The music download industry is going to grow dramatically over the coming five years. Consumers are going to shift more of their music purchasing to online services as devices change and digital storage becomes more prevalent and CD-use becomes less widespread. We expect download to account for 15% of all music sales in the next five years – huge growth when you think it comes from a base of zero two years ago in the UK music market. Established sales channels such as iTunes and Napster are likely to continue to account for much of the growth, but the high street brands are also likely to account for significant sales volumes. It will also be interesting to see what the mobile players and established online content portals do in the music arena – driving greater mass-market take-up of digital music downloads.
Mobile content is already the biggest digital content market in the UK and is one that is going to see even greater growth in the coming five years. As new wave services such as wirelessly-delivered music files, movie clips and mobile TV are delivered to handsets, the levels of spend are likely to be spurred once again. The challenge will be in creating payment mechanism that means businesses can monetise their content without being entirely beholden to the mobile networks.
Film downloads are the hotly watched sector amongst the big players – with BT, SKY and Google all moving to launch services that offer film downloads of one form or another. However, our report suggests that downloaded films are not likely to be a huge market by 2010. The fear of piracy – which has ravaged the music sector – has limited the roll-out of Internet-based movie download services. However, content owners are increasingly looking to exploit new distribution channels, with improved content protection helping to allay security fears. eBooks are also likely to struggle we believe – although with the right devices to be able to view the books will come on stream shortly. However, competing formats, lack of content and expensive reading devices will combine to limit the potential of the sector.
A few other key findings from “The PayPal Digital Content Report”…
Consumer spending on online music downloads will total £379 million in 2010. The market in the UK was worth £35 million in 2005, but is expected to grow ten-fold in the next five years as legal download sites such as iTunes gain greater traction. The growth in value of legal music downloading will mean that internet music will account for around 15% of all music sales by 2010. The average UK web user will download 25 tracks and spend £15 on Internet music content in 2010 – average per-track prices will come down to around 60p as record companies continue to embrace the Internet and levels of competition between service providers increase. The range of content and the flexibility of packages of music available – as well as new pricing models – are all likely to encourage more people to download more music.
Mobile services including music, movie clips and mobile TV services will create a market for digital content worth £1.14 billion by 2010. The market will grow three-fold from £380 million in 2005 as the rise of 3G mobile will spur consumer spending on mobile services. In 2005, ringtones, realtones and screensavers accounted for around two-thirds of mobile content spend, with games accounting for the majority of remaining revenues. However, full-track music will account for an increasing proportion of content spending – UK consumers will spend over £200 million on mobile music in 2010. Video downloads will also increase in popularity, accounting for around 11% of mobile content spend within the next 4 years.
While music and mobile content will account for 89% of all consumer spending on digital content, film downloads, eBooks and online gaming will be areas where substantial growth will be seen.
Rise of the small screen: the UK online film download market will be worth £109 million by 2010, rising from virtually nothing today. PayPal expects online downloads in the large part to supplement rather than replace traditional means of obtaining film content (DVD purchase, DVD rental and subscription/digital TV). However, it is likely that services such as iTunes film download will create a market for film download and that new players offering streaming “film on demand” will have started to make inroads by 2010.
Game on: UK gamers will spend £67 million online in 2010, which represents 70% growth from today. The market is currently worth £39 million, derived in the main from subscriptions to PC-based online services such as World of Warcraft. However, by 2010 spend on services within games – buying new levels and characters – is likely to increase to around £9 million. Subscriptions for console-based services such as Xbox Live are also likely to rise dramatically.
Read or dead: we will spend £8.9 million on eBooks in 2010 – making it the smallest of the digital content markets in five years’ time. The eBook sector has been extremely slow to take off globally due to the inadequacy of devices for reading eBooks and a lack of compelling content. However, big players getting involved in the market for readers (Sony and Apple are both developing products) is likely to spur the market.