Around New York, Los Angeles and Nashville, there must have been groans when execs read the words of analyst Simon Baker of SG Securities in London: "Digital optimism seems to be crashing in on itself." Or maybe they haven't read the Bloomberg article yet.

The article doesn't paint a very rosy picture. Most people just don't buy digital downloads. They rip their own CD collection, it contends, or that of their friends. " In the U.S., annual downloads per iPod dropped from 25 to 15 in the last year, New York-based Fulcrum Global Partners LLC said in an Oct. 17 report."

As for albums, 11.3 million digital albums have been downloaded, out of a total 436.1 million. The numbers don't lie: Not only is the CD not dead, but the digital album has barely arrived. iTunes has been called a savior of the muisc industry yet the 600-plus million songs that have been downloaded since iTunes opened two and a half years ago represents a tiny amount of overall revenues. The industry's digital model has come into focus -- thanks to iTunes -- but there's not yet a pot of gold at the end of this rainbow.

One main problem: How to make money from the casual consumer. (Labels must be looking at subscription models as the way to monetize the mild interest of the typical consumer.) The more serious music fans and the early adopters have been paying for downloads, but others aren't spending much money. Said a New York equities trader who said he downloaded ten songs immediately after purchasing an iPod and then one or so a month since then, "I certainly didn't want the whole album."

Of course, digital optimism -- if there is any -- must include the brighter future for mobile downloads, ringtones and video downloads.

More thoughts after the jump...

Continue reading "Digital Optimism...Or Lack Of" »