November 19, 2001 - As major music labels flex their legal muscle to eliminate unauthorized online distribution of copyrighted music, a clear and substantial opportunity remains for label-backed and independent fee-based music service providers (MSPs). According to new research from IDC, MSPs will begin to grow steadily in 2003 and reach revenues of $1.6 billion by 2005.
According to IDC, the MSPs best positioned to succeed will need to provide content from most, if not all, music labels at a reasonable price. "There`s a growing population of music enthusiasts that are ready to embrace paid downloads, streaming on demand, and online radio," said Susan Kevorkian, analyst with IDC`s Consumer Devices and Technologies service. "The critical factor, of course, is the content. The MSPs most likely to succeed will offer a wide variety of music (on par with traditional music stores) that can be transferred to MP3 players or burned to recordable discs. If an MSP doesn`t have a strong content offering, it may as well close up shop."
MSPs will depend heavily on copyrighted content from music labels and publishers, whose music licensing practices have recently come under scrutiny by the United States Department of Justice and the U.S. Congress. But whether determined by market forces or dictated by government regulation, an MSP`s access to music licenses will be a key determinant of its ability to offer a service that appeals to consumers, which ultimately translates into its ability to sustain a viable business.
The majority of paid MSPs will have subscription-based business models. MSPs will partner with consumer portals, ISPs, wireless service providers, and retail Web sites, among other third-party, consumer-facing entities for distribution. The major record labels will continue to assert and leverage their dominant position to shape the online music space as it evolves. The persistence of free music services will be a major inhibitor of the market for paid services during the forecast period. IDC`s study Music Service Providers Forecast and Analysis of the U.S. Market for Paid Online Music, 2000-2005 (IDC #25596) provides insight on how the online music space will evolve in light of recent changes. It examines the market factors for growth in online music subscription through 2005.
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