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
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
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
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
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.