DIGITAL MUSIC REPORT 2005 PAGE 02
CONTENTS
03 INTRODUCTION 04 THE LEGITIMATE DIGITAL MARKET TAKES OFF
04 Global brands emerge 06 Sales and subscriptions 06 Building catalogue 07 The business models 07 Growth outside Europe and the US
08 THE MOBILE MUSIC MARKET
08 Asia leads the way 08 3G launched in Europe 09 US mobile market emerging 09 The future of mobile music
10 WHAT DRIVES DIGITAL MUSIC?
10 Record company initiatives 12 The broadband and mobile stimulus 12 Multi-territory licences for online streaming services 13 Portable music boosts demand 14 Consumer awareness and uptake improves 15 Flexible listening 16 Key online service profiles
18 THE INDUSTRY TAKES ON DIGITAL PIRACY
18 What is internet piracy? 18 Illegal file-sharing and its impact 19 The industry’s response 22 Why fight the battle? PAGE 03
“The biggest challenge for the digital music business has always been to make music easier to buy than to steal. That ambition is turning into reality.”
INTRODUCTION
Digital music is moving into the mainstream of consumer life
The digital download market online music, we have to protect interoperability between services is growing geometrically – it as well. Today’s legitimate digital and devices. The danger is of in 2004 downloaded tracks music market is evolving in such wide-scale consumer confusion rose more than ten-fold to over an extraordinarily adverse climate and wasted opportunities in a 200 million in the US, UK and that it is almost a miracle that it market which has extraordinary Germany combined has been able to grow at all. What growth potential. There is no easy other business has had to break solution, but all players in the Record companies have into a 100% pirate market? online market need to work harder seen their first year of to solve this problem in 2005. John Kennedy, Chairman & CEO, IFPI significant revenues from Anti-piracy enforcement is a digital sales – from practically critical part of the recording If 2004 was the year record The biggest challenge for the zero to several hundred million industry’s digital strategy. And it companies digitised and made digital music business has always dollars. Jupiter thinks this will has proved an effective one too. available their repertoire in bulk, been to make music easier to double in 2005 By sending the simple message then in 2005 our industry priority buy than to steal. At the start of Digital sales could rise to as that unauthorised file-sharing is is simply this: we must market, 2005, as the legitimate digital much as 25% of total sales illegal and could lead to significant promote and sell music, for music business moves from a in five years, according to financial or even criminal penalties, download, hire, subscription, niche market into the mainstream some record companies and we are helping to create the wherever and whenever we can. of consumer life, that ambition third party analysts breathing space the legitimate Record companies want to is turning into reality. services need. In 2004 the industry license the music – to as many Consumer attitudes are launched over 7,000 legal actions services, for as many consumers, As this report testifies, 2004 has changing – the latest IFPI in North America and Europe. on as many formats and devices seen an amazing change in the European survey shows There will be a lot more cases in for use in as many places and digital music landscape. And the increasing awareness of, use more countries in 2005. countries as they can. There are market will grow apace in 2005. of, and intentions to use, straightforward conditions: the Here are some key highlights legal download services As an industry we are embracing business must be legitimate; the from this report: technology on one hand while music must be correctly licensed Legitimate online music fighting the abuse of technology by its rightholders, and record Record companies have services have done what some on the other. The start of 2005 companies and other right digitised and licensed over thought only a year ago was sees record companies discussing holders must get properly paid. a million songs. In 2004 the unthinkable: they have proved with technology firms the best available catalogue on the that they can take on the way to harness peer-to-peer for I am confident that in twelve biggest online services doubled unauthorised free alternatives. commercial use. If a legitimate months’ time the digital music from around 500,000 to around Online music today offers and viable commercial business market will have grown very one million tracks unbelievable value for the results, based on the payment significantly around the world. consumer: for 99 cents in The number of online and permission of right holders, A sector that currently accounts Europe – the price of a loaf services where consumers this could be a very exciting for a very small percentage of of bread, a bus fare, a can of can buy music has increased development for the online the industry’s revenues is poised Coke – you can download a four-fold to more than 230 music business in 2005. for take-off in the next few years. piece of music that will stay worldwide – and over 150 of At long last the threat has with you for life. For those who those are in Europe Another major development will become the opportunity. claim they took music for free be the wider consumption of Services like iTunes and because there was no digital music on mobile phones. Some IFPI’s role in this is clear: Napster have become legal alternative, there estimate that 50% of mobile content promoting legal services; household names interna- is no longer any excuse. revenues will be from music. educating governments and tionally – but local repertoire consumers about this new services in many countries are However, making the catalogue One important problem that market; and aggressively tackling also developing fast available is only one side of the hinders growth of the online internet piracy. These will be story. We can’t just promote music business is the lack of our big challenges in 2005. DIGITAL MUSIC REPORT 2005 PAGE 04
“The emergence of a successful digital business has been the single most important development in the music industry in 2004.” THE LEGITIMATE DIGITAL MARKET TAKES OFF
The emergence of a successful GLOBAL BRANDS EMERGE launched in the US in April and Musicload service in Germany, digital business has been the in key European markets in July, Rosso Alice in Italy and Brands like Apple’s iTunes, single most important develop- while Rhapsody is expected to Archambaultzik.ca in Canada, Napster, Sony Connect and MSN ment in the music industry in 2004. do so in 2005. which are gaining in popularity Music, have spread internation- and rivalling global services. ally to multiple territories during Services around the world Microsoft’s MSN Music – which Musicload is the current market 2004. The global leader, iTunes, proliferated. By the end of 2004, first launched in 2002 through leader in Germany, reaching the unveiled its service in the UK, IFPI’s global tracking on the the OD2 platform in the UK, one million monthly downloads Germany and France in June www.pro-music.org website France, Germany, Italy and mark in December 2004 (a level 2004, and then in a further nine counted over 230 services that Australia – expanded to eight 80 times higher than at launch in markets in Europe during offer online music legally, up more European markets in October 2003). Other online October. Apple reported sales four-fold from 50 a year earlier November. Microsoft is marketing stores are bundled with local of five million songs in the first and 20 in January 2003. More the ‘Plays For Sure’ message broadband providers or linked ten weeks of operation in than ten services operate in at emphasising the wide to local music retailers. Europe. Globally, iTunes reached least three markets. In Europe compatibility of the Windows sales of 230 million tracks since alone, there are over 150 online Media Audio format with online The most advanced digital launch. iTunes reached Canada music services available in music services and portable markets in Europe are the UK, in December and is expected 20 countries. digital players. with over 30 services, followed to launch in Japan in 2005. by Germany and France with The mobile market for music A number of local services joined more than 20 and 10 services Napster, one of the world’s most is also expanding rapidly, as the market across continental respectively. Some of the main recognised digital music brands 3G and mobile music services Europe in 2004. These range services in each market are came to the UK and Canada in enter the market. from charity download sites to shown opposite. May 2004 and has focused on services that specialise in local local repertoire. Sony Connect repertoire such as T-Online’s
