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Appeared on: Tuesday, April 16, 2002
Piracy in spotlight at annual Music sales event

Record executives on Tuesday will gather at a plush London hotel to release annual global music sales figures, but this year music pirates are expected to steal the spot light from the chart-toppers. The event, hosted by International Federation of the Phonographic Industry (IFPI), had been the measuring stick to determine who's hot and who's not in the fickle recording industry.

Lately though, the gathering has taken on a more somber tone as executives decry the amount of business they're losing to rampant CD-copying, or "burning," and Internet file-swapping services such as Kazaa and Morpheus Music City.

The IFPI recently put a value of $4.2 billion on pirated music activities in 2001.

In 2000, the industry was hit by the worst year on record when world sales of recorded music fell five percent to $37 billion.

The misery likely worsened last year and some analysts estimate sales tumbled 10 percent, aggravated by poor sales in the two largest markets, the United States and Japan. But the potential future damage may lie beyond the numbers, industry observers say.


With millions of Internet users downloading all manners of music, from Abba to Eminem, on free rogue services, observers warn that teenagers and twenty-somethings are growing accustomed to seeking pirated versions before venturing into record shops.

"You have an entire generation of people thinking content should be available for free, and that's just not a sustainable long-term business model for the labels," said Hank Forsyth, media analyst at Dresdner Kleinwort Wasserstein.

Major record labels -- Sony Music, Warner Music, EMI Group Plc (news - web sites)., Universal Music and Bertelsmann's BMG -- late last year went on the offensive launching subscription download services of their own.

It is widely held that it will take at least five years for the majors' services MusicNet and Pressplay to make a noticeable sales contribution and, more importantly, derail free rivals.

A second technological defense has stirred up considerably more controversy: copy-proof CDs. Universal and Sony Music are among the first to try out the new technology with the releases, respectively, of "More Fast & Furious -- Soundtrack," and Celine Dion's "A New Day Has Come."

The new technologies, however, have irked some music fans who complain the security measures prevent them from playing the CDs on PCs, portable devices and even car stereo systems.


With sales growth hitting all-time lows, the labels are expected to get tougher on pirates. Over the past year, IFPI has had success shutting down warehouses in eastern Europe and Asia that mass-produce supplies of pirated CDs, often resold on the streets.

And, earlier this month, trade group Recording Industry Association of America (RIAA) collected a $1 million fine from an Arizona company that it said permitted employees to use the corporate computer network to trade thousands of music files.

Analysts forecast that the RIAA and IFPI will next turn their attention to shutting down individual consumers that use the Net to distribute pirated music.

But they had better be careful, warned Jupiter MMXI analyst Mark Mulligan. "The labels are at an absolute low with the new generation of music listeners," he said.

Computer-assisted piracy is not entirely to blame. A sagging global economy and the popularity of entertainment alternatives, notably video games, has eaten into music sales too.

Recorded music sales surged in the early to mid-90s as consumers purchased compact discs to replace scratchy vinyl and cassette collections. The question remains: what new innovation will lift the industry now?

Forsyth, for one, believes the best way for the majors to combat the piracy problem is to find the next big act.

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