With CD sales plummeting, the online music business model pioneered by Apple¿s iTunes quickly maturing, and consumer piracy of music showing no sign of abating, a new Forrester Research, Inc. (Nasdaq: FORR) report lays out a new paradigm for the future of the European music industry. This evolving business model will increasingly rely on consumers having greater access to free music and record companies having to rely on digital licensing revenue in addition to the direct purchase of music. By 2013 digital music spending will account for the majority (57 percent) of the recorded music market, with digital licensing generating an additional ¿ 1.2 billion.

¿The music industry is moving away from the distribution paradigm to the consumption era,¿ said Forrester Research Vice President and Research Director Mark Mulligan. ¿The core principles of the old music industry, such as units shipped and album sales revenues mean less in the on-demand digital world. The 21st century music industry is a more complex and sophisticated world that demands monetizing consumption. Digital licensing revenue will be a cornerstone of the new businesses models that do that.¿

Forrester¿s six year forecast is based in part on a survey of more than 4,200 European online consumers in France, Germany, Italy, Spain, Sweden, and the UK. Among the findings:

  • The only way to beat free is with free. Online piracy remains a massive problem. Among Europeans ages 16-19, file sharing is nearly four times more widespread than paid downloading.
  • Social music will mature into a central tenet of the digital landscape. Lead by expected offerings such as MySpace.com Music, Europe¿s social music audience will more than double from 32 million in 2007 to 78 million in 2014.
  • Subsidized services are the path to the masses. While young consumers flock to social networking sites for their music, mass audiences will consume free music via subsidized offerings, where a company ¿ typically a telecommunications firm or consumer electronics manufacturer ¿ will absorb most or all of the cost to the consumer. Nokia¿s Comes With Music (CWM) is an early experiment in subsidized services.

¿The music industry is not dying, but the way in which it does business is changing irrevocably,¿ said Mulligan. ¿Every industry stakeholder ¿ the record companies, consumer electronics manufacturers, telcos, ISPs, and retailers ¿ must get out of their comfort zone and change their strategy in order to grab a piece of a smaller, yet more complex European music industry.¿

¿How Digital Licensing Will Help Save The Music Industry¿ includes a six-year forecast for European music revenues and digital music licensing revenues. The report is currently available to Forrester JupiterView¿ clients and can also be purchased directly at: http://www.forrester.com/go?docid=48261.