Gartner Study Predicts Strong Music Growth Online

A recent Gartner Industry Research report (9/16/11) suggests that online music revenue will grow 31%, from $5.9 billion in 2010 to $7.7 billion in 2015. Physical CDs will move conversely, falling from about $15 billion in 2010 to $10 billion in 2015. Gartner’s findings place strong emphasis on connected devices such as media tablets and smart phones for driving the changes over the upcoming period in terms of revenues and actual business models. Subscription services such as Spotify, the report says, will lead the growth, but “a la carte sales will drive the bulk of overall revenue.”

“The primary stakeholders in the music industry — artists, music labels, publishers and retailers/service providers — are facing wrenching changes and a somewhat uncertain future,” states analysts Mike McGuire and Stephanie Baghdassarian. “But the next four to five years, as portrayed in our forecast portends solid growth — if you ignore the continued decline of CD sales…”

Although the substantial loss in CD revenue appears unavoidable, the report focuses on the online sector which is, “Where the strategic focus needs to be.” Part of the data projects that subscription services will take a 317% leap from 2011 to 2015 where it will account for $2,218 million. Download revenues in 2011 lead subscription revenues by about 600%. By 2015, however that lead is expected to be only about double the subscription revenues (see graph).

The growth in the online music sector is clearly being driven by the proliferation of connected devices which is causing industry stakeholders to realign and restructure business models and services. “The essential element — the thing that will affect the fortunes of any number of stakeholders in the music industry,” states the report, “is how each sector addresses consumer data (behavior patterns, and how consumers find and share data about music and information). For music labels, artists and publishers, challenges abound. However, there remain real opportunities to reinvent the business based on consumers who are adopting connected devices (that marry playback and purchase acquisition capabilities in a single device) and who are showing they will pay for content in multiple ways.”