MUSIC SERVICE LAUNCHES IN 2004
JANUARY MARCHAPRIL MAY JUNE
MyCokeMusic: Wal-Mart: Sony Connect: Napster 2.0: iTunes: UK US US UK, Canada UK, Germany, France
MSN Music: MyCokeMusic: Australia Austria
JULY SEPTEMBEROCTOBER NOVEMBER DECEMBER
Sony Connect: Virgin Digital: iTunes: MSN Music: iTunes: UK, Germany, France US Austria, Belgium, Finland, Greece, Belgium, Spain, Norway, Canada Italy, Luxemburg, Netherlands, Denmark, Sweden, Finland, Portugal, Spain Austria, Switzerland
MSN Music: MyCokeMusic: UK, France, Germany, Italy, Switzerland Netherlands, US, Japan Tesco: UK PAGE 05
KEY FACTS OF 2004: AVAILABLE REPERTOIRE NUMBER OF SITES UP DOWNLOADS UP MORE DOUBLES TO AROUND FOUR-FOLD TO 230 THAN TEN-FOLD TO OVER ONE MILLION TRACKS WORLDWIDE 200 MILLION IN THE US, UK AND GERMANY COMBINED
DIGITAL MUSIC SERVICES EXPAND INTERNATIONALLY
USA Canada Ireland UK Belgium Netherlands Germany Norway Denmark Sweden Finland Taiwan Korea Japan
Portugal Spain France Brazil Italy Austria Poland South Africa Greece Bulgaria India Australia New Zealand
“iTUNES REALLY COMPETES WITH PIRACY, NOT WITH THE OTHER SERVICES. PIRACY IS THE BIG ENEMY. BUYING MUSIC ONLINE LEGALLY IS GOOD KARMA.” STEVE JOBS, CEO OF APPLE DIGITAL MUSIC REPORT 2005 PAGE 06
SALES AND BUILDING CATALOGUE SUBSCRIPTIONS “2004 HAS BEEN A LANDMARK YEAR The music consumer can The US remains the global today shop or browse in online FOR THE MUSIC INDUSTRY. THE DIGITAL leader in online music sales services that offer a bigger SERVICES HAVE GIVEN THE INDUSTRY and subscriptions, but Europe catalogue than all but the very is making headway. largest physical megastores. THE SHOT IN THE ARM IT NEEDED – STIMULATING THE PUBLIC’S APPETITE FOR Sales of single track downloads Music catalogues available (excluding downloads sold as through online services have CONSUMING MUSIC WHILE GIVING THEM albums and song streams) grown steadily. In the US, A SUPERIOR, LEGAL ALTERNATIVE TO THE in the US for 2004 rose to iTunes, Napster and Rhapsody P2P SITES. AS BROADBAND PENETRATION 142.6 million, up from 19.2 million expanded their catalogues in the second half of 2003 from 500,000 tracks to over BECOMES MORE WIDESPREAD, THE (when Nielsen SoundScan one million during 2004. In DIGITAL SERVICES WILL TAKE EVEN began tracking downloads in Europe, services powered by the US). Album downloads OD2 (including MyCokeMusic GREATER HOLD AND CONTINUE THEIR totalled 5.5 million. and Tiscali Music Club) EXPANSION INTO BOTH ESTABLISHED AND expanded their catalogues In the UK, the largest European from 300,000 to 600,000 EMERGING MUSIC MARKETS. THROUGH download market, total down- tracks, with MSN reaching 2005 AND BEYOND WE WILL CONTINUE loads rose from practically zero one million tracks. In Europe to 5.7 million (UK Official Chart Napster reached one million ROLLING OUT NAPSTER AND OUR NEW Company/BPI). songs, available for streaming PORTABLE SUBSCRIPTION SERVICE through a subscription, Subscription services are after agreements with ‘NAPSTER TO GO’ INTERNATIONALLY, growing steadily in the US. independent labels. WITH CAREFULLY TAILORED SERVICES Paying subscribers for the major THAT CATER FOR AND RESPECT LOCAL services – Rhapsody, Napster, This is a dramatic increase MusicNet, MusicMatch and in available repertoire. A DIFFERENCES AND REPERTOIRE.” eMusic – more than doubled catalogue of one million tracks CHRIS GOROG, CHAIRMAN & CEO OF in a year to some 1.5 million is equivalent to around 80,000 (December figures). Virgin Digital albums – larger, for example, NAPSTER launched in the US in September than most megastores. 2004 – another big brand expected to boost the subscription-based sector.
Subscription services outside the US are also growing; Napster (UK), Wippit (UK), Vitaminic (Europe) and E-compil (France) are examples.
US DIGITAL WEEKLY SALES 2004 (MILLIONS) GROWTH IN US SUBSCRIBERS TO MUSIC SERVICES (MILLIONS)
7.0 1.6 6.5 1.4 6.0 5.5 1.2 5.0 4.5 1.0 4.0
3.5 0.8 3.0 2.5 0.6 2.0 1.5 0.4 JanFeb Mar Apr May Jun Jul Aug Sep Oct Nov Dec DecJan Feb Mar AprMay Jun Jul Aug Sep Oct Nov Dec 2003 2004 Source: Nielsen SoundScan, single track downloads only (excluding album Source: Rhapsody, Napster, MusicNet, MusicMatch, eMusic (public announcements) downloads and streams) PAGE 07
THE BUSINESS MODELS GROWTH OUTSIDE In Canada, a number of EUROPE AND THE US online retailers have joined Among the major brand names, existing service Puretracks two distinct business models Online services have expanded by launching their own music have emerged in digital music: outside Europe and the US, with services during 2004. These pay-per-download and over 40 online music services include Archambaultzik, subscription services. now available. Notably, the Sympatico Music Store, Asia-Pacific region has seen a Bonfire@Future Shop, Pay-per-download services big increase in online services. Napster and iTunes. meet consumer demand to ‘own’ music, but with greater In Australia, NineMSN became Musica is South Africa’s first flexibility than CDs as tracks the first OD2-powered service online service, launched in can be selected and down- to launch outside Europe. In December 2004. The service loaded on the spot. Services October 2004 the service debuts with 400,000 tracks such as iTunes, MSN Music, launched a co-branded store and is powered by OD2. Wal-Mart (US) and Tesco (UK) with HMV offering both digital sell downloads from US$0.80 and physical music products. In Latin America, the digital per track. Tracks are transferable Meanwhile digital service music market is developing to portable devices and can provider Destra, which powers despite low broadband and be burned onto disk. JB Hi-Fi, Sanity and ChaosMusic portable player penetration. among others, increased its Brazil’s iMusica is the only Subscription services offer a catalogue from 100,000 to service provider in the region, very wide choice of music for 500,000 tracks during 2004. powering MSN Brazil and a monthly fee, allowing users to iget. US-based services access all the music they want Soundbuzz has also expanded specialising in Latin repertoire with the option to purchase its operations in Asia-Pacific by have developed in 2004, selected tracks. Services like partnering with Singapore’s including emepe3.com and Napster, Rhapsody and Virgin Creative Technology. The part- emusiclatino.com. Other Digital offer streaming and nership allows users of Creative’s services are due to launch radio-play access for a monthly portable digital music players in 2005, indicating growing fee – typically from US$9.99. access to Soundbuzz’s Digital demand for digital Latin music. Downloads and burns are Music Store. The Soundbuzz/ available for an extra per-track Creative package has been fee from US$0.79. Some available in Singapore since subscription services such as July and was rolled out in Napster now allows ‘tethered Australia, India and South downloads’ which are transfer- East Asia at the end of 2004. able to portable players for as long as the consumer remains a subscriber.
