Prediction: CD sales will increase as music subscription services go mainstream

In February, I wrote that pay-for-download music sites (like MSN Music) and music subscription services would contribute to a significant increases in the amount of music stored on computers: it rose by more than 20% year over year, and free streaming music grew by more than 35%.

Today the San Francisco Chronicle notes that we’ll see Windows Media 11 and MTV’s new Urge music service hit the Internet on Wednesday:

“Microsoft plans to release on Wednesday a test version of Windows Media Player 11 and MTV’s Urge music store. Like iTunes, the Windows Media Player lets users rip music from their CD collection and store it in a library. Without leaving the media player, users can also find and download new songs from the Urge music store.”

As reported, MTV’s new Urge will reportedly also offer a couple of different options for accessing the Urge library: 99 cents to download a song, $9.95 for a monthly subscription and $14.95 for a monthly “to go” subscription that lets you take your music collection with you on your digital audio players and PlaysForSure devices. (PR available here.)

With a reported online library of more than 2 million tracks, I may switch over from Rhapsody, my current favorite. I’ll try both and see what happens.

The PlaysForSure logo ensures that you can load your Windows Media-compatible music player up with subscription music. It sounds like an ad, but I’ve had a greatly improved customer experience with the latest round of devices than those I played with last year. As noted, my current small favorite is the Sandisk Sansa m240, with a gigabyte of storage, USB 2.0, an FM radio and long battery life from a rechargeable AAA battery. (As an aside, I also own stock in Sandisk, a result of my discovery that the majority of our new computer peripherals at home have had the Sandisk logo: SD cards, music players and memory sticks.) The m240 may soon be handed around the family as the m250 is dropping in price.

This has certainly changed how I buy music… if anything, I’m buying more CDs than I did a year ago. The new subscription packages let me legally “try before I buy” and I am buying CDs from artists I would have not easily heard previously. The quality of subscription music is OK for casual listening in the car and while working out, but over my stereo system at home I can hear the difference. IMHO, MSN Music could from the approach that Rhapsody has taken, in staff picks, listing top ten most downloaded artists, and (based on my previous download) the links to new music that the service ‘thinks’ I might like. 

And ‘though my Rhapsody subscription music folder is still smaller than the folder of my ripped CDs (that I own, digitized at a high bit rate), that gap is narrowing. Many subscription tracks are encoded at a lower rate (128 kbps) than I rip at home: 320 kbps for rock and pop, and Windows Media Audio Lossless for classical and bigger works. More on that later.

OK, so here’s my bold prediction: If my experience is any guide, I believe that among certain buyer demographics (Generation X like me and younger Baby Boomers) there will be a greater than proportionate increase in CD unit sales among those who subscribe to online music subscriptions. There may even be increases in CD sales a subscription services increase their sales of other products on their sites, with links to “buy the CD” popping up as people subscribe. (The margins are not as good, but the quality improvement is something that will appeal to many people.)  And this will only get better with the growth in consumer broadband installations, the breadth of PlaysForSure devices and the drop in memory prices. 

But on the flipside*… among Generation Y consumers, I believe that subscription music will become the most prolific and successful avenue for most music (after radio): at $150 a year, and another $50-75 for a compatible music player, it’s cheap enough for parents and working students to afford. Some major music companies may even decide to one day move some artists solely to electronic distribution and release… but not any time soon.

* – for those of you who remember albums and 45s, no definition is needed. For others (like my kids) a ‘flipside’ is the B-side of a vinyl album or 45 single.

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