Report Sees Major Money in Online Audio’s Future

Advertisers and investors should be tuning into Internet audio if they want to get in on the next big online boom, a new study out this month says. According to market research firm Frost & Sullivan, the Internet audio market will grow to more than $100 million (US$) in revenues this year.

Frost & Sullivan’s World Internet Audio Market study, released this week, estimates online audio generated $42 million in revenues in 1998, a year the study calls online audio’s infancy.

This year, more flexible download methods and more widespread availability through numerous Internet sites will make 1998’s figures seem like pennies, the research firm says. In addition, the ability of new artists to gain exposure without a recording contract, by publishing their music over the Internet, will continue to drive Internet audio as the place to hear new music first.

“In 1998, only 22 active participants existed in the world Internet audio industry. In 1999, large multi-national corporations are expected to release Internet audio distribution products. These companies have the marketing and distribution channel resources to make a competitive impact in the Internet audio industry,” Frost & Sullivan says. “Consumers are already showing strong interest both in software that allows them to record and play near-CD quality music on their home PCs and in portable hardware devices that let them take downloaded music with them wherever they go.”

Hurdles to Overcome

That does not mean smaller players are ruled out, but they will need to forge alliances with retailers and other technology companies to remain competitive, the researcher says. With the market for Internet audio products becoming increasingly more competitive, strategic alliances enable players to answer every need and prevent a shopper from looking elsewhere. Companies of all sizes will also have to gain access to higher bandwidth to keep up, Frost & Sullivan said, as computer owners continue to expect more, faster.

Among other hurdles holding back the online audio business: “The proliferation of illegal distribution limits the availability of compelling content, the availability of numerous formats lead(s) to end-user confusion and the high cost of ownership will lead to lower usage,” the researcher says.

Piracy tops Frost & Sullivan’s list for a reason. “In 1998, approximately 75 percent of MP3 Internet sites contained illegally secured content,” the researcher says. “The threat of piracy has made major content providers reluctant to provide popular music for online distribution.” To lure potential customers away from illegal distributors, Frost & Sullivan says legitimate companies will have to develop sites offering superior quality and easier search, selection and download services.

Kudos to Market Developers

Frost & Sullivan also applauded five of the dozens of budding Internet audio companies for helping develop the business. The researcher gave Market Engineering Awards to MusicMatch Inc. for its quality and performance record, RealNetworks, Inc. for creating send-and-receive software for audio and Diamond Multimedia Systems Inc. for aggressively marketing and distributing online audio. MP3.com won an award for providing artists another opportunity to introduce their music to the public, and Liquid Audio Inc. was honored for being the first company to provide tools for music professionals to promote and market their own music over the Internet.

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