The research firm, however, still expects Net music sales to grow to $3.3 billion in 2008 from less than $1 billion in 2003. Jupiter, which released its updated estimates Monday, said it expects Internet sales to account for just over 25 percent of U.S. music spending by 2008.
Sales of CDs over online outlets will remain flat in 2003 at about $750 million, according to the study.
"The industry is suffering from competition for entertainment dollars, changing demographics, the end of the CD upgrade cycle, and piracy," Jupiter analyst Lee Black said in a statement.
Services such as Apple Computer's iTunes and BuyMusic--launched last week by Scott Blum, the founder of Internet retailer Buy.com--have created some new buzz for digital download services by offering songs from major labels and independent recording companies.
However, "while Apple has rekindled interest in digital downloads, total digital sales--downloads and subscriptions--will not surpass $80 million this year," Black said.
Jupiter has repeatedly lowered its online music forecast over the past few years, each time citing an under-performing market and the failure of digital music services to meet consumer expectations. Last year, the research firm projected that the online music market would grow to $5.1 billion in 2007, a downward revision from the $5.5 billion it expected in 2006.
Legal issues are proving to be a stumbling block for online music services. The recording industry last month said it would step up its efforts to crack down on individual file-swappers who illegally trade songs online.
BuyMusic's Blum last week said his goal is to have 1 million downloads a day by the end of the year. In contrast, Apple's iTunes service soared when it was launched in April, selling 5 million songs in the first eight weeks of operation.
The picture for Europe is no better, according to Jupiter Research. "Europe's online music market has been stuck in the starting blocks for the last few years, but the tide is finally beginning to turn," Jupiter Research analyst Mark Mulligan said in a statement, citing EMI Recorded Music's decision to make most of its catalog available online.