Music sales shifting to digital globally

Mobile phone services will gain market share

By PHIL GALLO

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%.