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Digital Media Distribution will be Understated

New distribution channels for online music and video are beginning to have a significant impact on the old music and video industry players, reports In-Stat.

Online sales of digital music represented 6 percent of the total worldwide music market in 2006, up from 4 percent in 2005, according to In-Stat's best estimates. By 2011, In-Stat forecasts that online sales of digital music will represent 26 percent of all music purchased worldwide.

I believe that this assessment is misleading, when taken literally, since most market research analysts monitor the share of traditional record labels sales that occur via online channels -- they typically don't include independent recording artist sales that are direct-to-consumer. As a result, analysts tend to understate the online market, because these Indie sales are difficult to aggregate and quantify.

Likewise, analysts that monitor the video industry have a similar tendency to understate the size and growth of the online sales channel. I believe that the problem is compounded by the continued distribution fragmentation within the media and entertainment sectors, and the progressively divergent content interests of consumers. The significance of popular or mainstream content matters less today, than it did in the past. This trend will clearly continue.

"The Internet is now an essential channel for online music distribution; and social networking sites, such as YouTube and MySpace, are beginning to show great potential as new and legitimate channels for digital content consumption," says Stephanie Ethier, In-Stat analyst. "As a result, consumers are demanding access to digital content in more ways than ever."

Recent research by In-Stat found the following:

- In-Stat's latest primary research shows that 74 percent of respondents (primarily North Americans) downloaded music in 2006, up significantly from 48 percent in 2005.

- Digital piracy continues to represent the primary challenge to content owners and online service providers, particularly outside the U.S.

- In-Stat believes that the growth in mobile music will have important implications for the online music market. To clarify, music playback on mobile devices will grow, but that doesn't equate directly to transactions via a mobile service provider's sales channel.

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