Market research firm Ovum expects global digital music revenue to grow 20% per year and total $20 billion in 2015, according to a post at The Telegraph.
This is just the latest estimate based on incredible optimism about subscription service growth in the next few years. Should you ignore it?
Consider the odds that digital music will grow at a 20% annual compound growth rate over the next five years. If recent trends are any indication, the odds are slim.
According to the IFPI's statistics, global digital revenue grew 34% in 2007, 37% in 2008 and 9% in 2009. Since download growth is modest at best and subscription services have not taken off, digital growth in 2010 is likely to be under 10% as well. As digital products and services mature, growth will slow.
What does Ovum expect to kick revenues up to 20% growth in the coming years? Subscription services. Why are subscription services going to suddenly blow up? As The Telegraph phrased Ovum's press release, "consumers [will] recognize the benefits of being able to access millions of streamed songs for the price of a CD every month rather than owning individual downloads."
Note that Rdio CEO Drew Larner gave a very similar sentiment to the L.A. Times. "Subscription music services will still take some time for people understand why it is the future."
So the problem is not the product, the problem is the consumer doesn't yet recognize the value in the product? It seems like that's been said before -- for about the last 10 years -- about subscription services.
At least Ovum recognizes that subscription services have a lot of issues that need to be worked out. Here's Ovum's analyst as quoted by New Media Age:
"There is too much free music available in the digital economy and not just the illegal kind. Free Internet radio such as Pandora or Grooveshark, and freemium on-demand music services such as Spotify, are offering free music without maximizing advertising or premium subscription revenues for themselves or the industry."
Those are some serious issues that need to be solved in short order for this 20% annual growth to kick in. But there are some problems with the underlying logic. At non-interactive rates, maximizing the advertising potential of free services won't bring 20% annual digital growth. And if subscriptions take off, they are likely to eat into download revenue.
The wild cards here are Apple and Google. If launched, their subscription services could be game changers. Of course, an Apple subscription service may sharply reduce download revenue, thus requiring an even more superhuman growth rate from subscription services to reach $20 billion in five years.