Below is an article that was forwarded to me that was printed in Iconocast that came out Wednesday, November the 11th, 1998. Note that the "huge shipment" of Rios by Best Buy. I hope this helps.
I C O N O C A S T b y M i c h a e l T c h o n g
Market Intelligence for Intelligent Marketers
++++++++++++++++++++++++ 11-Nov-98 ++++++++++++++++++++++++
Music Market
************
Summary: The popularity of MP3 has added a completely new dimension to the
online music market, one that will propel online music sales to $1.4 billion
by 2002.
In the year since ICONOCAST last reported on the Internet music market, a
number of significant changes have taken place. Foremost is the emergence of
the MP3 format, an abbreviation for motion picture experts group-1 audio
layer three, which is turning the music industry on its head.
According to the International Federation of Phonographic Industries, some
90 million MP3 tracks are downloaded each month. MP3.com reports that 1.5
million unique users downloaded some 2 million promotional songs in
September.
One thing that hasn't changed, is the foot dragging by the major music
studios. Despite the fact that recorded music sales have flattened (through
the first half of 1998 it was $5.8 billion compared to $5.2 in 1997,
according to the Recording Industry Association of America), the studios and
their peons are fighting progress tooth and nail.
"It's the classic example of the old school trying to take the current
business model and jam it on the Net," complains MP3.com President and CEO
Michael Robertson. They could be fighting a thankless war. [Robin Williams
might label the play-by-play, "Good morning, Vietnam!"]
>From the RIAA's futile lawsuit against Diamond Multimedia
Systems' MP3 player Rio to the organization's influence over artists like
Beastie Boys, the music industry is valiantly trying to maintain control.
But it may already be too late. For $35 users can buy software from
xingtech.com that converts CDs into MP3 files. And with the
release of Rio later this month, the technology for a music revolution may
well be in place.
Forrester Research estimates 10 million people already have software able to
read MP3 files. Even Microsoft's player is capable of reading them. Still,
Jupiter Communications' digitally delivered music forecast is only $30
million, or 2% of total online music sales by 2002. IUMA expects digital
distribution to reach 20% of music revenues by 2007.
While Yahoo! boasts some 42,825 music sites (up 32% from the last time we
looked), Forrester estimates that only 18% of the 1,800 music labels are
online. Independent labels are expected to fill in where the major record
companies are leaving off. Not only will "indies" be selling CDs online, but
they'll also lead the industry in MP3 downloads. Forrester predicts Indies
will generate $1.3 billion in online sales by 2002, up from only $5 million
in 1998.
Other market highlights:
* Market size - Jupiter estimates online revenues for the music industry
will reach $81 million in 1998.
* Market forecast - Online sales are expected to rise to $1.4 billion by
2002 says Jupiter. Forrester projects the Internet will account for 28% of
the overall market by 2002, up from 0.6% in 1997.
* Market players - The most significant change in the online music scene was
the spring arrival of e-commerce sites by Borders and Amazon.com. These
moves are partly responsible for the recent merger between N2K and CDnow,
which, with a combined customer base of 1.2 million, are better equipped to
duke it out with the two big book sellers. Expect the following table to
change dramatically in 1998:
-----------------------------------
------- Online Market Share -------
Site 97 Revenue Share
-----------------------------------
CDnow $16M 33%
N2K 6 12
Cendant 2 4
Other 25 51
Total $49M 100%
------------------------------------
Source: Apr. 1998 Jupiter Communications
According to data compiled by Web21, the leading music fan sites are Sony
(includes more than just music) and MTV:
----------------------------------
------- Top 10 Music Sites -------
Rank Site
----------------------------------
1. Sony
2. MTV Online
3. Spinner.com
4. MP3.com
5. CDnow
6. ShockRave
7. MUSICVIDEOS.COM
8. Broadcast.com
9. Electron Music
10. Creative Zone (Creative Labs)
----------------------------------
Source: Oct. 1998 Web21
It looks like the forces of free content and artist rights are poised for a
fierce Net battle. While ICONOCAST deplores piracy, we believe that all this
negative energy should be channeled into more positive efforts. Last week's
debut at Webnoize of Liquid Audio's Liquid Watermark, which authenticates
musical recordings and other audio-based intellectual property, is a step in
the right direction.
As any marketer will tell you, trial encourages sales. Sources tell
ICONOCAST that Best Buy ordered a "huge shipment" of Rios. If their nose for
hot sellers is any indication, consumers want choice. The industry should
heed that call, because the train is leaving the station.
* Key business opportunity: Marketing outfits that know how to turn sampling
into sales.
Julie Blacklidge contributed to this story.
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