For a comprehensive directory of services visit www.pro-music.org
“WHAT SETS US APART FROM THE REST? WE WANT TO HAVE RELEVANT CONTENT AVAILABLE FOR CONSUMERS IN ALL OUR TERRITORIES. INCREASINGLY, PEOPLE WILL WANT TO BUY A REAL MUSIC PRODUCT AND WILL WANT TO GET CONTENT THAT'S RELEVANT. IN FRANCE, FOR EXAMPLE, OVER HALF OF THE ALBUM CHART IS MADE UP OF LOCAL ACTS. YOU CAN’T BUILD AN ONLINE SERVICE FROM JUST INTERNATIONAL CONTENT, OR YOU WON’T SURVIVE IN THE MARKET.” GREGOR ERKEL, DIRECTOR OF SONY NETWORK SERVICES EUROPE (SONY CONNECT) DIGITAL MUSIC REPORT 2005 PAGE 08
“Music on mobile phones is set to become a significant source of revenue for record companies.”
THE MOBILE MUSIC MARKET
Music on mobile phones is set ASIA LEADS THE WAY In South Korea, where the Record companies have to become a significant source market has expanded beyond launched various initiatives The mobile music market is of revenue for record companies. ringtunes into full-track down- in the mobile sector in Europe already big business in Asia, Music via mobiles has quickly loads, the mobile music market during 2004. EMI, for example, particularly in Japan and South evolved from ringtones, to the (including ringtones, ringtunes offered previews of Robbie Korea, where 3G is advanced use of full audio recordings in and full-track downloads) Williams’ music video and handset penetration is high. ringtunes, ringback tunes, was worth an estimated ‘Misunderstood’ in partnership There is also a wide range of full-track downloads and other US$158 million in 2003. China with ‘3’. The artist’s latest album products and services available multimedia applications. With is also a growing mobile music was also sold in memory cards in those markets, from ringtunes the advent of 3G technology, market with mobile subscribers compatible with handsets and (launched as far back as in 2002) consumers can get a range of reaching 290 million (around handheld computers in the UK. to dedications, ringback tunes, interactive content, including 20% of the population). ‘3’ also featured streamed live video and TV streaming services. music tracks and video, at concert footage of the Sony In both markets, mobile music higher speed and better quality. BMG act Rooster. sales have easily outsold 3G LAUNCHED IN EUROPE online downloads. Mobile phone handsets have Also available in Europe are: In Europe, 2004 was a break- quickly evolved from talking O2’s download service, with its Japan has a ringtune through year with a number of devices into fully-fledged own compatible portable device market worth an estimated key service launches and the entertainment gadgets, and (Siemens SX1 Music) allowing US$100 million in 2004. roll-out of 3G networks. consumers are increasingly consumers to transfer down- Label Mobile is the largest Vodafone launched a 3G music familiar with the concept of loaded tracks from the mobile distributor in Japan, with a download service in November buying music through their to the device; T-Mobile’s ‘Mobile catalogue of 80,000 tracks 2004 under its ‘Vodafone live!’ handsets. Jukebox’, available in the UK, from 19 record companies. brand in 13 markets. Licensed Germany and Austria offering By November 2004 Label by record companies, full-track 90-120 second music clips; Mobile was selling a monthly and video downloads as well as and Spanish operator Telefonica average of 12 million ringtunes. audio and video streams are Mobile’s ‘Melodeo’, offering Operator KDDI began offering available on the service. Orange some 30,000 tracks for full-track downloads to mobiles also launched 3G services in download. Warner Music in November 2004 and was December offering full-track licensed its entire catalogue expected that the one million downloads. UK operator ‘3’ to Telefonica late in 2004. sales mark would be reached concentrates on 3G video by the end of 2004. services, offering music video, sports clips and news since March 2003.
SOUTH KOREAN MOBILE MUSIC SALES (US$ MILLIONS)
180
160 158 140
120
100 115 80
60 78
40 39 20
0 2000 2001 2002 2003
Source: Korean IT Industry Promotion Agency (figures include ringtones, ringtunes and full-track downloads) PAGE 09
US MOBILE MARKET THE FUTURE OF EMERGING MOBILE MUSIC “MSN MUSIC, WHICH IS AVAILABLE IN In the US, the mobile music In 2005 and beyond, more 20 MARKETS, IS A KEY ELEMENT IN market is in its infancy, but advanced music applications MICROSOFT’S VISION OF DELIVERING growing rapidly, with an for mobiles will emerge as a estimated 128 million mobile result of the continued roll-out DIGITAL ENTERTAINMENT TO CONSUMERS users. Ringtones are the of 3G networks and replacement AND GIVING THEM THE ABILITY TO EASILY main form of mobile music of handsets. As more content consumption, marked by the and more services are made CUSTOMIZE THEIR ENTERTAINMENT launch of the Billboard ringtone available, consumers will EXPERIENCES. MORE THAN ANYTHING chart in November. become much more familiar ELSE, WE’VE FOUND THAT CONSUMERS with the concept of buying In an effort to increase sales music through their handsets. WANT TWO THINGS: CHOICE AND SIMPLICITY. of real recording ringtunes, THROUGH PARTNERSHIPS WITH MORE various operators entered into Mobile phones are also agreements with major and beginning to see much bigger THAN 3,000 RECORD LABELS AND MORE independent record companies. storage capacity, longer battery THAN 70 DEVICE MAKERS, WE’RE WORK- Services launched include life and increased functionality. Sprint’s ‘Music Tones’; While current memory capacity ING TO MEET THESE DESIRES BY MAKING AT&T’s ‘MmMode Music Store’ on handsets might be small IT FUN AND EASY FOR PEOPLE TO FIND whereby consumers can compared to portable players stream songs from a catalogue such as the iPod, many expect THEIR FAVOURITE SONGS AND LISTEN of 750,000 tracks via mobile that 3G mobiles could rival TO THEM ON DEVICES THAT FIT EVERY or buy single tracks which are these devices in the future. downloaded onto PCs; and BUDGET AND LIFESTYLE.” Verizon’s ‘Get It Now’ offer of ROB BENNETT, SENIOR DIRECTOR OF MSN short audio clips. In early 2005 ENTERTAINMENT, MICROSOFT Verizon introduced mobile video and audio services with a range of phones capable of high-speed Web surfing. DIGITAL MUSIC REPORT 2005 PAGE 10
“Digitisation and licensing of music content is a key priority for record companies and essential for the development of the digital music market.”
WHAT DRIVES DIGITAL MUSIC?
