Note to Record Stores: Get Wired

A recent report from Jupiter Communications claims that by the year 2002, fully 55% of the US population and 32% of European households will be browsing the Internet. Not only will this change the way poeple gather information for everything from fish food to concert schedules, it will also profoundly affect the way they shop.

What this means for the high-end audio equipment business is not entirely clear, since few companies embrace any form of distribution not tied to protected territories and hands-on support. There have been some exceptions, with both Audio Advisor and now Carver Corporation going online, but the internet represents a bigger immediate opportunity for record labels both mainstream and audiophile.

Along with books and airline tickets, music sales of records and CDs have been one of the notable web success stories, with CDNow (33% of the online market) and N2K (12%) leading the charge. The total market for web-based CD sales is projected to grow from around $80 million this year to $1.2-1.4 billion by 2002. (Total music sales, online and off, are around $35 billion right now.)

Even with this rosy future for cyber-retailers looming on the horizon, Jupiter warns that sales for music distributed digitally (not as CDs but as downloads) will be a modest $30 million, or 2.2%, of total online music sales by 2002.

However, Jupiter's report still "advises record labels to reverse their traditional aversion to digital distribution and embrace it as a marketing tool, as a means of combating rampant online piracy, as a way to cut out retailers and earn more revenue, and as a less expensive distribution model."

It further states that "MP3 technology, an encoding and compression format that allows fast and easy downloads of recorded music, is already prevalent on the Web and could thwart the labels' opportunity to make money from digital distribution unless they act now. If the labels support development of a new encryption technology that offers superior sound and a faster download time, it could help to mitigate their concerns of piracy by surpassing MP3 as a viable technology."

"Major labels need to relinquish their rigid anti-digital distribution stance and realize that it is an industry inevitability," said Mark Mooradian, group director of Consumer Content Strategies at Jupiter Communications. "The longer major labels hold out, the more ground they will lose to pirated copies of their own music and to independent labels, which are generally eager to roll out digital distribution models."

Jupiter also released data on anticipated sales of online concert tickets---expected to reach $508 million online in 2002 (up from $17.5 million in 1997). This accounts for a full 28.8% of the total concert-ticket market, signaling a marked shift from offline to online sales. Ticket sales for movies, sports, Broadway shows, family events, and theme parks will not see such a significant migration online, Jupiter believes, in part due to the lack of urgency associated with these events as compared to a concert that is likely to sell out.