking to prevent market erosion by digital music consumption must actively license their catalogs to third-party digital music providers and be prepared to market the resulting services in tandem with media and commerce partners." Well, that's what they're doing, so Jupiter's suggestion is no different from telling Al Gore he should run for the US presidency.

Still, there's no doubt that online sales will be big business, but it's telling that even by 2005, while e-tailers like Amazon.com will together be generating $3.853 billion, download-based services will account for less than 40 per cent of that figure. In other words, the CD will remain the standard music delivery mechanism for some time to come.

More interesting is Jupiter's contention that the bulk of download sales will come not through pay-per-download services, but commercially run alternatives to Napster. Such subscription-based services will account for $980 million worth of business in 2005, compared to download sales of $531.

There's a caveat, however: Jupiter's numbers assume that such services can tempt users away from Napster and the open source Gnutella. Jupiter highlights virus protection and audio quality as the two key drivers that will push users away from the free services. That, at least, is what Jupiter's survey of 2200 online music buyers claimed, but given the haze of alleged illegality surrounding Napster, we take such claims with a pinch of salt: people will always go for free stuff if they can get it, no matter what.

It's also worth remembering that the subscription model is to all intents and purposes completely untested, and beyond the popularity of Napster and Gnutella there's almost no way of gauging how likely music buyers are to prefer that scheme over the discrete download. Music fans saying they might use such services if they existed isn't really a basis for claiming such services will be popular. ®