Several key factors drive the in licensing music to mobile its entire active catalogue, production services, specialised growth of digital music, including operators such as Sprint, enabling it to focus on previously sales and marketing expertise, partnerships between record Verizon, Vodafone, Orange, unreleased titles. Over 1,600 data management and access companies and online/mobile T-Mobile and SKT Telecom. music videos have already to global digital music services music services; growing broad- been digitised for electronic for over 50 independent labels. band and mobile penetration; Digitisation has also been a distribution. sales of portable players and priority. Universal Music, for Record companies are also handsets; rising consumer example, has completed a EMI has signed hundreds of expanding into new digital awareness of legitimate services; two-year project to digitise its licensing agreements and spent channels such as ‘music kiosks’. the increased flexibility that is entire active European music the past few years building its Warner Music and Sanctuary offered to the consumer; and catalogue – some 300,000 global digital supply chain for for example, both partnered the fight against online piracy. tracks drawn from more than both online and mobile services. Mediaport Entertainment Inc. 25,000 albums. The company Digital products can reach world to offer their catalogues in free- RECORD COMPANY now digitises around 2,500 markets day-and-date with its standing kiosk units at which INITIATIVES newly released tracks each physical releases. EMI has also people can create compilations week. Universal also launched significantly expanded resources and then either burn them to CD Digitisation and licensing of a digital label in November 2004 dedicated to digital sales and or transfer to portable players. music content is a key priority – UMe Digital, which will both marketing in key territories. It EMI partnered with Starbucks for record companies and sign exclusive digital deals has offered innovations such as in the US to offer the chain’s essential for the development with new artists and handle Robbie Williams’ memory-card customers the ability to burn of the digital music market. digital distribution deals for release of the artist’s album. custom-made CDs instore. Many record companies have independent labels. created dedicated digital Warner Music has digitised business units to distribute and Sony BMG has created a and licensed the majority of its market music internationally. dedicated global digital business catalogue, signing licensing unit to focus on global digital agreements with a number of Majors and independent record business development for online distributors for example, companies have licensed their mobile and online music. and with Verizon in the mobile music to the big online music The unit also looks at anti- sector in the US. brands, including Apple, Napster, piracy measures, new industry Microsoft, OD2, RealNetworks technologies such as CD Other specialised digital marketing and AOL, as well as to a selec- rights-management software, ventures have launched in 2004. tion of smaller or niche services. and new format launches. Vital PIA Digital, for example, There has also been a big push Sony BMG has also digitised incorporates dedicated digital PAGE 11
2004 MARKETING INITIATIVES HARNESSING PEER-TO-PEER (P2P)
Digital only releases The recording industry is service called Mashboxx is working with a range of reported as being developed Exclusive artist content available online and via mobile technologies that create with Snocap to offer legitimate, legitimate ways of doing licensed and paid access to Release of digital tracks prior to or simultaneously with the business in online music. content in a P2P environment. release of the single to radio, ahead of physical release It is however, totally opposed to the abuse of technology, Qtrax and Peer Impact (Wurld Artist websites offering track downloads and exclusive materials and in particular that of certain Media) are further examples P2P networks that facilitate where P2P technology is being More information about recordings, such as composers, large-scale copyright theft. designed to facilitate licensed producers, collaborating performers etc. Record companies are now file-sharing with various payment examining the possibilities for options for users. Companies Niche download sites, such as Warchildmusic.com and using P2P in a legitimate and such as Audible Magic and Bignoisemusic.com (UK), where a proportion of the price commercial way that pays Overpeer have also developed of downloads goes to charity rightholders for their works. song-identification systems similar to Snocap. Some of New digital channels, including ‘kiosk services’ where There are a number of these services plan to launch consumers can compile their own custom CDs publicly-disclosed projects in early 2005. underway. Snocap for example, Specialised campaigns by companies like 7 Digital Media a new venture by original Other innovative services or Recordstore.co.uk who used direct marketing to appeal Napster founder Shawn include the ‘Open Royalty to a band’s fanbase Fanning, provides technology Gateway’ developed by that recognises songs requiring Blueprint and supported by The launch of digital downloads and ringtone charts in a licences on P2P networks and BT (UK), launched in November number of territories automatically presents users 2004. The system allows for with options to purchase a paid-for ‘word of mouth’ Deals between broadband providers and online music authorised songs instead of distribution. Consumers services to offer ‘packages’ including both services for allowing unauthorised copies recommend tracks to friends, a single fee (AOL, Tiscali, T-Online) to be traded illegally. A new and are rewarded with credits for future purchases if the tracks are bought.
“SNOCAP IS PLEASED AND PROUD TO HAVE COME UP WITH A TECHNOLOGY PLATFORM THAT WILL BRING THE BREADTH OF MUSIC THAT IS CURRENTLY AVAILABLE ON UNAUTHORISED SERVICES TO THE PAID MARKET PLACE. WE WILL ENABLE P2P SERVICES TO BRING REWARDS FOR EVERYONE CONCERNED – ESPECIALLY FOR THE MUSIC FANS, BUT ALSO FOR ARTISTS, SONGWRITERS AND MAJOR AND INDEPENDENT LABELS ALIKE.” SHAWN FANNING, FOUNDER OF SNOCAP DIGITAL MUSIC REPORT 2005 PAGE 12
THE BROADBAND AND Sweden and the UK, and is MOBILE STIMULUS growing rapidly in other markets. “WE BELIEVE THAT THE GLOBAL ONLINE The US currently lags behind, Many music markets are seeing MUSIC MARKET IS POISED FOR EVEN but penetration is expected to rapid growth in broadband rise in the coming years. GREATER GROWTH IN 2005 AND 2006, penetration rates. Broadband AS BROADBAND BECOMES UBIQUITOUS stimulates online music by MULTI-TERRITORY improving download times and LICENCES FOR ONLINE AND CONSUMERS AROUND THE WORLD file quality, prompting users to STREAMING SERVICES download and burn more GROW COMFORTABLE WITH ONLINE regularly. Over 90% of Rhapsody Streaming of music programmes SERVICES. REALNETWORKS WILL via the internet is just one of the users in the US, for example, CONTINUE TO WORK CLOSELY WITH THE have a broadband connection. many new forms of digital music Forecasts indicate that broad- distribution. Webcasting is GLOBAL MUSIC INDUSTRY TO DELIVER band household connections already well-established in the LOCALISED ONLINE SERVICES THAT MAKE worldwide will increase by 169% US, where there are currently by 2008 (PWC). Latin America 1,250 licensed services. IT EASY FOR MUSIC FANS TO EXPLORE will experience the biggest International cross-border AND ENJOY THE MUSIC THEY LOVE.” increase (430%). licensing for internet streaming has been a priority for the ROB GLASER, CHAIRMAN & CEO OF In most countries broadband recording industry. REALNETWORKS (RHAPSODY) penetration is still low at under 20% of households, but rates IFPI has set up a system that are on the increase. allows internet webcasters and simulcasters to clear the Without adequate intellectual necessary rights in a multitude property protection, broadband of countries by entering into can also have an extremely a licence in one participating negative potential – the best country. Such ‘one-stop’ example being South Korea, licensing facilitates the entire a music market which is process of setting up legitimate dominated by online piracy. streaming services, eliminating the need for rights to be cleared Mobile penetration is also rising in each individual country. at a very fast pace around the world, often surpassing broad- In 2004 the IFPI webcasting band rates, especially in Asia. agreement was extended to In Europe mobile penetration include 17 countries, including exceeds 80% in countries such SoundExchange in the US. as Finland, Greece, Italy, Norway, Simulcasting of traditional
BROADBAND HOUSEHOLD PENETRATION
100% 2003 2004 90% 80% 78% 70% 60%
50% 45% 40% 38% 32% 31% 30% 20% 20% 19% 20% 17% 15% 15% 10% 0% a e rea UK apan USA anc Italy Ko J r Spain Canada F Australi Germany South Netherlands
Source: Understanding & Solutions PAGE 13
broadcasters’ programming the iPod, with over 50% share The major consumer technology onto the internet is now of the global market (including companies behind the develop- facilitated by a similar cross- both flash media and hard-drive ment of the major online services border agreement among based players, IDC), has been – namely Apple, Microsoft, producers’ rights societies the most successful portable Sony and RealNetworks – have in 35 countries. digital player, reaching sales of developed their hardware and 10 million units since launch software using preferred or PORTABLE MUSIC in 2001. In October 2004 Apple proprietary technologies. BOOSTS DEMAND launched the first artist-branded The Apple iTunes service, The trend towards portable digital player, the U2 iPod, which for example, is only currently technology is phenomenal. included a discount on the compatible with the Apple Portable players like Apple’s option to purchase U2’s entire iPod. Microsoft technologies iPod have given consumers catalogue through iTunes. have been used by a number greater control and portability of leading online services of their music collections. The The market is beginning to and a number of different growing popularity of digital see a convergence of portable manufacturers produce players, which themselves music devices and mobile players compatible with those have intrinsic consumer appeal, handsets, although small services, although they are still is driving the uptake of legal memory capacity and limited incompatible with, for example, music services. battery life place limits on this technologies by Apple, convergence for the time being. RealNetworks and Sony. Sony The global portable digital Many consumer technology Connect offers songs in Sony’s player market was estimated companies, including Apple ATRAC3 format, compatible only to be worth US$4.4 billion in and Microsoft, are partnering with Sony players. 2003 and is estimated to rise mobile handset makers to offer to US$7 billion in 2004 (IDC). compatible services for down- Interoperability barriers between load or streaming to phones. the various suppliers’ products The portable player market and services are confusing to already presents consumers The rapid rise of different consumers and ultimately could with an array of choices. portable player systems has place limits on the growth of the Apple now has a wide range of exposed one key problem, sector. Achieving interoperability competitors including Creative namely the lack of interoperability between different music services (Zen product range), Rio between different devices and devices is therefore a top (Karma, Carbon), Sony (Network and services. priority both for the consumer Walkman) and others. To date and for the recording industry.
