By: Adlane Fellah - Maravedis, Inc.

Last week I attended the Digital Music Conference in Miami Beach. It was refreshing to be listening (literally) to presentations and panels focusing on end-user aspirations and experiences, as opposed to the usual talk around technology, protocols and processes!

Not that there is anything wrong with listening to the complex matters of modulation, certification and regulation….

The Musical Context

Nothing better illustrates the importance of recorded music to the economy as a whole than the phenomenal growth in portable digital music players. The International Federation of the Phonographic Industry (IFPI) estimates the value of this sector to be US$9 billion in 2005 - over four times the estimated value of digital music retail sales. With digital player penetration at 15 per cent of online users in Europe and 20 per cent in the US, along with a high replacement rate, this market still has exciting growth potential.

Music has been a key driver of 3G mobile services - research from the mobile operators confirms that music is the top entertainment product on mobile phones, attracting the 18-35 age group in particular.

Music is central to the marketing strategies of these new media service providers and is seen as the leading source of entertainment content by a large contingent of major new media brands including Yahoo, America Online and MSN.

Music is one of the leading creative industries driving the media and entertainment sector, which now accounts for more than seven per cent of global GDP and is worth an estimated US$1.3 trillion - with experts projecting this figure to grow to US$1.8 trillion by 2009 (Source: PWC).

Digital is Driving First-Half 2006 World Music Sales

IFPI also reported that sales of digital music in the first half of 2006 rose 106% to US$945 million when compared with the first six months of last year. Globally, digital sales now account for 11 per cent of the total recorded music market worldwide, up from 5.5 per cent in December 2005.

The US is still leading the digital revolution, with 18 per cent of recorded music sales now being made through digital channels. Digital music sales in the US increased by 84 per cent to US$513 million in the first six months of 2006.

Digital music also accounts for a significant part of the overall market in South Korea (51%), Japan (11%), Italy (9%) and the UK (8%).

The explosion in digital music services, spurred by consumer demand and a widening array of delivery channels, has seen online and mobile music sales grow from $US134 million in the first half of 2004 to US$945 million in the first half of 2006.

In Japan, Italy and Spain, mobile dominates the digital market, accounting for 85%, 76% and 78% of overall sales, respectively. Online downloading is more prominent in markets such as the UK, Germany and the US, where online sales account for 70%, 69% and 64% of digital sales, respectively.

Physical music sales worldwide declined in the first half by 10 percent. This led to total retail music sales' falling by four per cent in the period to US$13.7 billion. This was due largely to piracy and to competition for consumer spending.

Impressions from the Conference

Digital musical content includes not only songs but also a whole new category of "secondary content" such as interviews, standalone comedian performances and other audio content.

So, digital has become the format of choice for consumers who increasingly seek to access or buy their music anywhere, anytime. Distribution of new artists is said to be the most important aspect in the music business (aside from finding new talents, of course!). Mobile has become an essential part of an artist's new album launch. Mobile campaigns and highly targeted marketing are being perfected. Yahoo Music! demonstrated a powerful web tool with refined usage and trends aimed at helping majors (recording firms) to trial new songs among large audiences prior to launching expensive marketing campaigns.

An example of a new web-based promoting agency is Hispanic-oriented Hoodiny (http://www.hoodiny.com), whose mission is to "develop technological platforms and content for this new medium, so it can be accessed in a ubiquitous, personal and interactive manner. You will be able to find us in your TV, radio, computer and mobile device."

Increasingly, it was said that consumers have an increasing influence on what is available for their listening, as opposed to past practices where majors invested heavily and determined what music would be a hit.

Buying digital content remains a tedious experience for many DRM (Digital Right Management) tool users, with the exception of iTunes. Apple was praised for having developed a simple and easy-to-use platform. Various attendees have shared their own frustrating experiences over complicated, impossible-to-use devices or software platforms. The issue of too many devices (with a lack of interoperability) was also raised. There are also storage issues precluding the transfer of files from one device to another.

The quality of the buying experience was said to be crucial. This is an aspect that mobile operators are keen to understand and improve if they are to tap into the increasing mobile music revenues. The mobile phone could become that one single platform for music downloading and sharing, as friendly platforms are being developed. But we are still a long way from that.

Microsoft demonstrated its new Zune MP3 player digital device, which allows music sharing using Bluetooth. The wireless sharing ability of the Zune is meant to overcome what Microsoft sees as the biggest drawback of portable players: the inability to share music and listen with others. Microsoft negotiated a deal with the majors calling for 3 days and 3 plays per song. Microsoft believes that the model allows enough time for listeners to figure out if they like a song, while protecting copyrights. 

Sprint was represented by Paul Reddick, Vice President of Business Development and Product Innovation. Although I missed part of Paul's presentation, he did mention WiMAX and the first question addressed to him was regarding WiMAX plans and what it meant to new digital services.















Sprint also remarked that in October 2006, Sprint Music Store hit 8 million. Sprint claimed to be the first carrier to offer free exclusive audio and video of live concerts, starting December 2005. Over 50 million US consumers will be using over-the-air wireless music services and generating more than US$1 billion by 2010.

The music scene and the climate behind the scenes is very vibrant. The music industry is embracing both the digital and mobile phenomena. New online applications are being developed to promote existing and new artists. The industry has sharp knowledge of teenage communities worldwide, who constitute the most eager consumers and the broadband wireless users of tomorrow.

With 2.4 billion mobile handsets and more than a billion users of the Internet, the potential to narrowly distribute and market to the music fan is unprecedented - but still largely untapped.

Let's venture to say that digital music, which today resembles a chamber orchestra, will explode into a large philharmonic orchestra and attract millions of mobile music users.


Notes:

Digital sales include:

Online: single track downloads, album downloads, music video downloads, streams.

Mobile: master ringtones, full track audio downloads to mobile, ringback tunes, music videos.
Subscription: online and mobile subscriptions.
IFPI excludes midi files (monophonic and polyphonic), ringtones and non-artist related content sales from these figures.


About the Author:

Adlane Fellah, MBA, is CEO and founder of Maravedis, a world-leader in market research and analysis, specializing in WiMAX and broadband wireless markets. He is a leading industry analyst who has authored various landmark reports on WiMAX, broadband wireless and Voice over IP. He is a frequent speaker at leading wireless events and a contributor to various prestigious portals and magazines covering the broadband wireless industry, such as Telephony Magazine, WiMAX Trends, and WiMAX.com. He has been a member of the Program Advisory Board for the World WiMAX Conference since 2004 and a member of Word Communications Association International and the Broadband Wireless Association. Prior to founding Maravedis, he held various positions at Harris Corporation in charge of market intelligence and business development for several product lines.