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Online music sales to hit $5 bil by 2005, study sez

Overall spending expected to double

Internet music sales are expected to top $5.2 billion in 2005, fueled by sales from record labels and the ease of ordering CDs and downloading tunes over the Internet, research outfit Music Business Intl. reported Tuesday.

Online music sales hit $170 million last year, according to the study, while ‘Net research outfit Jupiter Communications said Tuesday that overall U.S. retail spending online will almost double this Christmas to $5 billion from $2.6 billion a year ago.

Despite the sales growth, however, analysts agree traditional brick and mortar stores are still expected to prosper with most shoppers making purchases in person instead of virtually. Music record labels are also expected to continue conducting business as usual.

Earlier this month at Internet music confab Webnoize 99, Jay Samit, senior veep of new media for EMI said that in the Internet age, record companies will still help retailers sell their products.

“The Internet is not a threat to the music industry,” he said, and physical goods will still represent 85% to 90% of music sales.

Web to snare 10% share

The study said that Internet sales will represent one-tenth of the total $46 billion music market in 2005, with downloaded music pegged to be worth $635 million alone. Digital downloaded music will rep 16% of total music sales in the U.S. in 2005, 8% in Japan. The U.K. will lead the way in Europe, followed by Germany and France.

Artists such as David Bowie and George Michael and rap group Public Enemy have already endorsed the use of MP3 technologies to provide downloadable music to consumers.

An estimated 3 million CD-quality tracks are already downloaded each day, most of them for free; in response, music companies have teamed up to figure out how best to protect their copyrights and royalties.

“It’s turned the industry upside down,” said Simon Dyson, a music market analyst at Market Tracking Intl., which produced the report for MBI. “Piracy is ahead of the industry instead of the other way around.”

According to the report, more than 350 million people will be online by 2003, with many expected to be downloading music files.

E-shoppers skyrocket

By the end of this year, 28.8 million people will be shopping online — 10 million more than at the end of 1998, according to the Jupiter study.

“Companies are showing indecision and uncertainty about music distribution on the Internet,” said Helen Snell, a music industry analyst at ABN Amro. “One day everybody will download their music, but it’s still a long way off.”

What’s still uncertain is which format will ultimately become the dominant means of listening to music online.

“It’s difficult to say on which devices the music is going to play,” Dyson said. “The growth is dependent on hardware and broadband access that will make digital downloads possible.”

In 1998 the total value of the global music industry was $38.5 billion — an increase of 4% on the previous year, the report said, predicting that growth is likely to continue at a rate of about 2%-3% a year.

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