GROWTH OF PORTABLE DIGITAL PLAYER PENETRATION PORTABLE PLAYER EXPLOSION – SOME KEY STATISTICS 12% 2003 11% 2004 75% of portable player owners said that they listened to 10% 9% 9% music they ‘most likely would not have done otherwise’ 8% – Harris Interactive (for Guardian Unlimited), UK 7% 6% 6% 6% 16% of consumers who had paid for downloads owned 5% 5% iPods – Entertainment Media Research (May 2004, sample 4% 4% 3% 3% of 540 internet users), UK 2% 2% Nearly 50% of Rhapsody customers in the US own portable 0% digital players – RealNetworks n
UK apa USA J rance F Sales of iPod have reached 10 million units since launch Germany Netherlands in 2001 – Apple Source: Understanding & Solutions. Figures exclude CD and MiniDisc players DIGITAL MUSIC REPORT 2005 PAGE 14
CONSUMER AWARENESS a further 44% actually down- A key element of the record AND UPTAKE IMPROVES loaded from either a legal industry strategy is to move service (22%) or an artist/band illegal file-sharers over to the A growing number of consumers website (also 22%). Although legitimate paid-for services. are paying for music downloads, legal download volumes are For existing online music users, more intend to do so in the future still low compared with P2P, there appears to be a clear and awareness of legal services the survey indicates that the divide between users of legal is rising sharply, according to number of people using legal services and people download- research by IFPI as well as by sources is fast approaching ing illegally using a file-sharing third parties. those using P2P. service. In the US, NPD Group research, which monitors In the US, internet music users The same survey also indicates household downloads, shows paying for downloads more than that use of legal services is likely that just 9% of households doubled to 35% in the year to to increase significantly in 2005. regularly use both legal services July 2004, according to IPSOS. Of those who intend to and file-sharing networks – In the UK, 23% of downloaders download music in the next it tends to be one or the other. said they had paid to do so at few months, almost one third some stage (Entertainment (31%) stated that they are Younger consumers (under 25s) Media Research 2004). likely to download from a seem more reluctant to try legal legal service (compared to alternatives. However this is IFPI research indicates that the the current level of 22%). changing rapidly, thanks in part number of people buying music Meanwhile, P2P use is not to increased ease of payment. online legitimately appears to expected to grow, with some Napster has introduced pre-pay be rising fast – even though 38% of those intending cards in the US and in the UK, fewer than one person in ten in to download saying that they available widely from retail stores, Europe regularly downloads are most likely to use a P2P and iTunes has introduced the music. A survey conducted in service, compared to the use of PayPal to allow users to six European countries (Austria, current level of 44%. pay for downloads without using Denmark, France, Germany, a credit card. The vast majority Italy and the UK) by GfK for IFPI Awareness of the existence of of legal online services now offer in December 2004 shows that legal online music services has gift certificates or alternative pay- while some 44% of music grown, with 29% of Europeans ment schemes to credit cards. downloaders used a P2P aware of legal online services in service during November 2004, December 2004 (49% of 16–29 year olds), up from only 23% of Europeans (38% of 16–29 year olds) in December 2003.
GROWTH IN PAID-FOR DIGITAL MUSIC SALES IN THE US
40%
35% 35% 30%
25%
20% 22% 15% 16% 10% Source: IPSOS TEMPO. Proportion of consumers 5% downloading who have paid for music during the 0% previous three months. Q2 Q4 Q2 2003 2003 2004 PAGE 15
FLEXIBLE LISTENING Record companies have WHY LEGAL SHOPS ARE BETTER THAN ILLEGAL responded proactively to these The combination of searching, FILE-SHARING changes, presenting digital browsing, downloading and music in many different forms. portability is transforming the By offering high quality audio, They ensure payment to the creative community and guarantee experience of consuming video, graphics and data future investment in music music. Notably, it is driving specifically tailored to individual demand for single tracks. They are virus and spyware free requirements, digital music stores can offer a much wider In the physical audio market, variety of music-related media They offer a better interface with portable music players for singles make up roughly 10% seamless management of music collections than record stores in the of unit sales compared to 90% physical world. for albums. So far, online music They offer exclusive tracks often weeks before general release, consumption shows an almost or exclusive to the services that offer them At the same time, record inverse pattern to this, with companies have also been iTunes, for example, reporting File quality is guaranteed enhancing the physical CD – that roughly only one in ten offering special edition releases transactions are a full album They offer quality editorial including reviews, recommendations and value-added content purchase. and personalised radio stations helping sustain demand for CDs in the future. They are wholeheartedly supported by artists While this suggests a long-term shift in music consumption from In the longer term, digital albums to singles as digital sales consumption is expected to increase share of consumption, replace CD buying to some the increase in digital single extent, since many younger tracks could easily compensate music fans see their ‘record for this shift. Already in the US, collections’ as digital files. download sales outnumber physi- Moreover, the convenience of cal singles by just under 20 to 1. digital is attracting new music consumers. However many Digital download sales are people, including online music likely to stimulate singles sales consumers, still prefer CDs for overall. In the UK the industry their packaging and artwork. estimated that downloads alone would have turned a fall in singles sales of 14% in 2004, into an increase of 4%.
