Mobile phone services will gain market share

In three years, digital distribution of music will surpass physical distribution globally as mobile phone services become a bigger part of the music-selling formula.

The annual Global Entertainment and Media Outlook report being issued today by PricewaterhouseCoopers predicts that Asia Pacific will make the switch to digital first — in 2009 — with the U.S. following a year later. Report predicts that digital sales in the U.S. will hit $6.6 billion in 2011, up 28.7% from last year.

Canada will be one of the fastest growing digital marketplaces rising 36% between 2006 and 2011. Physical distribution, however, will continue to top digital through 2011.

The report predicts that global spending on music will hit $40.4 billion in 2011, up nearly 12% or a 2.3% compounded annual increase from the $36.1 billion that was spent in 2006. Asia Pacific and Latin America will be the fastest growing regions, two areas where digital sales already have significant marketshare, 31% and 28% respectively.

Spending in the U.S. will be dropping about 0.4% a year for the next five years, reaching an expected $11.3 billion in 2011, down from the $11.5 billion spent in 2006. Report predicts that sales will drop again this year, to $10.48 billion, and next, to $10.43 billion, but will start to recover in 2009.

Migration to digital distribution is listed as the primary cause of the decline. The effect will be felt significantly at retail. Last year’s $9.65 billion marketplace for CDs and LPs will be reduced to $4.5 billion in 2011. Conversely, digital will rise to $6.56 billion in 2011 from $1.86 billion last year.

Album downloads, in the U.S. in 2011, will hit 135 million units while 2 billion single tracks will be purchased on the Internet that year, the report noted. That’s a 37.9% increase for albums and a 32.8% increase for singles from 2006. Musicvideo spending will also rise significantly — 57% is the estimate — to $191 million in 2011.

Driving the digital marketplace will be new mobile services, attractive pricing, enhanced interoperability and record-store closings. Ringtunes, for example, are expected to bring in $1.58 billion in 2011, nearly double the $800 million predicted for this year. Ringtones, meanwhile, will practically disappear.

PWC projected that, by 2011, 25% of U.S. wireless telephone subscribers will purchase music for their phones. In 2005, the number was 6% and last year, 11%.

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