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Friday, January 16, 2009
95 Per Cent of Music Downloads Are Unauthorised, IFPI Says

The global music industry is making progress in clamping down on online piracy by evolving radical new ways of selling tunes, but 95 percent of downloads remain illegal, according to IFPI's Digital Music Report 2009.

The music industry has transformed its business models, offering consumers an increasing range of new services. Yet generating value in an environment where 95 per cent of music downloads are illegal and unpaid for is still the biggest challenge for music companies and their commercial partners, according to the International Federation of the Phonographic Industry (IFPI).

The digital music business internationally saw a sixth year of expansion in 2008, growing by an estimated 25 per cent to US$3.7 billion in trade value. Digital platforms now account for around 20 per cent of recorded music sales, up from 15 per cent in 2007. Recorded music is at the forefront of the online and mobile revolution, generating more revenue in percentage terms through digital platforms than the newspaper (4%), magazine (1%) and film industries (4%) combined.

At the same time, a new generation of music subscription services, social networking sites and new licensing channels is emerging. These were led in 2008 by services like Nokia Comes With Music, MySpace Music and a raft of partnerships with Internet Service Providers (ISPs), such as TDC in Denmark, Neuf Cegetel in France, TeliaSonera in Sweden and BSkyB in the UK.

Despite these developments, the music sector is still overshadowed by the huge amount of unlicensed music distributed online. Collating separate studies in 16 countries over a three-year period, IFPI estimates over 40 billion files were illegally file-shared in 2008, giving a piracy rate of around 95 per cent.

Single track downloads, up 24 per cent in 2008 to 1.4 billion units globally, continue to drive the online market, but digital albums are also growing healthily (up 36%). The top-selling digital single of 2008 was Lil Wayne's Lollipop with sales of 9.1 million units - 1.8 million more than the 2007 best selling digital single.

The IFPI report also shows how the digital age is expanding the role of music companies in developing and marketing artists and it outlines the progress being made internationally in getting ISPs to cooperate to curb mass-scale copyright infringement on their networks.

John Kennedy, chairman and chief executive of IFPI, says: "The recorded music industry is reinventing itself and its business models. Music companies have changed their whole approach to doing business, reshaped their operations and responded to the dramatic transformation in the way music is distributed and consumed.

"There is a momentous debate going on about the environment on which our business, and all the people working in it, depends. Governments are beginning to accept that, in the debate over "free content" and engaging ISPs in protecting intellectual property rights, doing nothing is not an option if there is to be a future for commercial digital content."

New business models

New "music access" services, such as Nokia's Comes With Music phone, Sony Ericsson's PlayNow plus and Danish ISP TDC's new music service PLAY, emerged in 2008. TDC reports that "churn", the rate at which customers switch to a competitor, dropped significantly since bundling music with its mobile and broadband services.

Partnerships with broadband providers are likely to become more important in the future. TeliaSonera has launched a bundled music service in six countries; Neuf Cegetel runs a similar service in France and BSkyB has announced plans to launch a bundled broadband and music offering in the UK and Ireland.

Advertising-supported services that are free to consumers are also opening up. One of the highest-profile moves in this area was the launch of MySpace Music in the US in September 2008. Several leading music companies have also signed licensing agreements with YouTube, the global market leader in video streaming.

A-la-carte music downloads continue to grow, with AmazonMP3 joining the European market, broadening consumer choice. An increasing number of stores are licensed to sell DRM-free music tracks. In January 2009, iTunes, the leading download store, announced it was making eight million DRM-free tracks available at flexible pricing points.

Music companies are also increasingly licensing music to third parties. One notable success is the games sector, where music games were responsible for 15 per cent of overall game sales in the US in the first half of 2008 (NPD Group). Guitar Hero and its sequels have sold more than 23 million copies in three years, generating more than US$1 billion in North America alone (PWC).

Despite these changes, the Report highlights the critical problem of online piracy, and in particular the impact it is having on the local music sector in markets such as France and Spain. In France in the first half of 2008, album releases by new artists fell by 16 per cent and local repertoire accounted for 10 per cent of albums, compared to 15 per cent in the first half of 2005. In Spain, just one new local artist featured in the Top 50 albums from January to November 2008 - compared to 10 in 2003.

Progress on ISP cooperation

Cooperation from Internet Service Providers holds the key to this problem - something that is increasingly accepted by governments internationally. In 2008 a tipping point was reached, with governments in France and the UK leading the way in looking to ISPs to help bring piracy on their networks under control. In France a draft Creation and Internet Law sets up a system of "graduated response" by which ISPs will write to persistent copyright abusers to educate and warn them about their actions, as a last resort sanctioning them with loss of internet access for between one and 12 months.

Research suggests the graduated response scheme will be effective. Seven in ten (72%) of UK music consumers would stop illegally downloading if told to do so by their ISP (Entertainment Media Research, 2008). Seven in ten (74%) French consumers agree internet account disconnection is a better approach than fines and criminal sanctions (IPSOS, May 2008)

In July 2008 the UK government brokered a joint 'Memorandum of Understanding' between the recording and film industries and the six largest ISPs, binding the parties to work to achieve a significant reduction in unauthorised file-sharing. At the same time, the government initiated a consultation on legislative options to deal with internet piracy.

The momentum for ISP cooperation extends beyond France and the UK. New Zealand will start requiring ISPs to implement a policy of terminating the accounts of repeat infringers in February. Governments are also involved in discussions of the issue in the US, Italy, Australia, Japan, Hong Kong and South Korea.

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