Hardware positioned to lead boom

Not a minute too soon for the music industry, online sales are poised for a major expansion, fueled by steady growth in iPods and other digital devices.

According to a new forecast by JupiterResearch, online music sales should reach $1.7 billion annually in 2009, and not necessarily to the detriment of physical CD sales.

Jupiter reckons digital music sales will more than double this year to around $270 million. But even the 2009 forecast will account for only 12% of consumer music spending. Nor will it restore sales to their 1999 peak level, Jupiter said.

Company also predicted sales of digital music players such as the iPod will grow by more than 50% this year to well over 5 million units. That growth rate that will continue for the next several years, thanks to the improving availability of smaller, lower-priced gadgets.

“Consumer surveys suggest that 77% of consumers who would purchase a portable music player would want no more than 1,000 songs on a player at any given time, regardless of the size of their music collection,” said Jupiter VP-research director Michael Gartenberg.

As for business models, the real driver over time will be online subscription services that offer unlimited songs for a monthly fee. “The so-called celestial jukebox is in sight,” said Jupiter VP-senior analyst David Card. “But for now, it will appeal to music aficionados.”

That’s bad news for Apple, which is sticking with an a la carte download model for iTunes, and potentially good news for RealNetworks and Napster, which already have $9.95-per-month subscription offerings, as well as Microsoft, which is expected to make subscriptions a key part of its soon-to-launch musicstore on MSN.

EMI recorded music chief Alain Levy is particularly bullish about the prospect that digital music, in all forms, will ultimately expand and reshape the total sales pie. Levy estimates that in the next three to five years, CD sales will comprise 75% of sales, with the balance coming from downloads, online music subscriptions, ringtones and other digital transactions.

News comes as digital media company RealNetworks is looking to expand the online music market by releasing software later this year that will allow songs downloaded from any online store to play on any device.

If successful, Real’s move will allow digital music competitors to take advantage of the success of the iPod, which is compatible only with Apple’s iTunes Music Store.

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