THE COMPLEXITIES OF SETTING UP A LEGITIMATE SERVICE
Digitising content Rights-clearance and artist negotiations
Robust technologies
Consumer-friendly DRM and ‘usage rules’
Virus free services
Secure payment systems
“GERA-EUROPE SUPPORTS THE STEPS THE MUSIC INDUSTRY IS TAKING TO ENCOURAGE THE FAST-DEVELOPING LEGITIMATE ONLINE MUSIC BUSINESS – THE EDUCATIONAL PROGRAMMES IN WHICH WE HAVE BEEN INVOLVED; THE PUBLIC PROMOTION OF ALL THE NEW ONLINE SERVICES; AND THE DECISIVE ENFORCEMENT OF THE INDUSTRY’S RIGHTS AGAINST ILLEGAL UPLOADERS.” SIMON WRIGHT, PRESIDENT OF GERA-EUROPE (GLOBAL ENTERTAINMENT RETAIL ASSOCIATION) AND CHIEF EXECUTIVE OF VIRGIN ENTERTAINMENT GROUP INTERNATIONAL DIGITAL MUSIC REPORT 2005 PAGE 16
KEY ONLINE SERVICE PROFILES
COMPANY PROFILE LAUNCH REACH
Apple released the first iPod in October 2001. First launched in the US in April 2003 and 15 countries The iTunes Music Store followed in April 2003 expanded into three key European markets and both have been a phenomenal success, – UK, France, Germany – in June 2004. helping to increase the company’s revenues Further launches in Europe were by 33% year-to-September 2004.The iPod, announced in October, followed by the which accounted for 23% of the company’s Canadian launch in December.The sales in Q3 2004, has strengthened the service is expected to reach Japan in 2005 Apple brand and created a ‘halo-effect’ on consumers, encouraging a whole economy of peripheral products www.apple.com
Microsoft’s MSN Music is driven by OD2 Reached the US, UK, France, Germany, 20 countries technology in the main European markets Netherlands, Japan and Italy in October and by cdon.com in Scandinavia. In the US, 2004. Further European launches took the service was fully developed by Microsoft place in November
www.msn.com
Created by Shawn Fanning in 1999, Napster 2.0 launched in the US in October US, Canada, UK Napster became world-famous for being the 2003, and in UK and Canada in May 2004 pioneering file-sharing network.The service was closed down in July 2001 and acquired by Roxio in November 2002. Napster 2.0 emerged in October 2003 in the US as a legitimate online service
www.napster.com
Launched by Sony The service was first launched in the US in US, UK, Germany and France April 2004 and expanded into Europe in July. Plans further European expansion during 2005
www.connect.com
Listen.com was the first independent Originally launched in December 2001. US only. Launching in the UK service to offer content from all five majors, Re-launched in May 2003 and Europe in 2005 launching Rhapsody just before MusicNet and Pressplay. In April 2003 RealNetworks bought Listen.com and consequently Rhapsody, which started using RealNetworks technology as its primary platform.A month after Real’s acquisition, RealOne Rhapsody Music Subscription was launched www.rhapsody.com
Service launched by the Virgin Group September 2004 US only following the partnership between Virgin Digital and MusicNet
www.virgindigital.com PAGE 17
BUSINESS MODELMAIN PARTNERSHIP CATALOGUE SALES TO DATE PORTABILITY UNIQUE FEATURES DEALS
A la carte downloadsPartnerships announced Between one million and 230 million by January 2005 iPods Over 150 exclusive tracks, with Motorola and Hewlett- 700,000 songs depending share playlists (iMix), stream Packard on the territory music wirelessly to remote stereos (iPort Express), weekly free single (New Music Tuesdays), 9,000 audio books, email alerts on favourite artists (Artist Alerts)
A la carte downloadsDeal with GarageBand.com Over one million songs Not available Multiple Windows Media Exclusive tracks, search on offers highlights of music and Audio-enabled devices, which cities produced the content from the community’s including Creative Zen, most influential artists by top-rated independent Rio and iRiver decade (Map of Music), artists (GarageBand.com streams music videos, Hub Page). MSN also has a concert tickets promotional tie-in with American Express
Subscription (unlimited AT&T Wireless will allow Napster Over one million songs 270,000 paying subscribers Multiple Windows Media View other subscribers’ streaming) and a la carte subscribers to transfer songs to a as at December 2004 Audio-enabled devices, music library (Napster mobile phone (Audiovox SMT including the Samsung Community), recommend 5600 smart phone).The mobile Napster Player, Creative songs to other subscribers, phone will be sold by Orange in Zen, Rio and iRiver portability with subscription the UK (Napster To Go).Tie-in plan (Napster To Go), access with Blockbuster launched the to service on up to three Digital Duo card in the US for computers, email track sale for US$ 20 for one month’s suggestions to friends subscription and Blockbuster (Napster Inbox) Online DVD rental
A la carte downloadsPromotional tie-ins with 650,000 songs Not available Sony portable devices Exclusive performances United Airlines and Intel (Connect Sets), mood-specific playlists (Mood Mix)
Subscription (unlimited Rhapsody has partnerships 850,000 songs available for 625,000 paying subscribers N/A Radio customisation, streaming) and a la carte with Comcast (broadband streaming and over 750,000 at the end of Q3 2004 access to service on multiple provider) and BestBuy available for purchase. More (Rhapsody & RealOne computers, send playlists than 90% of the available RadioPass) representing a to other subscribers via tracks are streamed at least growth of 145% on Q3 email, add playlist links once each month 2003.The average paying to personal ‘blogs’ subscriber streams more than 250 songs each month, the equivalent of more than 25 CDs
Subscription (Virgin Digital Foot Locker promotional deal Over one million songs for Not available Multiple Windows Media Service is available via the Music Club) and a la carte streaming and purchase Audio-enabled devices, internet, in retail stores, on (Virtual Virgin Megastore) including Creative Zen, mobile phones and consumer Rio and iRiver electronic devices, music discovery function (Ask The Expert), detailed artist/album information (3-D Browsing) DIGITAL MUSIC REPORT 2005 PAGE 18
“2004 was the year the music industry stepped up its fight-back against online piracy around the world. These activities are having THE INDUSTRY TAKES an impact.” ON DIGITAL PIRACY
2004 was the year the music WHAT IS INTERNET Authorisation by the rights sales of music. While other industry stepped up its fight- PIRACY? owner is the fundamental factors also affect music sales, back against online piracy principle underlying copyright including competition from Internet piracy is the act of around the world. Seven laws, and the key to the distinction other consumer products and making available, transmitting countries joined the US in taking between legitimate and illegal general economic conditions, or copying someone else’s legal action against individuals online music distribution. online piracy has contributed work over the internet without illegally uploading files on Legitimate online services have substantially to sales drops in permission. Copyright laws in peer-to-peer (P2P) networks. permission from record labels, recent years. virtually every country in the Information and awareness publishers and artists whose world make this illegal, protecting campaigns were stepped up, as music they distribute. They pay Global music industry sales the rights of those involved in were instant messaging to P2P these people for the use of their declined by some 22% over creating and those investing users and deals with universities. works in commercial activities. five years to 2003, a reduction of in creative works – writers, Online piracy involves people or over US$6 billion, with some of publishers, artists, musicians, These activities are having an services who distribute music the biggest drops in album and record companies, film makers, impact. Consumer awareness without authorisation. singles sales in countries with producers, and many others. of the illegality of unauthorised large or growing broadband These laws acknowledge their file-sharing across Europe has ILLEGAL FILE-SHARING penetration. The latest study by right to choose how their work improved. Trends in illegal AND ITS IMPACT Forrester Research in August is distributed and the terms file-sharing show the problem 2004, found that while 10% of of distribution. Numerous research studies is being contained, helped by regular downloaders claimed to show that online piracy has a the growing availability of legal buy more music, 36% admitted negative impact on legitimate music downloads.
SERVICE TYPE DESCRIPTION WHAT IS WRONG WITH IT?
WEB, FILE TRANSFER PROTOCOL This ‘traditional’ form of online piracy remains popular in These services do not attempt to obtain licences for the use (FTP) AND LINK SITES many countries.Typically the first place where unautho- of copyrighted music.Although they may not profit directly rised copies of a new recording appear. from the distribution of music, they often generate advertising revenues and user traffic – effectively profiteering out of those who created and invested in music.
