The digital music revolution is upon us and it’s changing the landscape of the music industry as we know it. Accounting for $1.1 billion in 2005 music revenues, three times the 2004 figure, online music services now represent six percent of global music sales, according to the International Federation of the Phonographic Industry.
With legal online music services finding a foothold in the marketplace, this channel has moved beyond just an answer to the recording industry’s fight against piracy, to a critical revenue stream and the fastest growth area in the industry.
The surge in the success of online sites has record labels rethinking how they market music artists. Online music services are providing add-on features such as ringtones, music videos and higher-definition downloads to entice music fans. Online services also provide tremendous efficiency and convenience to the consumer in purchasing the music they want vs. the static choice offered by CDs. The unanswered question is when digital music sales will overtake CDs.
Portable music players were the initial driving force behind the growth of online music downloading, as both segments tripled in sales for 2005. Aside from cherry picking their favorite tracks, consumers are also taking advantage of the preview-before-you-buy feature online music stores offer. This is one of the reasons why online music sites are shaking up traditional music marketing, with record labels flooding major service providers with at least two million tracks and 165,000 albums by the end of 2005.
For years, record companies followed a structured cycle with CD singles leading to the release of the CD album, followed by a DVD video. Now, labels are planning around multiple release windows that often start with the release of a ringtone, or an exclusive digital track several weeks before the CD single is commercially released.
Record labels, such as Universal, Warner Music and Interscope Records, are going even further to take advantage of this new channel, creating digital-only labels and artist-only Websites that offer pre-order exclusives and concert downloads.
Despite the growth of the digital music arena, many industry experts believe it will be quite awhile before music downloading ends the CD-era, a more than two-decade-old run to date. While many in the digital music industry believe the answer to continued growth lies in its ability to build music communities among customers, others believe sound quality is the key to closing the divide.
My company, MusicGiants, has spearheaded the sound-quality-first strategy based on the principle that a solid market exists for music lovers who care deeply about sound quality, particularly when it comes to their home entertainment systems. These consumers are willing to pay a small premium compared to standard music downloads for exponential gains in sound quality. Today’s standard downloads are designed for the mass market of mobile players with earbuds, not quality home audio systems. As a result, there has been a real gap and opportunity in the market for downloading high definition music to the home audio environment. The four major music labels also recognized this gap in joining forces with MusicGiants to provide their complete digital music libraries to the company and its customers.
The ultimate winners in this revolutionary transition of the music industry are consumers in terms of the vast options and choices for portable, car and home audio. They may choose between a physical copy and online music formats, a wide variety of cost structures and service options, as well as a range of sound quality for the music itself.
Scott Bahneman is the CEO of MusicGiants, www.musicgiants.com, the only high definition music download service delivering content from all of the major labels.