Research
INDUSTRY OVERVIEW:
The days of the record store might be numbered if these companies have anything to say about it. Internet music distribution services have quickly grown in popularity with music fans around the world and are becoming a significant source of revenue for music companies and artists. Digital music sales topped $1 billion globally in 2005; revenues in 2006 doubled to about $2 billion. The digital music business also includes sales of ringtones and other music formatted for mobile phones, which is quickly becoming as big of a market as other forms of downloaded music. The Internet music landscape is dominated by Apple's iTunes service. Launched in 2003 in tandem with its popular iPod music player, iTunes commands more than 80% of the online music market. Roxio started its own service that same year under the well-known name of Napster, which it later adopted after selling off its original software business. Other companies tapping into this market include MSN, RealNetworks, and Yahoo! The rapid growth of digital music sales has come as welcome news to record companies beleaguered by years of declining CD sales, which has often been attributed to online piracy and illegal file sharing networks. But continued growth of this market could be hampered by legal and technical hurdles. Trade groups representing the music industry and online media companies are scrambling to overhaul arcane provisions in copyright law to allow the efficient licensing of more content for distribution. The two sides, though, have come to loggerheads over appropriate licensing fees and royalties. Additionally, the music industry and Hollywood studios have been pressuring computer and consumer electronics makers to include anti-piracy technology in new devices, a move the manufacturers have resisted. Meanwhile, technology issues have divided the world of digital music into two camps. Currently, the iTunes service and iPod players use a proprietary digital rights management (DRM) system called Fairplay that is incompatible with other portable music players, such as Creative Technology's Zen, Reigncom's iriver, and Sony's Digital Walkman. RealNetworks has attempted to bridge this technological divide with its Harmony DRM translation software, but so far Apple has refused to allow its players to work with the compatibility system. Spurred by Apple's Steve Jobs, music company EMI is selling most of its catalog without DRM protection, the first major music company to do so, but the issue continues to frustrate many consumers. Only a successful integration of digital content, the services that provide it, and the devices that play it will ensure a healthy environment for this new industry to thrive.