UNAUTHORISED SERVICES These are blatantly commercial services, generating Because these services do not reward those who created substantial revenues from unauthorised use of music and and invested in music, operating costs are low and financial other copyrighted content. Some services sell music gains can be substantial. P2P networks encourage and directly, others receive indirect revenues from advertising, assist the distribution of a large number of music spyware and licensing. In many cases such services files between individual users (‘peers’) without the operate with large databases of music tracks. rightholders’ permission.
ILLEGAL UPLOADERS Most users of P2P networks not only download files, but P2P uploaders do not have permission to distribute music make the music stored in their computer available to others files, hence engaging in an illegal activity. to download, thus acting as ‘uploaders’.This turns individ- ual users into large-scale distributors of unauthorised files.
“WE MUST FIGHT PIRACY IN ANY FORM, FOR THE PROTECTION OF INTELLECTUAL PROPERTY IS IN ALL OUR INTERESTS. IT GIVES ECONOMIC VALUE TO THE MOST PRECIOUS THING, CREATIVITY, WHICH IS THE GROUNDS OF OUR FREE SOCIETY.” CARLO AZEGLIO CIAMPI, PRESIDENT OF ITALY PAGE 19
to buying less. This result has to online piracy. In 2004 the the Value of Music’ school companies led to legitimate been confirmed repeatedly in music industry stepped up its curriculum for 11 to14 year-olds, services being made available the bulk of all respectable educational activities to point developed by British Music at discount to students in 24 third-party research. people away from illegal Rights, directs students to colleges and universities. file-sharing and towards www.pro-music.org for legal The scheme was pioneered at THE INDUSTRY’S legal download sites. downloads. A new campaign Pennsylvania State University RESPONSE was launched in Japan in in a deal with Napster, and was Schools December 2004, with public followed by further deals with The recording industry is In Italy, a government-backed statements by four major artists. Rhapsody at other universities. developing legitimate online music, film and software US universities have also been music services that will displace copyright education programme Parents and children using anti-piracy technical illegal sites over time, using has been launched to explain The Danish music industry countermeasures against education, and, if necessary, copyright to 14 to18 year-olds launched a free software illegal P2P file-sharing law enforcement to protect in 3,000 schools. In France, programme that people can (www.educause.ed). its repertoire. a two-page copyright and use to identify and, if necessary, 1. PUBLIC AWARENESS AND anti-piracy message has been remove unauthorised P2P Companies INFORMATION CAMPAIGNS sent to one million students. In programmes and files from IFPI and its affiliates have Germany, a music industry and their computers. conducted an information Public awareness plays a ‘Value of Creativity’ campaign campaign on the copyright and critical part in introducing legal provides educational materials Universities security risks involved in illegal alternatives and educating to 10,000 teachers of 10 to 15 In the US, cooperation between P2P file-sharing, among consumers on risks attached year-olds. In the UK, a ‘Respect legal online services and record thousands of companies
IMPACT OF ILLEGAL DOWNLOADING ON THE IMPACT OF ILLEGAL FILESHARING MUSIC PURCHASING
28% of those spending less on music said downloading, file-sharing and burning I buy more music were the main reasons – Pollara Canada, July 2004
10% No impact For 2004, the potential losses to the music industry through file-sharing could be I buy less music as high as US$2.1 billion – Informa Media Group
54% 36 million of the 40 million people downloading (nine in ten) in Europe are still 36% not paying for music they download – Forrester, August 2004
Source: Forrester Research, August 2004. Base: European online consumers who downloaded music monthly
“PIRACY IS THEFT – PURE AND SIMPLE. THE GOVERNMENT SUPPORTS THE PRINCIPLE OF PROPORTIONATE LEGAL ACTION AGAINST THE WORST OFFENDING UPLOADERS.” ESTELLE MORRIS, ARTS MINISTER, UK DIGITAL MUSIC REPORT 2005 PAGE 20
and government institutions The pro-music campaign in 21 countries. Brochures The international cross- WHY NOT TO DOWNLOAD ILLEGALLY explain that these institutions sector music campaign, are at risk of legal action if www.pro-music.org, launched Your computer may crash music is used illegally on their in 2003, is now available in Peer-to-peer (P2P) programs write files to your hard disc computers and that unauthorised four languages (English, French, and change your computer settings. These can be nearly file-sharing raises a host of German, Italian) and includes impossible to remove and may crash your computer if you try security problems for institutional a global directory of legitimate networks including computer online services. The mission You can catch a computer virus viruses, firewall breaches, of pro-music is to promote There is no quality control on the files that other people put spyware, and exposure of legitimate digital music and on unlicenced P2P services. A 2004 study by security firm confidential data. The brochures, confront the myths surrounding TruSecure found that 45% of the computer programs down- which also explain how to tackle online music piracy. loaded using Kazaa contained a virus or other malicious code the risks, can be downloaded in six languages at www.ifpi.org. Internet advertising You will get adware and pop-ups by default French-intitiated pro-music viral Unlicenced P2P services make their money by email “The Drummer” was rolled selling advertising. The advertising comes to you via software out across Europe, calling on they put on your machine – sometimes without you knowing downloaders to protect those involved in creating music by You may get spyware without knowing it downloading legally. In many cases, the software that unlicenced P2P services distribute also contains modules that report on your file Artist campaigns searching, web browsing or other activity. Among other Instant messages to In the US, artists including things, it helps them send advertising to you infringing file-sharers Lenny Kravitz, Missy Elliot and IFPI national groups in 10 Sheryl Crow featured in an You will come across unsolicited pornographic material countries have sent more than ‘I Download (Legally)’ campaign. Search for any popular artist’s music on an unlicenced P2P 45 million instant messages to A similar project was rolled out service and you will also get lists of files that include a whole individual users of P2P services, in France in a poster campaign range of pornographic and obscene material warning them to stop putting with 14 artists in 30 cities. other people’s music on the You will open up your computer to complete strangers internet without permission. Unlicenced P2P file-sharing involves giving millions of anonymous strangers access to your computer
You could be sued Over 7,000 cases have been brought against bulk uploaders in several countries worldwide
“WE HAVE TO TAKE RESPONSIBILITY, CALL PIRACY WHAT IT IS AND NOT ALLOW IT TO BE CONFUSED WITH ‘UNLIMITED FREEDOM’. I BELIEVE IN CULTURAL CREATION AND DIVERSITY, WHICH ARE THE VICTIMS OF PIRACY.THEY NEED TO BE PROTECTED.” RENAUD DONNEDIEU DE VABRES, MINISTER OF COMMUNICATION, FRANCE PAGE 21
