New Analysis Predicts Shakeout In Online Music Delivery

A new white paper by industry analysts Point-Topic takes a close look at the outlook for online music services in 2006 and the picture is not entirely pretty:

"2005 was a big year for the online delivery of music. By October 2005, Apple’s iTunes service had sold 600 million tracks worldwide, and Apple had shipped over 30 million iPod music players by the end of the year…the IFPI estimated that downloads accounted for around 6% of total music sales in the first half of 2005."

"…But whilst iPods and MP3 players may be generating significant revenue, it is less clear how profitable many of the online music services are."

"Music publishers and copyright holders (usually record companies) take the great majority proportion of the $0.99 that iTunes charges…That does not leave much for the providers of music sites. Apple will only say that its site operated at ‘above break even’ for the first quarter of its 2006 …Coming from the overwhelming market leader in most territories, this statement shows that online music is not an easy place to make money."

"Although music sites do not have the overheads of a physical music retailer, there are significant running costs…"

"…with these low margins, what does 2006 hold for the online music industry?…online music is a service that people want and will pay for, so the overall outlook is very positive. Even so, some consolidation of sites seems likely, reducing the current high number of online music providers. Other possibilities might include a change in pricing structure, away from ‘one price fits all’…"

See last months CD and download sales figures here and click here to read more of Point-Topic’s analysis.