IFPI Digital Music Report 2010 Music how, when, where you want it Contents 3. Introduction 4. Executive Summary: Music – Pathfinder In The Creative Industries’ Revolution 8. The Diversification Of Business Models 10. Digital Music Sales Around The World 12. In Profile: Pioneers Of Digital Music 18. Competing In A Rigged Market – The Problem Of Illegal File-Sharing 20. ‘Climate Change’ For All Creative Industries 24. Graduated Response – A Proportionate, Preventative Solution 28. The World Of Legal Music Services 30. Consumer Education – Lessons Learned Music How, When, Where You Want It – But Not Without Addressing Piracy By John Kennedy, Chairman & Chief Executive, IFPI This is the seventh IFPI Digital Music in new artists, we have to tackle mass legislation to curb illegal file-sharing. Report. If you compare it to the first piracy. Second, we are progressing towards Another clear change is within the music report published in 2004, you can an effective response. The progress is sector itself. It was, until recently, rare see a transformation in a business agonisingly slow for an industry which does for artists to engage in a public debate which has worked with the advance not have a lot of time to play with – but it is about piracy or admit it damages them. of technology, listened to the consumer progress nonetheless. In September 2009, the mood changed. and responded by licensing its music Lily Allen spoke out about the impact of in new formats and channels. On page 20 of the Report, Stephen illegal file-sharing on young artists’ careers. Garrett, head of the production company When she was attacked by an abusive In 2009 globally, for the first time, more Kudos, refers to a “climate change” in online mob, others came to her support. than one quarter of record companies’ the creative industries. That expression revenues came from digital channels. The mood of change is clearly reaching Fans can acquire tracks and albums governments. In 2009, legislation in ways inconceivable a few years “ To continue to invest in requiring ISPs to tackle P2P piracy was ago – from download stores, streaming adopted in France, South Korea and sites, subscription services, free-to-user new artists, we have to tackle Taiwan. These countries established in sites, bundled with their broadband or a mass piracy.” law that it is appropriate for those who mobile phone handset. persistently violate copyright, despite repeated warnings, to face a proportionate It would be great to report these captures the way the debate over digital and effective sanction. This sets a innovations have been rewarded by piracy has evolved. You hear it around tremendous precedent in the protection market growth, more investment in artists, the world: this is no longer just a problem of intellectual property rights online. In more jobs. Sadly that is not the case. for music, it is a problem for the creative the UK, as in France, it is understood that Digital piracy remains a huge barrier to industries: affecting film, TV, books and government has a key role in protecting market growth. The slump in sales and games. In this arena, the music industry content on the internet. Even in the most investment in three major music markets is the pathfinder of the creative industries, competitive, innovative and market-driven outlined in the Report testify to this and pioneering with new offerings for the industries, the market itself can only are a warning to the rest of the world. consumer. In 2009, Rupert Murdoch operate under the effective rule of law. On the positive side, we have built a said that the content kleptomaniacs US$4.2 billion digital business full of should not triumph and Microsoft spoke This Report points the way to an optimistic consumer-friendly services. On the out against piracy, ready to ban players future for the music industry – great negative side, our global sales fell by from Xbox live if they had modified their offerings for consumers, more investment around 30 per cent from 2004 to 2009, consoles to play pirated discs – no three in artists, economic growth and more jobs. the growth of our digital sales is slowing strikes procedure needed! Yet we are nowhere near that future today, and even the success stories reported and we will not get there without a secure in this publication will struggle to survive The thinking behind the debate has legal environment where creative work is unless we address the fundamental also crucially changed. It is about the rewarded and copyright theft is effectively problem of piracy. future of a broad base of creative industries deterred. To unlock the enormous that have huge economic importance potential of digital music, we have to Some ask, ‘why not give up the fight?’ and employ vast numbers of people. address piracy both on P2P networks The answer is straightforward – first, we This is one of the reasons why the French, and in other forms. That is where, today, cannot afford to. To continue to invest UK and other governments are set on we look to governments for action. n 3 Digital Music Report 2010 Executive Summary: Music – Pathfinder In The Creative Industries’ Digital Revolution “ Our aim is not simply to be digitally savvy – our aim is to be consumer savvy.” Elio Leoni-Sceti, Chief Executive, EMI Music A diversifying industry New business models The music business is continuing to “ Our vision is music availability Record labels are making music lead the creative industries into the everywhere, at any time available in an unprecedented digital revolution. In 2009, for the first number of ways. A few years time ever, more than a quarter of the and in any place. But the ago, an album would have been recorded music industry’s global revenues biggest question is how do we delivered in just a few formats. (27%) came from digital channels – a monetise it in an environment Today, albums come in hundreds market worth an estimated US$4.2 billion of formats and products. in trade value, up 12 per cent on 2008 of widespread piracy?” For example, Beyoncé’s (IFPI). In the US, the world’s largest music Eric Daugan, Senior Vice I Am... Sasha Fierce album market, online and mobile revenues President, Commercial Strategy, is available in more than now account for around 40 per cent of 260 different products in music sales. Consumer choice has been Warner Music International EMEA the US including music transformed as companies have licensed videos, mastertones, more than 11 million tracks to around “Our aim is not simply to be digitally ringback tones and 400 legal music services worldwide. savvy – our aim is to be consumer savvy. audio tracks. We know that people want to consume Fans today can access and pay for music music digitally, so we need to be digitally Over the past couple of in diverse ways – from buying tracks aware, have digital capabilities and years, music companies or albums from download stores, and marketing ability,” says Elio Leoni-Sceti, have partnered with using subscription services, to using Chief Executive, EMI Music. ad-supported services music services that are bundled with such as Spotify, Deezer, devices, buying mobile apps for music, In the digital era, the music industry MySpace Music and and listening to music through streaming is diversifying its business models and We7, ISPs such as services for free. revenue streams. The à-la-carte download TDC in Denmark, Terra model, pioneered by iTunes, remains the in Brazil and Sky in the Music companies have licensed advertising largest revenue source in the online sector UK, mobile operators such –supported services to attract non-payers and has more than 100 million accounts as Vodafone, handset makers and file-sharers, struck groundbreaking across 23 countries (Apple). Recent such as Nokia and Sony Ericsson, deals with major ISPs, developed innovations in the à-la-carte sector include and online video channels such as partnerships with device manufacturers the introduction of variable pricing, which Hulu and VEVO. and established a new platform for has increased the conversion of track high-quality music videos aimed at mass purchases to album sales, as well as the audiences. All of these initiatives are launch of the iTunes LP and the rollout of experimental and innovative, and all are DRM-free downloads internationally. predicated on the simple principle of meeting the needs of the music fan. 4 Executive Summary Access and bundling Barriers to growth Despite this progress, the challenge is “ We’re much closer to the utopia, The digital music business still faces to take digital music to the commercial where we’re extracting €1 out of many barriers to its growth. These include mass market and “monetise” existing a million consumers as opposed lack of marketing by services in some behaviour. There is huge untapped countries, problems with publishing rights, consumer demand and potential for to €10 out of a thousand.” consumer reluctance to make online growth. Research conducted by Rob Wells, Senior Vice payments and the complex challenge Capgemini found that 70 per President, Digital, Universal of creating services that are user-friendly cent of all music consumed to different consumer groups. in the US, UK, France and Music Group International Germany came through digital Transcending all these obstacles, channels, while revenues “Music access” is seen as a compelling however, is the problem of digital piracy. from digital platforms in those legitimate alternative to piracy. Music Numerous indicators, outlined on page countries accounted for only 35 is bundled with services and devices, 18 of the report, confirm digital piracy per cent of industry revenues. or offered at no cost to the consumer is choking revenues, new services and One way of realising this on an advertising-supported basis.