2. DETERRENCE In 2004 IFPI’s internet anti-piracy RECENT CASES HAVE Legal cases against unit and anti-piracy staff in 28 individuals engaged in In 2004 IFPI and its member INVOLVED CLAIMS national recording industry ‘uploading’ record companies significantly AGAINST: groups, secured the take- In 2004 it became clear that, stepped up the deterrence down of 60,900 infringing however effective education campaign against internet Companies and principals websites (41,000 in 2003), programmes were in raising piracy. Cooperative work with related to the Kazaa P2P 477 unauthorised P2P servers awareness, stronger action was Internet Service Providers (ISPs), service (Australia) (1,050 in 2003) and 1.6 billion needed to deter a significant litigation cases against infringing This case, which went to trial infringing music files in 102 group of ‘hard core’ illegal services, as well as cases against in November 2004, alleges countries (1.6 billion in 2003). uploaders. The industry needed individual illegal uploaders, are all that the defendants violated to show that uploaders of part of this strategy. copyright and authorised High-profile litigation others to do so. At time of copyrighted music are not only against sites and services breaking the law, but can be High-volume notice print, the judge was preparing Where cooperation does not caught and made accountable. and takedown his decision in the case. work, the industry pursues In 2000, an initial 700 legal Notifications are sent to ISPs, strategic court cases against cases were launched against universities and companies Japan MMO internet sites and services bulk uploaders of music in when users are found using their This P2P service operator that build their business on Austria, Canada, Denmark, systems to offer unauthorised was found guilty of infringe- music that has not been paid for. France, Germany, Italy and UK. music on the internet. ISPs are ment and ordered to pay The industry’s main litigation In addition, more than 6,000 often cooperative in removing ¥36.9 million (US$350,000) strategy has been to stop cases have been brought to infringing web, FTP and links plus interest as compensation. infringement at the level of the date in the US, which started sites when they receive such The court also issued an services through which the bringing lawsuits in 2003. notice. In many cases, they injunction against the service. majority of unauthorised music will also block access to P2P files are available. The bulk of the In most of the countries involved, servers running on individuals’ Kuro, EzPeer (Taiwan) traffic on P2P networks is driven there has been a regular flow of computers, or block pre-release Taiwan courts have enjoined by a relatively small number settlements averaging a few music files being offered from these subscription P2P of uploaders – 75% of all thousand euros. In Austria, an individual’s computer. The services from offering 105 distribution is accounted around 50 cases were settled ISPs’ own terms of service infringing tracks. Civil and for by 15% of all individuals within three months, the highest typically prohibit individual users criminal proceedings continue. (NPD 2003). compensation payment being from engaging in such activities. Weblisten (Spain) EUR4,000. In Denmark and All six civil plaintiffs have Germany, over 100 cases have secured injunctions against been settled, with the highest this site in cases claiming that individual payment of the site offered streams and EUR13,000. downloads without licences from the record labels. Appeals and enforcement are pending. DIGITAL MUSIC REPORT 2005 PAGE 22
WHY FIGHT THE BATTLE? In the five years up to 2004, the “WE KNOW THAT THERE ARE MILLIONS number of infringing music files The aim of the record industry’s on the internet soared from 1 OF ILLEGAL FILES CIRCULATING ON THE educational and anti-piracy million to 1.1 billion. The problem actions is to help create a breathing INTERNET AT ANY GIVEN TIME. IN THE has been largely contained since space for the burgeoning online early 2003, when plans to act EUROPEAN PARLIAMENT WE HAVE music market, to raise aware- against illegal file-sharing were ness, change attitudes and DEALT WITH THIS BY PASSING EFFECTIVE first announced in the US and contain illegal file-sharing. Their the first raft of legitimate online LAWS TO LEGISLATE FOR THE INTERNET impact in 2004 has been visible. services were rolled out for AGE. THERE IS NO UPSIDE TO ILLEGAL INCREASING PUBLIC consumers. UPLOADING – IT UNDERMINES JOBS AWARENESS ABOUT ILLEGAL FILE-SHARING Measuring online piracy is an AND CREATIVITY. THE LAW IS THERE inexact business and often TO BE RESPECTED AND ENFORCED.” Seven out of ten people confused by the competing surveyed in North America ARLENE MCCARTHY, MEMBER OF THE claims and methodologies of and Europe are now aware countless research firms. EUROPEAN PARLIMENT that unauthorised file-sharing Methodologies range from is illegal. Before the recording counting website hits to software industry began its public downloads, traffic and request education initiatives and data, and user sampling. anti-piracy actions against unauthorised file-sharing, IFPI has consistently measured this figure stood at only 37%. the number of unauthorised music files offered at any one CONTAINING ILLEGAL time. This is based on the FILE-SHARING number of users per service, Online music piracy has the average number of files proliferated dramatically in per user, and the average recent years, but is being percentage of music files versus contained in the context of the other files offered by users. the dramatic increases in broadband coverage of the IFPI estimates show that last two years, and rising levels pirate music online has not of film and video piracy. grown since 2004 despite a massive increase in broadband
INFRINGING MUSIC FILES ON THE INTERNET (MILLIONS) IFPI INTERNET PIRACY TRACKING (MILLIONS)
1,200 1,500 160 Simultaneous infringing music files 1,000 140 Broadband households 1,10 0 120 800 900 870 1,000 800 100 600 600 80
400 60 500 40 Simultaneous infringing music files 200 Broadband households 20 0 0 0 Apr Apr Jan Jun Jan Dec Apr Jan Jun Jan 2002 2003 2004 2004 2005 2002 2003 2004 2004 2005
Source: IFPI, includes P2P networks and Web and FTP sites Source: IFPI and broadband data from PWC PAGE 23
usage across the music non-music files, such as film, industry’s most key markets. video and software. Music files INTERNET PIRACY: THE KEY STATISTICS In January 2005 there are around represent a smaller proportion 870 million infringing music files of the newer services – an 870 million unauthorised music files on the internet (all services), on the internet at any one time estimated 25% of files on January 2005 (down from 900 million in January 2004) (about 90% of them are on eDonkey are music, for example, P2P networks, the remainder as opposed to an estimated 8.6 million concurrent users on P2P networks offering on FTP and websites). This is 75% on Kazaa. unauthorised music files as of January 2005 (6.2 million in down slightly from 900 million in January 2004), but with a big rise in film and video files available January 2004 (and sharply down from 1.1 billion in April 2003). STEPPING UP 2.3 million concurrent users on Kazaa and its related services DETERRENCE IN 2005 (3.2 million in January 2004) Notable trends are the decline Legal actions against illegal in use of the largest service 150,000 infringing web/FTP music sites on the internet in file-sharing will be stepped up Kazaa, the rise in file-sharing of January 2005 (25% less than in January 2004) in an increasing number of films and video and the increase countries in 2005. Lawsuits, in illegal file-sharing activity on which up until now have been new services where there largely focused on users of has up until now been less Kazaa, will increasingly target enforcement. This led to a slight different networks, despite those increase in the overall estimated services’ devious techniques numbers of infringing music files to avoid liability. These include in the second half of 2004, from pushing various technical 800 million to 870 million files. functions to other users, encrypting communications, Indeed with the migration from using third parties’ internet Kazaa, use of other peer-to-peer accounts, moving infringing services (notably eDonkey, files off-shore, and disguising Gnutella, DirectConnect and their identities through various BitTorrent) rose in 2004. technical means. However, user numbers on those services increased more sharply than the number of infringing music files; this appears to be largely accounted for by a big rise in file-sharing of
ILLEGAL MUSIC FILES ON THE INTERNET (MILLIONS)
APRIL APRIL JANUARY JUNE JANUARY 2002 2003 2004 2004 2005
WEB & FTP SITES 100 100 100 100 110
P2P NETWORKS 500 1,000 800 700 760
TOTAL 600 1,100 900 800 870
“ILLEGAL COPYING PREVENTS CREATIVE PEOPLE MAKING A LIVING FROM THEIR ART.” BRIAN MIKKELSEN, MINISTER OF CULTURE, DENMARK IFPI Secretariat 54 Regent Street London W1B 5RE United Kingdom
Tel: +44 (0)20 7878 7900 Fax: +44 (0)20 7878 7950 Email: [email protected] www.ifpi.org www.pro-music.org
Published by IFPI, January 2005 Copyright©2005, International Federation of the Phonographic Industry (IFPI) All data, copy and images are subject to copyright and may not be reproduced, transmitted or made available without permission from IFPI
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