Digital Music Growth Levels Off

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Americans love buying digital music, but growth rates related to other digital music activities are leveling off, according to new research from Forrester.

Despite the best marketing efforts of companies like MySpace and Pandora, mainstream Americans still haven't taken to streaming music services, according to a survey of some 4,600 Americans, along with 13,000 Europeans.

For its part, Pandora says that about 65,000 new members sign up for the service every day.

Yet, only 18% of U.S. online adults -- approximately 40 million consumers -- listen to free streaming music online on a regular basis, a percentage that has remained fairly constant over the past few years. Meanwhile, only 3% of U.S. consumers have downloaded a music app for their phone.

"Bottom line," Forrester concludes: "Digital music revenue has not yet made up for the decline in CD sales."

The report is especially timely in the wake of Apple's acquisition of La La Media for a reported $85 million. Lala.com's key differentiator from iTunes -- the clear leader in music ecommerce -- is that it lets users buy and listen to music through a Web browser without having to download a single bit of information.

Apple is now considering an extensive overhaul of the way it sells and stores music, with an increased focus on Internet-based content. In particular, the move could affect Spotify, an online streaming service popular in the UK, which is now trying to expand its operations stateside.

Google recently launched its own music search feature that incorporates streaming audio previews when users search for artists, albums, or songs, and includes a music discovery component from services like Pandora, Rhapsody, and Imeem.

To date, Google has been widely criticized by music labels and online music stores for at least seeming indifferent to the legality of a given music file. In response, the new music search does not scrub unlicensed sites from search results in an effort to steer people to sites that compensate copyright holders.

Seeking supplementary revenue streams, Universal Music Group and Sony just launched a music video site named Vevo, and powered by YouTube. The video hub, and its companion channel on YouTube, also feature content from EMI Music Group. Warner Music Group -- the only major labels not on board with Vevo -- has its own deal with Google's YouTube.

In September, Forrester Research music analyst Mark Mulligan called for a radical overhaul of the music industry, beginning with a product manifesto of consumer rights.

"Future music products will need to adopt a platform-agnostic worldview that encompasses powerful and social interactivity to empower consumers to create their own unique experiences," Mulligan wrote in the report. "In the post-media-meltdown world, product innovation will trump programming and marketing as media companies' most valuable asset -- and the music industry is no exception."

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