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Analyst Perspectives on Digital Music

Separate reports released by Yankee Group and Forrester Research predict that consumer acceptance of paid digital music services depends on such services offering consumers large catalogs of music with the freedom and flexibity to enjoy it in a variety of formats and the ability to burn downloaded music to CDs and move it onto portable devices.

Once such features are allowed, digital music services will generate revenues of over $2 billion by 2007 and account for 17% of total music revenues, according to Forrester Research.

See the Relatable context below regarding Relatable® TRM, the essential solution for copyright compensation for the next generation of digital music services.

According to both reports, consumers will continue to embrace free services like Kazaa and Morpheus until paid services can rival the freedom and flexibility such services enable their users to enjoy. Yankee Group notes that unlicensed file sharing will exceed 7 billion transfers in 2005. The record labels' unwillingness to license adequate amounts of music and allow consumers freer and more flexible use of digital music is driving the popularity of free services. And it's a missed opportunity for the music companies themselves, whose sales are dropping.

Yankee analyst Michael Goodman notes that the record labels' preoccupation with controlling consumers' use of music is undermining their own cause. As quoted in News.com, Goodman says, "In the end, record labels will have to share control of the content with the consumer..." Services allowing only streams and/or heavily restricting song copying have met with criticism and negative consumer reactions.

Both analyst groups' reports prescribe necessary components to a legitimate digital music service that will meet with consumers' demands before they will be willing to pay for such services in substantial numbers.

Here are highlights of the analyst reports and related links:

Forrester Research

Report: Downloads Save the Music Business, released August 2002
Related coverage: News.com, press release

Forrester notes that 31% of consumers download music and burn CDs and 36% of music CD sales are purchased by these same digital music lovers.

The slowdown in the economy explains the recent slump in CD sales, not digital downloading. But record labels can restore sales growth if they embrace a more open model for selling digital music to consumers over the Internet.

In order to subscribe to music services, consumers require a feature set Forrester calls a "Music Bill of Rights" -- something current services fail to offer. It entails availabilty of a wider catalog of music (not just two or three major label catalogs), consumer control of the music to burn to CDs or copy onto MP3 players (ie, open formats required), among other features. Current Pressplay and Musicnet models simply won't entice consumers.

Once music companies match the "Music Bill of Rights" legitimate digital music services will prosper, beginning in 2005, and will generate over $2 billion in revenues and account for 17% of all music sales by 2007.

News.com quotes Forrester's Josh Bernoff: "By fighting music downloads, music companies in the business are biting the hand that feeds them. Instead, companies must enable people to find, copy, and pay for music on their own terms."

Yankee Group

In an August 14, report, Yankee Group predicts, "Unlicensed Music Downloads to Peak in 2005"

According to the Yankee Group, until music companies embrace more open services like consumers are used to through existing P2P systems, transfers of unlicensed music will continue to grow, peaking at 7.44 billion unlicensed transfers in 2005.

Yankee Group's report highlights criteria that legitimate music services will have to meet in order to be successful with consumers. These include availability of content from all labels, and consumers' ability to own music (not just rent copies that "time-out") and burn and transport music to CDs and portable devices unhindered by restrictive DRM schemes that lack interoperability and impose incompatibility.

"Consumers want to share music and will find a way to do so…," according to Yankee Group's Web site. Yankee Group predicts that, until these criteria and related features are incorporated into legitimate music services, consumers will continue to embrace free, unlicensed music content through open P2P systems.

Unlicensed song transfers will begin to decline after 2005, when more open features are offered by legitimate music services that also offer higher quality and better reliability than free systems, as well as some premium content.

Relatable® perspective:

Forrester Research and Yankee Group reports amplify the fact that consumers clearly are not willing to "rent" music that they are only able to use while tethered to their PC. Consumers want to take their music everywhere (from the PC to burned CDs and portable devices), and create their own experience.

In order to provide such freedom and flexibility AND compensate for copyrights, legitimate music services will need to be able to identify music delivered in a wide variety of formats, including ripped and burned music content that may have no reliable identifiers attached or inserted. Relatable® technology identifies any audio file based purely on the acoustical properties in the audio content itself.

Unlike overly restrictive digital rights management (DRM), Relatable® acoustic fingerprint technology, TRM, allows consumers to maintain their current habits and enjoy music in popular formats like MP3, burned CDs and through portable devices. Meanwhile, TRM enables the Music Service Provider to monitor the introduction and transfer of copyrighted music among its member community in any format.

TRM is essential for compensating copyrights while delivering on the Music Bill of Rights consumers demand. With Relatable® technology, music in any format (restricted or open, such as MP3) can be identified and tracked through acoustic fingerprints. TRM is a universal bar code for music and media commerce that is based on the music or audio itself. Learn more about Relatable® TRM software solutions




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