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Forrester: End of the Music Industry as We Know It

Forrester Research is predicting the end of the music industry as we know it. In a new report, Forrester says that digital music sales will grow at a compound annual rate of 23 percent over the next five years, reaching $4.8 billion by 2012.

Half of all music sales will be digital by 2011, the report projects, but growth in digital music will not be enough to make up for lost CD sales, which Forrester says will fall to $3.8 billion by 2012. To deal with these changes, the music industry will need to redefine what its product is.

Other changes in the industry will include:

• growth of DRM-free music, or unprotected music that works on any digital audio player such as that offered by Amazon MP3, will spread to other sites like iTunes; it will also spread to social networks like Facebook, allowing them to become virtual music stores with members selling music to friends;
• subscription services such as Rhapsody and Napster will grow only modestly over the next five years, reaching $459 million by 2012;
• experiments in ad-supported downloads will be eclipsed by the combination of DRM-free music and on-demand music streaming on sites like imeem.com.

(For additional info and graphs, see the coverage by MarketingCharts.)

“This is the end of the music industry as we know it,” said Forrester Research vp and principal analyst James L. McQuivey. “Media executives eager to stay afloat in this receding tide must clear the path of discovery and purchase, but only hardware and software providers can ultimately make listening to music as easy as turning on the radio.”

The Forrester report is based in part on a survey of more than 5,000 consumers in the U.S. and Canada.