That’s the prediction from iSuppli (via MocoNews).  To get more granular, they forecast that digital will represent 40% of total revenues (up from 12% in 2006).  And they cite several trends including:

-Mobile: competition with broadband, the fact that music-enabled phones out-sell MP3 players 2:1 already, and the decreased piracy risk of the mobile platform
-Vertical integration of digital music services (think iTunes and Zune).  [Ironically this is occurring while the record industry is horizontally integrating]

While bold, the prediction on its face doesn’t seem far-fetched to me.  But thinking through how this will happen shows us how far there is to go.  Will the incumbents like iTunes drive the lion’s share of the growth?  Will new entrants like Amazon emerge?  There are few players that have achieved any major traction in mobile music, primarily because the user experience isn’t yet there, so the growth curve for mobile will likely be steep.  And there will need to be at least 1 or 2 more generations of software/hardware to get something that is ready for the mass-market. 

Similarly the labels will need to continue to change their organizations to cater to this world.  Licensing for digital stores needs to get even more streamlined than it is.  The labels should also help their licensees obtain publishing rights more easily.  More aggregators may be needed to serve as licensing and fulfillment platforms.  And human resources will need to be deployed differently.  More bodies will be needed for account management for broadband and mobile accounts (and fewer for offline retail accounts).  Ditto for marketing and other functions.  The major labels have a leg up on the indies, which don’t have the resources to invest ahead of revenue, but lots of work is still needed. 

There are lots of hurdles to get to the level predicted in the study.  But the consumer will continue to demand music in digital form, and the industry will follow.

eMusic recently announced that they’re closing in on their 100 millionth download.  The lucky customer will get all sorts of goodies like free eMusic for life and a song by the Barenaked Ladies.  eMusic positions themselves as the Avis of digital music stores — they’re 2nd to iTunes but they try harder.  Try, that is, to offer good value to the user by only offering non-DRM’d tracks with lots of editorial curation.  While I’ve seen eMusic ads and promos here and there, I suspect that their customer acquisition costs are less than others.  I’m guessing they measure this in terms of downloads because I’m sure Rhapsody and Napster have more subscribers, since they actually sell a subscription service to their consumers, which lets them download songs each month. 

At any rate, there is no denying that eMusic has staked out an enviable position in the digital music landscape.  But why haven’t others followed suit?  eMusic has trailblazed with its various label partners to get them to wholesale their content in unprotected format, so it shouldn’t be that hard to convince these same entities to do the same deal for another service.  Then it would be a matter of having the marketing and merchandising expertise to be able to cheaply and profitably acquire and service customers.  Stores could be niche focused — the equivalent of the cool neighborhood indie, dance or jazz record store.  But the closest thing we have to that is BurnLounge, which doesn’t offer the capabilities to the "Moguls" who shell out the dough to buy the kit to open their own store.

Actually what eMusic should do is offer affiliates the ability to build co-branded storefronts on their own sites and get a piece of the action.  Kind of like a franchise model and not dissimilar to the Burnlounge model, although without multi-level marketing aspects to it.  That could be appealing to the SEO types out there that know how to drive traffic via search and are looking for ways to monetize the traffic.  Gotta go download my monthly quota from eMusic before the end-of-month…Happy Thanksgiving!

On the same day that Zune was officially launched, Apple had an announcement of its own — 6 airlines will add iPod support starting in mid 2007 (courtesty of paidcontent.org).  Wonder why it took them so long as it’s such a great fit.  It’s probably because it’s non-trivial to retrofit planes for the devices, especally to have the capability of displaying video on the screen.  From there, it’s not a great leap to have a version of the iTunes store accessible from the plane so that you could buy (or rent?) a movie and watch it during your flight.  Now if only my two most frequently flown airlines, American and JetBlue, would follow suit, I’d be set for those cross-country trips…

Much was made of the deal Microsoft did with Universal Music in which they agreed to pay UMG a portion of the proceeds of each Zune.   Given the timing of the announcement, clearly there was a lot of brinksmanship going on.  In fact the lack of UMG content in the store was noted in some other reviews.  And so MSFT blinked.  Good deal for UMG, less because it will move the needle for them financially — as Paul Resnikoff noted, it will probably amount to a few million dollars for them quarterly — but it allows UMG to set precedent and then go after other hardware manufacturers and others that want to license UMG’s catalogue.  This category could include mobile devices, game consoles and, of course, ipods.

And if you think that’s unlikely, don’t forget that it was Universal that did the first music video licensing deal with a portal that established the precedent of paying a fee for music videos.  They then used this to get license fees from the rest of the industry.  The portal they did the first deal with?  MSN.   

Besides UMG, the other labels stand to benefit from the precedent, either when their deals come up for renewal, or if they have MFN clauses in their contracts with Microsoft.

Sean Ryan writes why it is deals like these that make him glad that he’s no longer working in digital music!