Digital Expert Sees Downturn for Downloads ?

Speaking at the opening panel of the Digital Music Forum East in Manhattan yesterday (2/24), Russ Crupnick, an analyst with the research firm, the NPD Group, predicted a grim future for free streaming music sites that enable users to listen to songs any time free of charge.

Presenting data on U.S. music purchases from 2007 to 2009, Crupnick said users at these sites make 13 percent fewer digital download purchases. He went on to explain that users of online radio services like Pandora, which does not allow users to choose songs, but presents music randomly, see a 41 percent increase in download sales. As a result, he explained, the “free music” business model is quickly losing traction at record companies.

“We’re eating our young,” Crupnick said. “For some people more listening just means more listening and tends to lead to less purchasing.”

Overall, the NPD Group’s research shows that 24 million fewer people bought music in 2009 compared to 2007 and that newer digital consumers were quickly losing interest, with the number of people who purchased downloads dropping to 34.6 million in 2009 from 35.2 million in 2008.

Last year, free on-demand sites SpiralFrog and Ruckus closed their doors. Only Pandora has shown a profit. Spotify, the on-demand service that has taken hold in Europe, is planning a U.S. launch this spring, but may have a difficult time getting the labels to go for an on-demand, ad-supported business model.

Edgar Bronfman, Warner Music Group chairman, recently voiced his skepticism about the ad-supported model, saying, “Free streaming services are clearly not net positive for the industry.”

Speaking at the Digital Music Forum, Thomas Hesse, President of Sony Music Entertainment’s Global Digital Business, was more optimistic about Spotify’s chances for success in the U.S., saying he was pleased with the company’s efforts to convert customers from the company’s free service to a subscription model. Hesse predicted a “bright future” for the digital marketplace and recommended a more niche-oriented approach.

“There are markets that are underserved in today’s digital environment,” he said.