Unclassified DSTI/ICCP/IE(2004)12/FINAL
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Unclassified DSTI/ICCP/IE(2004)12/FINAL Organisation de Coopération et de Développement Economiques Organisation for Economic Co-operation and Development 08-Jun-2005 ___________________________________________________________________________________________ _____________ English - Or. English DIRECTORATE FOR SCIENCE, TECHNOLOGY AND INDUSTRY COMMITTEE FOR INFORMATION, COMPUTER AND COMMUNICATIONS POLICY Unclassified DSTI/ICCP/IE(2004)12/FINAL Working Party on the Information Economy Digital Broadband Content: Music English - Or. English JT00185905 Document complet disponible sur OLIS dans son format d'origine Complete document available on OLIS in its original format DSTI/ICCP/IE(2004)12/FINAL FOREWORD This report was presented to the Working Party on the Information Economy in December 2004 and was declassified by the Committee for Information, Computer and Communications Policy in March 2005. The report was prepared by Dr. Sacha Wunsch-Vincent and Dr. Graham Vickery of the OECD's Directorate for Science, Technology and Industry. It is published on the responsibility of the Secretary- General of the OECD. Copyright OECD, 2005. Applications for permission to reproduce or translate all or part of this material should be made to: Head of Publications Service, OECD, 2 rue André-Pascal, 75775 Paris Cedex 16, France 2 DSTI/ICCP/IE(2004)12/FINAL TABLE OF CONTENTS PREFACE........................................................................................................................................................ 6 SUMMARY..................................................................................................................................................... 8 INTRODUCTION ......................................................................................................................................... 14 Objective, scope and plan of study............................................................................................................. 15 MUSIC MARKET INDUSTRY: HISTORY, SIZE AND DIFFERENT MUSIC CARRIERS.................... 17 Role of new music carriers and the advent of digital technology .............................................................. 17 The market for recorded music and its evolution....................................................................................... 21 INDUSTRY STRUCTURE: TRANSFORMING VALUE CHAINS AND CHANGING BUSINESS MODELS ................................................................................................................................... 38 Traditional record industry value chain, business models and players ...................................................... 38 Traditional record industry business model ............................................................................................... 41 New Online Music Industry Value Chain, Business models and Players.................................................. 47 Downloads.................................................................................................................................................. 55 Subscription services.................................................................................................................................. 59 Digital Music Value Chain......................................................................................................................... 60 New Value Chain and relationship to new business models...................................................................... 63 MUSIC AND PEER-TO-PEER NETWORKS ............................................................................................. 75 The rapid rise of file-sharing...................................................................................................................... 75 Nature of files traded.................................................................................................................................. 78 Music sales and file-sharing....................................................................................................................... 78 Actions of the music industry against file-sharing..................................................................................... 80 Commercial uses of file-sharing in the music industry.............................................................................. 80 ONLINE MUSIC, ARTISTS, AND CONSUMERS..................................................................................... 82 The Internet, artists and the diversity of content........................................................................................ 82 Digital music, users and consumption habits ............................................................................................. 85 CHALLENGES AND POLICY CONSIDERATIONS................................................................................. 86 Infrastructure, innovation and technology.................................................................................................. 86 Value chain and business model issues...................................................................................................... 89 Rights negotiations..................................................................................................................................... 89 Protection of Intellectual Property Rights.................................................................................................. 91 National copyright law and the ratification of the WIPO Internet treaties................................................. 91 Government actions that relate to the protection of IPR ............................................................................ 92 Digital Rights Management ....................................................................................................................... 94 Fostering adequate legal frameworks......................................................................................................... 95 Value-added taxes ...................................................................................................................................... 95 Plurality, diversity and government support for the music industry .......................................................... 96 ANNEX 1. WIPO INTERNET TREATIES.................................................................................................. 97 ANNEX 2. LEGAL CASES INVOLVING FILE-SHARING ...................................................................... 98 ANNEX 3. STATISTICAL ANNEX .......................................................................................................... 105 ANNEX 4. EXTRACT OF IFPI DIGITAL MUSIC REPORT................................................................... 111 3 DSTI/ICCP/IE(2004)12/FINAL BIBLIOGRAPHY........................................................................................................................................ 112 Figures and Tables Figure 1: Global music sales by format, in billion units, 1973-2003............................................................ 19 Figure 2: Evolution of Digital Music Formats from 1985 to 2005............................................................... 20 Figure 3: Estimated Comparative Revenues Generated by Foreign Sales/Exports of Recorded Music in the United States, 1997-2002............................................................................................................ 23 Figure 4: Value of Global Music Sales, in billion USD (ARP=average realised price)............................... 23 Figure 5: CD Sales in Units for OECD Countries, 1998-2003 / 1999-2003 growth .................................... 26 Figure 6: Korean CD unit sales and total music sales in KRW .................................................................... 26 Figure 7: US GDP growth versus CD units shipped in the US, 1991-2003 ................................................. 30 Figure 8: Popular wireless Internet content in Korea, 2003 ......................................................................... 37 Figure 9: Traditional physical value chain.................................................................................................... 38 Figure 10: 2003 Total Global & Regional Market Shares of Music Majors ................................................ 40 Figure 11: Music copyright royalties in Japan, 2002 (Royalties collected by JASRAC)............................. 46 Figure 12: New distribution arrangements before digital distribution.......................................................... 46 Figure 13: New online music distribution .................................................................................................... 49 Figure 14: Revenue Model for US digital download (2004) ........................................................................ 58 Figure 15: Online distribution value chain ................................................................................................... 60 Figure 16: Digital music value chain, selected players and vertical integration along the digital value chain. ........................................................................................................................................... 65 Figure 17: Share of portable audio players in Europe, as percentage of total audio equipment, 2002/03.... 70 Figure 18: Growth in global FastTrack and other P2P networks, simultaneous audience, August 2002-September