Digital Music Report 2007 Page 02 Digital Music In 2007 – A Brave New World However, there is correctly a certain amount However, actions against individual ?Digital music expands worldwide of nervousness around. This is sensible; there is uploaders are onerous and expensive and certainly no room for complacency. We are we shouldn’t have to be taking them. That job Consumers Shape The all troubled by the research that suggests the should not be ours – it should be done by the number of new tracks purchased per MP3 gatekeepers of the web, the Internet Service player is low, and yet at the same time digital Providers (ISPs), who unquestionably have Future Of Recorded Music music is hitting new milestones. It has helped the technical means to deal with copyright the singles business to its best year ever, infringement, if only they would take revived genres like classical and is responsibility for doing so. regenerating formats like music video. It is spreading internationally. New markets like At one time you were considered a new China, that have been historically closed media philistine if you wanted to regulate the Digital Market to legitimate business by ruinous levels of internet. But then Google promised the piracy, are offering the prospect “ofMus aic is not only Chinese government that censorship was the most popular “leap to digital”. consumer product possible. Then Google blacklisted BMW in the in the industrialised world. It is a key Overview In 2006 internet world for anti-social behaviour. It 6 driver of the digital The record industry today has evolved into a The chief winners in the rise of digitaleconomy music.” seems policing is acceptable for all sorts of digital thinking, digitally literate business. are consumers. They have effectively been things but not intellectual property! given access to 24-hour music stores and In 2006, we saw internet advertising revenues services with unlimited shelf space. They can With cooperation from ISPs, we could make increaseConsu tomer the stages Shape where the they Futur wille shortly buy or consume music in new ways and huge strides in tackling content piracy overtakefor Rec radioord advertisinged Music revenues. We saw formats – an iTunes download, a video on globally. Disconnection of service for serious Online Services newspaper headlines talking about the four YouTube, a ringtone or a subscription library. infringers should become the speeding fine lap-top home. In 2006, we learned that some To cap it all, Time magazine crowned the or the parking ticket of ISP networks. We need of the online business will be about micro internet user as their person of 2006. government help to make it clear that ISPs Across The World transactions where a million dollars of must face up to their responsibilities and cut revenue can be the result of 57 million We are still in a period of innovation and off copyright infringing users. To be fair, at the transactions! And, most of all, we learned that experimentation. Some believe the end of 2006 the UK government signalled this is a market that is evolving not only on a subscription model won’t work and others that it may be prepared to play a facilitating daily basis but with regular revolution in the believe it is the industry’s brightest hope for role in this and set a deadline of December market to add spice to the evolution. the future. However, the subscription model 2007 for tangible progress. Digital Diversifies Frequent surprises in the market are also cannot be properly tested whilst there are matched by an air of expectation, and in interoperability issues to resolve. What does John Kennedy wish for 2007? He 2007 that has borne fruit with the iPhone, hopes politicians who talk about the Consumer Buying Habits which should herald a shake up of the The market remains a challenge. Other importance of the Knowledge Economy mobile music market. This is a market where industries are struggling with the same come up with actions to match their words. the learning curve changes direction on a problems we have had to live with. The film For an internet lifetime we have heard that regular basis! industry is increasingly suffering from online the Knowledge Economy is the future. With piracy, and the newspaper industry is facing manufacturing economies lost to many The pace of transformation in our industry is a slump in sales triggered at least partly by governments, there is an acknowledgement breathtaking, but at the moment the holy behaviour on the internet. that in the future we are going to be more Music On Mobile grail is evading us. I would like to be reliant on the creative industries for announcing that a fall in CD sales is being As an industry, we enforce our rights employment, tax revenues, overseas compensated for by an equal or greater decisively, and this will continue. In 2006, earnings and general economic growth. Grows In Popularity increase in online and mobile revenues. But we had significant legal victories, led by a The rhetoric is wonderful but is simply not that is not yet happening on a global basis. US$115 million settlement against Kazaa. matched by deeds. Let’s hope that will We were told we could never track down change in 2007. The music industry is still an The digital music business continues to grow. such offenders on the internet. We were told exciting, innovative and vibrant industry, but Trade revenues in 2006 doubled to about they would hide in places where we could there are no easy wins and everyone US$2 billion – around 10 per cent of our sales. not find them! involved knows that in 2007 we must all Emerging Business Models By 2010 we expect at least one quarter of all strive even harder for that holy grail that I music sales worldwide to be digital. We have taken some 30,000 actions referred to earlier. against illegal file-sharers globally and, as Some commentators have expressed the research in this report shows, these To end on a high note however. Doug Morris, concern about the pace of annual growth. actions clearly work. Illegal file-sharing in as CEO of Universal Music, the largest Yet we never claimed it would double every Europe was contained last year against a recording company, has announced that he year and the rate of growth that we are 30 per cent increase in broadband expects 2007 to be Universal’s most seeing today would be considered household penetration. successful financial year ever. That’s an wonderful for many businesses. encouraging signal to send to the gloom merchants and a motivational message for Portable Players Drive his employees and his competitors! Music Demand Page 03 Record Companies Boost Consumer Choice Copyright, Music And The Education Challenge Awareness Grows On Virus And Spyware Risks Containing Piracy Progress Against Pirate Operations Internet Piracy – The Call To ISPs DRM Promotes Consumer Flexibility And Protects Content Digital Music In 2007 – A Brave New World Consumers Shape The Future Of Recorded Music Consumers are changing the ways they discover, access and listen; copyright remains key to the digital music business. Digital Market New digital delivery channels are driving and mastertones remain the main digital music consumption to its highest-ever levels music formats, but other formats, such as Overview In 2006 as consumers demand access to music in mobile downloads, digital albums, music more ways than ever. videos and ringback tones all saw healthy growth. Digital music has empowered the music fan. The popularity of single track buying, the The number of tracks available online growth of mobile music and the rising doubled to reach over four million on Online Services demand for music video on the internet leading services in the last year. exemplify this. The past year has also seen a greatest challenge is the widespread surge in user-generated content on social unauthorised availability of its product for free. There are 498 online music services Across The World networking sites such as MySpace, Bebo and Digital piracy and the devaluation of music available in over 40 countries, offering YouTube – a new way for record companies content is a real threat to the emerging digital consumers a wide variety of choice and to legitimately bring their music to the public if music business. great value. they can successfully control widespread copyright infringement, and a great This report outlines the ways in which the Portable music players are helping opportunity for independent labels to recording industry is responding to the drive digital music consumption. Digital Diversifies showcase their talent. consumer and building a digital business. It Portable player sales totalled around 120 also identifies the problems faced and where million in 2006, an increase of 43 per cent on Digital music is still in an early phase of the music sector needs action by government the previous year (Understanding and development. In 2006 record companies Solutions). Portable player owners are more Consumer Buying Habits and by industry partners to tackle piracy and explored new and different revenue prevent the undermining of its intellectual likely to buy music legally than general streams. Examples of these included property rights. internet users; but the amount of purchased advertising-supported online services and music stored on devices is still low. shared revenues from the sale of portable Highlights Of 2006 digital devices. Record companies are New revenue streams and business continuing to focus on what they do best – models emerge. Social networking Music On Mobile Record companies’ digital music sales discovering, marketing and licensing great are estimated to have nearly doubled sites exploded in popularity while music – using all the digital tools at their in value in 2006, reaching a trade value of advertising-supported models such as disposal to help them compete for a share of approximately US$2 billion.