Digital music will generate just €24 million in Europe in 2003, but will grow into a €1.3 billion market by 2007, accounting for 13 percent of all music sales. This will mostly come from individual downloads rather than subscriptions, according to a new brief by Forrester Research (Nasdaq: FORR). Growth will be fuelled by the emergence of more legitimate services and higher broadband penetration, the tech research firm argues.

“Recent announcements from EMI Group and Apple show that after a slow start, major music and technology companies are now taking the future of digital music seriously,” said Forrester Research Senior Analyst Rebecca Jennings. “While the US market for legitimate music downloads is already off the starting blocks — reaching $15 million in 2002 — the European market has lagged. This is because official services focused on the US only, and European home broadband penetration has been far slower to take off. But over the next few years, digital music delivery will ramp up.”

New, flexible methods of marketing downloads, such as Madonna’s non-rights-protected release of “American Life,” make buying legitimate files a more attractive proposition, Forrester contends. Consumer demand will force labels to expand to the vast European market. Also, broadband users are 123 percent more likely than narrowband users to download MP3 music, even when demographic and other biases are accounted for. As legitimate services proliferate and extend outside the US, paid-for digital music will turn into a significant new revenue stream. In the US, this market will be worth $2 billion in 2007; in Europe, revenues will exceed €1.3 billion in the same year — 13 percent of the total music market. The sale of singles will take off immediately, but over time albums will see the highest growth, with subscriptions bringing up the rear.

“European consumers are already keen buyers of singles — in 2002, Europeans bought around 165 million singles, compared with sales of just 9 million in the US,” Jennings said. “Online consumers will start their downloading routine with singles, as this format enables nervous users to experiment cheaply. As a result, Europeans will spend €554 million by 2007 on single downloads — 42 percent of digital music sales. As consumers become more confident and broadband grows in popularity, downloads of entire albums will take off. Digital album sales will reach €644 million in 2007 — 49 percent of all digital music revenues. Finally, by 2007, around
2 million subscribers will spend €125 million — 10 percent of digital music sales — on online subscriptions.”