July 26, 2004 11:37 AM PDT

Study: Song downloads to hit a high note

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RealNetworks breaks Apple's hold on iPod

July 26, 2004
Music downloads could be on an upswing this year.

Sales of digital tunes in 2004 in the United States will reach $270 million, more than double the takings from the previous year, according to a report released by JupiterResearch on Monday.

That revenue will rise to $1.7 billion, or 12 percent of total consumer spending on music, by 2009, the research firm projected.

While healthy sales of digital downloads have brought cheer to the U.S. music industry, which has seen four years of sliding sales for compact discs, the growth in the niche is not enough to make up for the shortfall, JupiterResearch said.

In the short term, downloading will continue to be used by consumers as a way to check out music before buying a CD, the report's authors said. In the longer term, they predict, revenue from digital subscription services will outgrow revenue from digital downloads.

"The so-called celestial jukebox is in sight," David Card, a senior analyst at JupiterResearch, said in a statement. "But for now, it will appeal to music aficionados. The U.S. music industry must manage digital music as one of a series of incremental revenue streams, one that is in the same scale as licensing (like ring tones, games and advertising)."

Shipments of MP3 players in the United States will more than double this year to more than 5 million and will continue to rise at that rate for the next several years, JupiterResearch said. Hard drive-based, low-end devices will drive the growth, as 77 percent of buyers of portable music players surveyed by the research firm said they would want no more than 1,000 songs on a player at any given time.

The digital music market is dominated by Apple Computer's iPod player, which is linked to an online music store, iTunes. On Monday, RealNetworks released software, named Harmony, that enables people to play music from its downloads store on iPods. The move gets around Apple's refusal in the past to provide licenses to companies looking to make their software compatible with Apple's device.

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