March 3, 2011 at 1:36 pm

Interview: The Analyst Who Claims Revenue from Music Downloads to Phones Will Increase 129 Percent


Despite dire predictions elsewhere, revenue from the sale of music that downloads directly onto the cellphone will grow at a healthy rate over the next four years, according to a recent Juniper Research report, which found that annual mobile music sales bypassing the computer will more-than-double from $2.4 billion in 2010, to $5.5 billion in 2015.

To explore why the firm sees paid music downloads to cellphones increasing so drastically, Evolver.fm spoke with the research analyst behind the report, “Mobile Music Opportunities – Market Size, Strategic Analysis & Forecasts 2011-2015 ($3462 with a free excerpt).

The short story: increasing smartphone capacities, better smartphone designs, cellphone providers’ strict data limits, DRM-free music sales, and subscriptions where the DRM is on-existent or imperceptible will convince music fans that it’s worth paying to download full tracks to their phones.

(The following interview was edited for length and clarity.)

Eliot Van Buskirk, Evolver.fm: Multiple reports have shown that smartphone sales have started to exceed PC sales in the U.S. What do you make of that shift in terms of the music market?

Daniel Ashdown, Juniper Research: What we found with the report is that there is going to be this shift from downloading music on the PC to downloading it via the mobile network. It’s going to be a driving factor behind mobile music.

Evolver.fm: Juniper sees total global revenue from the sale of full-track song downloads on mobile phones increasing $3.1 billion in the next four years, from $2.4 billion in 2010 to $5.5 billion in 2015. What factors contribute to that, or how was that increase derived?

Ashdown: Certainly, one of the trends with that would be a shift, not a significant one, towards subscription services, rather than paying for tracks on an individual basis.

Evolver.fm: So, Spotify, I guess.

Ashdown: Yes. Spotify not just streams music, but — services where you buy access to either downloads or streamed music.

Evolver.fm: A lot of tech journalists in the states (including me) wonder, ‘Well, we’ve had Rhapsody for ten years almost. Is Spotify just Rhapsody’s good-looking Swedish cousin?’ Aside from Spotify’s unlimited trial period, the big difference here is that you used to have to buy these really bizarre, Microsoft-run hardware music players that ran Microsoft DRM in order to bring Rhapsody’s music (or most other subscription music) with you.

But the cellphone kind of is DRM, in that it can easily be tied to your identity. And technologically, it’s a lot easier for a music app to get permission to play something than a non-connected device that’s pretending to be connected by checking your media licenses once a month.

Do you see the phone being something that will break from past behavior? Subscription services have actually been losing subscribers here, so how will Spotify and other subscriptions increase them? Is the phone different enough from past platforms to make that happen?

Ashdown: DRM has to recede. It’s not a foolproof system, and a lot of music providers now are finding that it’s just too much of a constraint for consumers. One of the key things with mobile music is it needs to be easier to consume the music and pay for the music than it is to pirate it. Piracy makes it so easy — you go on a site, you download it, and you’ve got it. Mobile and digital music services need to be a simple, one-click purchase, and you can transfer it to other devices without constraint, and that’s really important.

Evolver.fm: I don’t think DRM as we have traditionally thought of it is necessary anymore in many cases because you’re within an app.

Ashdown: My study has to do with full track sales rather than buying the apps themselves.

Evolver.fm: Yes, but I’ve used Rhapsody’s app, MOG’s app, and Spotify’s app, and iTunes on a mobile might be considered an app, just not one that the user installs — it’s right there with the same sort of button as the other apps. Regardless, this does seem like a major rearrangement of the market, mobile sales increasing as much as you think they will. Who are the winners in this scenario?

Ashdown: I don’t think the labels are doing badly from it, but I wouldn’t say that they’re necessarily the winners. I think the winners are going to be the service providers, like Spotify and iTunes. They’re going to be benefiting the most, but it’s difficult to see past that.

Evolver.fm: I hate to use this finance terminology, but what is a music fan with a smartphone “worth” — not as a person, but in terms of how much they will spend on music?

Ashdown: In some sense, you could put that together with the data from the report, but we don’t like to disclose data from the report, and limit what we talk about publicly to what’s in the White Paper or the press release.

Evolver.fm: Then can you sum up this report on a more general level?

Ashdown: If you look at the music industry in general over the last decade, the total revenue of the music industry is declining. Digital music as a portion of that is increasing, but it’s not offsetting the decline in the music industry’s total revenue. Mobile is becoming an increasing part of this, and we think it’s going to be a very important one for a number of reasons.

You talked about what a music fan with a smatrphone is worth. With the right smartphones, considering the usability of them, it’s a real driving factor. And if you look at the capacity on a smartphone nowadays, most of the top-grade smartphones are around 32GB of storage, which is more than enough for most people’s music collections.

In music terms, even though smartphones don’t have as much memory as some hard drive-based MP3 players, they are now more than capable of working the way iPods used to, and the mobile device is with you all the time because it’s an all-in-one device, unlike an MP3 player.

Evolver.fm: It’s interesting, what you’re saying about the capacity of smartphones these days vs. the larger capacities of older MP3 players. I used to review MP3 players for CNET, and since then, I’ve been figuring that with this switch to flash memory and all-in-one functionality of the handheld device, it’s all going to streaming. But you bring up a good point, that the capacities are getting big enough now to accommodate the way most of the mainstream listens to digital music, which is by storing it on their portable device.

Then, of course, there are the mobile data limits. I calculated that using MOG’s highest-quality files, you can only stream about an hour per day using their mobile app — and that’s if you use your phone’s data connection for nothing else that month. What about the over-the-air downloads you’re talking about? How will data limits affect those?

Ashdown: Actually, with downloading, users are less likely to hit that bandwidth limit [paraphrased].

Evolver.fm: Good point. If you’re streaming something, you might stream your new favorite song 10 times in a month. If you download it, you only use that bandwidth once. So these relatively new data limits could actually encourage people to store music on their phones, rather than streaming it over and over. Thanks for your time.