By Mark Little

Global digital music revenues will hit more than $20bn by 2015, driven by strong growth in subscription services, according to the latest forecast* from Ovum.

However, while this is a CAGR of more than 20 per cent from 2010 to 2015, the independent telecoms analyst has found that the music industry is not maximising digital music revenues mainly because of the amount of free music available online.

Digital music will experience what might appear to be healthy growth over the next five years, but there is a danger that this could mask the fact that the industry is not maximising revenue potential.

There is too much free music available in the digital economy and not just the illegal kind. Free Internet radio such as Pandora or Grooveshark, and freemium on-demand music services such as Spotify, are offering free music without maximising advertising or premium subscription revenues for themselves or the industry.

Ovum’s forecast predicts that globally, revenues from music subscription services will grow at a CAGR of more than 60 per cent from 2011 to 2015, as consumers recognise the benefits of being able to access millions of streamed songs for the price of a CD every month rather than owning individual downloads. Subscription growth will also be driven by technology giants Apple and Google, as well as Spotify, which are all expected to launch digital music subscription services this year. Meanwhile, Sony launched Music Unlimited powered by Qriosity in February.

The combined effect of an increased share taken by music subscription services and the large amount of free music available is slowing growth in paid online music downloads, down to just 3% in 2010 in the US – a trend expected to cross the channel before long.

*Digital Music Forecast: 2010–15

About the author and Ovum

Mark Little is analyst at Ovum, a company which provides clients with independent and objective analysis. Ovum’s research draws upon over 400,000 interviews a year with business and technology, telecoms and sourcing decision-makers. Ovum is part of the Datamonitor group.