Research firm iSuppli released predictions for the global digital music market last week. The growth of mobile and broadband music services, it believes, will push the worldwide market for digital music to $14.9 billion in 2010 from $2.7 billion in 2005. It sees the physical market dropping to $19.6 billion in 2010 from $27.3 billion

The IFPI estimates "digital music will make up around a quarter of music sales by 2010" (2006 Global Recording Industry In Numbers).

Coolfer believes the IFPI has the more accurate digital estimate. There are a number of reasons to believe 40% is too optimistic:

• At the LBS London Media Summit 2006, EMI's Alain Levy said digital revenues should account for about 25% of the company's total revenue by 2010. The other majors should expect about the same. Indies may see even higher growth but currently they account for only about 20% of the global market.
• Music companies are still committed to the CD as ever because they are depedent upon the CD. Labels are dropping prices, adding content and improving packaging. All things being equal, major labels would prefer to sell music online. But all things are not equal. The majors' physical distribution systems gives them far better competitive advantages than do their digital distribution systems.
• Retail is not giving up on the CD. Brick-and-mortar retailers have not -- and probably will not in the next year or two -- figured out a way to sell digital music. They will protect their CD market shares. (This protectionist impulse has been seen with movies. Wal-Mart and Target have sought concessions from iTunes and threatened movie studios.)
• The vast majority of mobile growth would have to come from Western countries since many Asian countries are far more mature. While handset technology has greatly improved in the last year, subscription services have not taken root and download sales are slight.
• iSuppli acknowledges that vertical systems (closed ecosystems with proprietary DRM, a la iTunes/iPod) will be more plentiful in the future. That implies a continued demand for DRM-free CDs that give consumers flexibility and greater value.
• Satellite radio is growing faster than online subscription services are growing.
• Outside of revenue-sharing deals with YouTube, none of the new business models (ad-supported P2P, for example) show much promise. To reach 40% in four years, something new must click with consumers.
• Digital's flat pricing makes catalog CDs a far better value than their digital counterparts. Variable pricing would spur growth of catalog albums, which makes up 51% of all album sales. In addition, download stores do not offer as effective means for marketing catalog as do brick-and-mortar stores.

iSuppli should expect a slower rate of growth. Lowered expectations are proper when dealing with huge and important shifts in the recorded music market. Five years ago, many thought the global digital market would be far bigger than it is today. Analysts tend to overestimate the speed at which music companies change their mindsets, improve their infrastructures and adopt new models. They also overestimate the speed at which consumers adopt new purchasing habits.

There are handfuls of variables that must line up perfectly to meet most predictions. Such estimates are closer to best case scenarios than most likely scenarios. A digital market share of 25% might not please the digerati, but it's a better estimate.