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Appeared on: Monday, January 23, 2006
EMI Sees Internet Reviving Music Industry

Nobody said it was easy for EMI, the world's third-largest record company and the home of British band Coldplay, as the music industry has weathered six straight years of falling sales.

EMI's Chairman Eric Nicoli and others in the industry are seeing signs of hope coming from the very source of many of the industry's woes -- the Internet.

Downloaded music sales on online services such as Apple's iTunes Music Store are surging, and made up 6 percent of industry revenues in 2005. Nicoli said digital revenues are now expected to offset flagging CD sales within a few years.

"We've seen a tripling in the last year and we've hardly gotten started," he said this weekend in an interview with Reuters at the music industry's annual conference in Cannes, where he also delivered the keynote address.

Digital music sales topped the $1 billion mark last year, according to the International Federation of the Phonographic Industry, compared with $380 million in 2004.

"We've moved on from the days when the main impact of digital technology was to harm our industry by facilitating rampant online and physical theft," he said. "The day is surely within our sights when digital growth outstrips physical decline and we can all compete for share of a growing pie."

Digital music is expected to make up 25 percent of EMI's and the industry's revenues by 2010.

"Our belief is that the (total) market will be bigger in 2010 than it is today -- and potentially much bigger," Nicoli said.

But even if growth returns, the industry's rules have changed irrevocably.

Industry analysts expect sales of albums -- a format whose popularity is commonly credited to the success of the Beatles 40-odd years ago -- to fade now that consumers can buy individual songs online and thus avoid the scenario of a few good songs padded by mediocre filler.

Nicoli, citing the success of Coldplay's third album, disagrees that the format is on the wane, but he admitted that the "unbundling" of music is here to stay.

"The pessimists will say that's a problem, but our research suggest that the net effect of unbundling is a positive," he said.

He acknowledged that in a complex and rapidly changing sector, predictions and projections are an inexact science.

"We thought subscriptions (services such as Napster and Rhapsody that offer unlimited music for a monthly fee) would be huge -- it hasn't been," he said.

Mobile music, apart from phone ringtunes, has also developed more slowly than many had hoped.

"We're at year zero -- if that -- with mobile," Nicoli said.

Nicoli refused to be drawn on persistent speculation that EMI would eventually merge with its smaller rival Warner Music, a deal that was blocked by European regulators in 2000 when Warner Music was still a part of media conglomerate Time Warner.

Since then, Sony and BMG have merged, leading many analysts to suggest that EMI and Warner would have to follow suit to stay competitive.

Asked if there would still be four major music companies in a year's time, Nicoli said: "Yes. Or no."


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