The CD is dead, long live the CD

The idea that the CD is about to disappear has been around for some time, which in itself is something of an oxymoron-ical concept. The bottom line is that the CD is here to stay for the foreseeable future. It may be a tired format (for young music fans in particular) but it isnít beyond saving. Labels are already reinvigorating it with added value such as interactive content etc. The argument that CD sales will decline to (letís just say for argumentís sake) two thirds of music sales by 2008 is based upon two debatable assumptions:

∑ physical CD sales will permanently continue to decline sharply
∑ digital music services will have unprecedented uptake over the next 5 years

Firstly CD sales cannot decline by the sort of rate required to be just twice the size of online digital music sales without the music industry dying (as we know it) in the process, unless other physical formats filled the void. Whereas SACD and music DVD will certainly see uptake, they will not rival the CDís hegemony by 2007. Any new format has a long lag time. CDís took years to be adopted. Jupiter expects the music marketís decline to bottom out some time round 2005 and experience modest growth thereafter. The CD will find itself up against other formats and continuing to compete against computer games and DVDs but it will remain the bedrock of recorded music sales.

The same is even more true of digital music services. The (flawed) argument runs that the explosion of illegal file sharing services is evidence that legitimate services will follow suit. This simply wonít happen because the latter require consumers to pay money. It will be a much longer slower process for consumer adoption of paid services.

Legal action and technological action against file sharing networks and individuals will ultimately drive file sharing back towards the margins. In this context legitimate services will begin to grow. However it is not valid to view the i-Tunes example as a crystal ball for the digital music market. I-Tunes users are highly technologically sophisticated, high spending Mac users who will just about buy anything with a Mac label on it. Europeí digital music market will grow more slowly. Jupiter expects digital music revenues to worth just 5 percent of total sales by 2008 and even that could be argued as being a relatively bullish number. Ultimately the digital music market is not going to break all previous rules of consumer adoption, instead it will grow steadily as consumer awareness and receptivity evolves.

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