Forecast: U.S. Digital Recorded Music Sales to Top Physical Sales This Year

Black Eyed Peas Billboard Music Awards 2011
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LAS VEGAS, NV - MAY 22:  (L-R) Singers, Stacy "Fergie" Ferguson, and Taboo of the Black Eyed Peas accept the Top Duo or Group award during the 2011 Billboard Music Awards at the MGM Grand Garden Arena May 22, 2011 in Las Vegas, Nevada. 

Strategy Analytics predicts that globally, digital will overtake physical sales in 2015.

LONDON - Global digital music revenue will rise 17.8 percent this year to cross the £5 billion ($7.8 billion) milestone, according to a new forecast. 

Strategy Analytics’ latest "Global Recorded Music Forecast" predicts that digital music sales in the U.S. will for the first time exceed physical sales for the year 2012. On a global basis, this will happen only in 2015. 

"Some countries, such as the U.S., Sweden and South Korea, are making the transition to digital taking the lions’ share of spending at a much faster rate," the research firm said. The U.K. and other markets will only turn the corner in 2015.

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The latest forecast comes after Universal Music Group late last year said U.S. recorded music trends were nearing a turning point

Globally, digital music, meaning online and mobile, spending will increase by $1.3 billion to $8.6 billion this year, while physical sales will decrease 12.1 percent ($1.9 billion).

This means that digital music will increase its share of global recorded music spending to 39 percent for all of 2012. The main growth driver here will be online streaming, which Strategy Analytics forecasts will grow 40 percent this year to $1.1 billion - almost five times the rate of download revenue, which will increase 8.5 percent to $3.9 billion. Mobile revenue will jump 23 percent, the firm projects. 

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"Although downloads still account for nearly 80 percent of online music revenues, this market is maturing and spending is flattening in all key territories," said Ed Barton, Strategy Analytics’ director of digital media. "Streaming music services, such as Spotify and Deezer, will be the key growth drivers over the next five years as usage and spending grow rapidly."

After all, "people are increasingly valuing accessibility and availability over actual ownership of digital music, which, in turn, drives growth in streaming services which routinely offer instant access to over 10 million tracks," he explained. "Additionally, the emergence of cloud storage of a subscriber’s existing music library for seamless streaming to a range of connectable devices improves the value proposition further."

In the U.S., spending on digital music will increase by $438 million to about $3.4 billion this year, with mobile jumping 39 percent and online spending rising 10 percent. Physical sales will drop 9 percent, or $304 million, to about $3.07 billion.

Total U.S. recorded music spending will therefore end up $134 million higher, a gain of 2.1 percent to about $6.45 billion. “Having stabilized long-term revenue declines resulting from the downsizing of packaged music spending, the industry will be hoping that digital can rebuild the U.S. music market to something approaching its former stature," Barton said.


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He told THR that the availability of legitimate sources of music consumption, higher broadband penetration and the popularity of tech devices all boost digital music in the U.S.

"Educating consumers is also important," he said. "In the U.S., that started off with iTunes, and we are starting to see that again with the emergence of subscription services led by poster child Spotify."

Meanwhile, total U.K. recorded music spending will fall 16.1 percent this year, compared to a 2.6 percent global decline, according to Strategy Analytics.

"U.K. physical sales are decreasing sharply in 2012 - well over double the global rate - with spending expected to decline by 30 percent," it said.


Twitter: @georgszalai