Digital Music Forum: Sony Music chief foresees the endgame for CDs

Over the next three to five years, a lot more people will be giving up their collections of music CDs in favor of music subscriptions and downloads to smartphones, according to speakers at this week's Digital Music Forum in New York City.

As the major force behind the future trend, panelists cited music applications and services ranging from Spotify and Comes with Music to Shazam, Slacker, and a new offering called Thumbplay Music which just entered private beta this week.

Right now, about 5% of music consumers perform 80% of all digital music downloads from the Web, estimated Thomas Hesse, Sony Music Entertainment's President of Global Digital Business, US Sales and Corporate Strategy.

But Hesse predicted a huge switch away from purchases of music CDs in stores and online, to be driven by mass marketing through the expansion of musical download services such as Spotify and Nokia's Comes with Music from Europe to the US.

While 60% of Sony's music business is now made up of CD sales, Hesse saw CDs as accounting for only 20% of the business by 2013. The rest will be made up of musical ringtones, subscriptions, and downloads, either paid for by consumers or supported by ad sponsors.

Hesse also envisioned heavy use by Sony of both personalization and direct sales to consumers of packages that supply "all you ever wanted to know about this artist." He cited the availability of Comes with Music in Scandinavia as having helped to drastically reduce the amount of music piracy, mostly through illegal downloads, in that region.

Comes with Music, a free music service for owners of Nokia phones, was initially set to expand to the US in 2009, but the US launch was then postponed to some time later this year.

Spotify, on the other hand, is a proprietary P2P music streaming service, offered for both desktop platforms and various smartphones, designed to let people listen to music with virtually no buffering delay.

In another session at the music show this week, Aydin Caginalp, a partner in the the Entertainment and Media Group at Manatt, Phelps & Phillips LLP, cited figures from the Gartner Group analyst firm as indicating a surge in music download revenues over the next five years.

Caginalp noted that Shazam's MusicID -- an app that identifies tunes played on a smartphone -- quickly turned into one of the most popular iPhone applications in Apple's App Store. MusicID is also available for Android, BlackBerry, and Windows Mobile phones.

Pete Watson, senior business development manager for Research In Motion, told attendees that his company has started expanding its previously enterprise-centric app development program over the past year in a more consumer-oriented direction which includes new music apps for BlackBerry phones. "We're very excited about how things are going," according to Watson.

Thumbplay Music, an Adobe AIR-based music service that went into private beta on Wednesday, will run on BlackBerrys, iPhones, Android phones, PCs, and Macs, according to Chris Phenner, the company's executive vice president for business development.

For its part, Slacker currently runs its Internet radio service on BlackBerry, Android, and Palm Pre mobile platforms, as well as desktop platforms, but more environments will be announced over the next few weeks, said Jim Rondinelli, Slacker's senior vice president for strategic development.

During the session, there were some panelists who suggested big barriers still exist to widespread replacement of CDs with downloaded music.

Several speakers cited the complex snare of intellectual property rights that makes it virtually impossible to bring together all the tunes that a user may want to download.

But Thumbplay has already managed to pull together about 8 million tunes, at planned subscription pricing of $10 per month, Phenner said. Thumbplay has licensed content from all of the "big four" recording studios -- Sony, EMI, Universal, and Warner -- along with about 20 smaller record labels.

Panelists also acknowledged that, especially in North America, the erratic quality of cellular connections can get in the way of smooth audio streaming. To get past that roadblock, Slacker provides licenses to users for caching tunes, according to Rondinelli. He added that Slacker also works with smartphone makers to optimize Internet radio on each of Slacker's supported platforms. "Each has its strengths," Rondinelli elaborated.