Yankee Group Forecasts US Digital Music Revenue to Reach $5.34 Billion by 2012

Yankee Group today announced at the 2008 International CES that
two fundamental shifts are driving the music industry--digitization
and direct-to-consumer transactions. As a result, US recording
industry revenue has plummeted 25% since peaking at $14.6 billion in
1999. By year-end 2006, it had declined to $11 billion.

According to the recently published Yankee Group Research Report,
US Digital Music Forecast: What Fate Awaits the Record Labels?,
digital revenue (online and mobile) is growing, but is insufficient to
offset declining CD sales. Over the course of the next several years,
Yankee Group anticipates that music industry revenue will begin to
stabilize in the US, though at a lower level than previously seen. By
the end of 2007, digital music revenue in the US grew to $1.98
billion, and will reach $5.34 billion by 2012. However, artists will
increasingly keep the lion's share of this revenue as record labels
become marginalized.

"No industry has felt the impact of the Anywhere Consumer(TM) more
strongly than the recording industry," said Michael Goodman, director
of digital entertainment at Yankee Group. "It's not just that the
record labels are facing declining revenue; rather, the basic
relationship between recording artists, record labels and consumers is
in major flux. As bands retain ownership of their music, the record
label's role shrinks while the role of technology vendors and online
music stores grow."

Yankee Group predicts that within the US digital music industry,
online music will grow faster than mobile music downloads and online
single downloads will outpace album downloads or subscriptions.
Despite wireless carriers' best efforts, online distribution will
continue to dominate the category, accounting for 80% of the industry
revenue. Although the addressable market for music phones will have
grown to more than 266 million, only 9% of mobile users will actively
use them as portable music players.
In this Report, Yankee Group also provides important
recommendations for record labels and mobile carriers challenged with
developing consumer connection during this disruptive period,
including:

• Abandon DRM; embrace watermarking: Record labels can't escape
  DRM, but by embracing watermarking, they will make it
  completely transparent to consumers.
• Leverage Anywhere Consumers: Record labels should encourage
  consumers to become legitimate distribution channels
  themselves and enable them to profit from it.
• Promote PC, not the phone: Wireless carriers must aggressively
  push the PC rather than the phone as the digital music
  distribution channel. The PC dominates music downloads.

YANKEE GROUP (www.yankeegroup.com)
The people of Yankee Group are the global connectivity
experts(TM)--the leading source of insight and counsel for builders,
operators and users of connectivity solutions. For nearly 40 years,
Yankee Group has conducted primary research that charts the pace of
technology change and its effect on networks, consumers and
enterprises. Headquartered in Boston, Yankee Group has a global
presence including operations in North America, Europe, the Middle
East, Africa, Latin America and Asia-Pacific.