Singing the blues
January 21, 2011
As the music industry comes together at its annual trade fair, it is forced to look at its very survival in the face of increasing digital piracy and shrinking revenues. The sector is searching for new ways to convince people to actually pay for their music.
A report released this week by the International Federation of the Phonographic Industry (IFPI) in London said that 19 out of 20 music tracks downloaded from the Internet were done so illegally, a trend which has severely hit record companies' revenues. The industry has seen its value fall by 31 percent since 2004.
"Illegal downloads means declining revenue for record companies, which translates into less capital to invest in the next generation of talent," said Alex Jacob, an IFPI spokesman, in an interview with Deutsche Welle.
But apart from endangering the cultivation of new acts, the report also said the sales volume of best-selling debut titles has fallen precipitously.
The rampant piracy also threatens large numbers of jobs. The report said a comprehensive study on the impact of piracy on employment published last March projected that more than one million jobs could disappear from the creative industries in Europe by 2015 if piracy is not addressed.
Global recorded music sales fell around nine percent last year, following a seven percent fall in 2009 to around 12.7 billion euros ($17.3 billion).
Digital music now accounts for 29 percent of record companies' global revenue, and while digital sales continue to increase, growth is slowing. Digital revenues were up six percent in 2010, but that follows a 2009 increase of 12 percent and a 25 percent increase in 2008.
New models
At the MIDEM conference, which will run for four days starting Sunday, the hunt for new sources of revenue will be in the spotlight. It is a difficult search, especially in a fragmented environment where the technology is constantly changing.
"Thanks to new technologies, users today can access music when and where they want in a multitude of ways," said Dominique Leguern, MIDEM Director, in an interview with the AFP.
The trade fair, now in its 45th year, is attracting more young executives from smaller digital companies that the industry hopes can offer new payment and licensing models that can discourage illegal downloading.
While the sales of physical CDs continues to plummet, more than 400 legal music services are in operation around the world, which offers a glimmer of hope for the industry.
A lot of attention is being paid to one of those in particular. Spotify is an on-demand streaming service available in Europe since 2008 that offers free ad-supported access to music or two paid premium plans. It has about 750,000 subscribers in Europe.
"That's not a lot, but significant in a market that has always been resistant to market-based music services," said Dan Cryan, a broadband analyst at Screen Digest, in an interview with Deutsche Welle.
"The outlook for physical media is in long-term, terminal decline, and companies have to look at a more diversified revenue stream."
He said other ideas are being floated about bundling music streaming services into mobile phone bills, meaning customers are paying for their music, but the costs are somewhat hidden from them.
"It's about looking at where people have actually begun paying for music, such as iTunes," he added. "They pay for it when it's associated with decent quality of service and convenience."
Getting tougher
For its part, the IFPI also wants governments to do more to crack down on pirates. In its report, it praises anti-piracy steps taken by governments in South Korean and France, saying illegal downloads have dropped in those countries.
The United States has new legislation making its way through Congress and the European Union is reviewing its own enforcement legislation.
But Cryan added that the Internet is very difficult to police and if companies are seen as extremely aggressive in their anti-piracy efforts, they risk alienating their customer base.
They and other creative industries like television and film, not to mention journalism, face the additional challenge of a wide-spread mindset among the young that content online should be free.
Many people who have grown up in the Internet age expect to access whatever content they want with a few mouse clicks without opening their wallets.
"Many have the impression that all creative products should be available free of charge. But to create quality music, TV and film requires investment," said Alex Jacob, the IFPI spokesman. "There's no such thing as a free lunch."
Author: Kyle James
Editor: Cyrus Farivar