New York, July 29: Jupiter Research today slashed its forecast for the online music market, citing "lackluster" digital services to date and the industry-wide slump as the sector struggles with piracy.
But industry executives gathered for a Jupiter Plug In conference in New York, while acknowledging that challenges still lay ahead, said online music services were gaining momentum.

Their optimism was based on the introduction of more complete online services and a thawing of relations between technology companies, record labels and artists.

Jupiter, which issues an annual five-year forecast for online music, expects the online market -- including the sale of CDs, downloads and subscription services -- to more than triple to $3.3 billion in 2008 from less than $1 billion in 2003; far below last year's estimate of $5.1 billion in 2007.

Free digital music services such as Kazaa continue to pose a major challenge to the pay services.
"The power of free is very strong," said Warner Music's Chief Information Officer Tsvi Gal at the conference. "A combination of sticks and carrots have to work together."

He said the key to growth would be a combination of litigation and technological advances in protecting digital media files from piracy. Gal added the next big war will be over intellectual property for music, movies and books.

Jupiter said only 17 percent of online adults say they have cut back on file-sharing due to the fear of legal consequences.

The record industry has said it will go after individual users of file-sharing services such as Grokster and Kazaa in its war against piracy. Napster President Michael Bebel said he was standing back and watching what happens on the issue.

"It may make (users) angrier and drive them in a different direction. On the other hand, it's hard to fault the record labels and intellectual property holders," Bebel told Reuters.
A relaunched Napster will hit markets by Christmas. The wildly popular free file-swapping service was brought to its knees in 2001 after losing copyright infringement suits with the world's largest record companies and is now being revived.

Napster is not alone. AOL Time Warner Inc.'s AOL.N America Online, Amazon.com AMZN.O , and smaller contenders such as Musicmatch and Listen.com are also making an aggressive push to woo away users from the free services with more personalized services that, for example, "recommend" music based on users' feedback and past listening patterns.

They are also offering options -- from subscriptions to pay-as-you go, as well as the ability to copy music to other devices, not just personal computers.

"Everyone has been running from one model to another," said Ted Cohen, senior vice president of digital development and distribution of EMI Recorded Music. "These models are going to co-exist."

Despite these inroads and the buzz from Apple Computer Inc.'s AAPL.O iTunes online music service, which launched in April, Jupiter does not expect total online music subscriptions and download sales this year to surpass $80 million.

Among the hurdles in the way is the arduous task of obtaining licensing rights that allow them to do different things with the music, such as share it with others.
"The biggest impediment to this market is the rights issue" with publishers, artists and record companies, Bebel added.

But players on both sides of the table see some progress.

"You are talking about moving mountains and that takes time," said Joshua Matthew Dern, vice president of new media at Atlantic Records. "Now we are getting calls everyday from artists who want their music on iTunes. That's what makes the difference when all the top artists are coming in."

Bureau Report