IFPI Digital Music Report 2010 - Music how, when, where you want it
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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. investment. Surveys also confirm the
growth potential is to generate This low “average revenue per user” simple proposition supported by focus
value from the behaviour of and high volume approach is seen groups and anecdotes everywhere –
the vast number of people as one of many hybrid revenue models that the majority of consumers who
who currently do not pay for rather than a single model for the future. illegally download, rather than use the
music they consume. many legitimate alternatives available
Convergence of services across today, do so because of the lure of “free”.
In the US, only 18 per cent devices is also a major theme in
of internet users aged 13 digital music. This is helping break A variety of third-party research
and over regularly buy digital down the interoperability barriers that conclusively indicates that the net
music today (NPD Group). have limited the consumer appeal of effect of illegal file-sharing is reduced
In Europe, digital some services and restricted the growth purchasing of music. This is despite the
adoption is even of the digital business. Each year obvious fact, also borne out in research,
less widespread – the consumer is getting a better deal that some file-sharers are often also
only 8 per cent as it becomes easier to transfer and buyers of music.
of internet users use music across multiple screens
in the top five and platforms. In 2009 for example,
EU markets mobile applications brought streaming “In order to take the business
frequently buy services Spotify, Deezer and others to the next level and capture
music digitally to devices like the iPhone, allowing a
(Forrester). premium service offering portability. the enormous potential that’s
This convergence of services and still untapped, we need new
devices, opening up new revenue services to truly break through
channels is expected to accelerate.
to the mass market. To do that,
an attractive user interface,
a strong value proposition
and a clear marketing message
are essential, as is an effective
way of curbing piracy.”
Thomas Hesse, President,
Global Digital Business, U.S.
Sales & Corporate Strategy, Sony
5
Digital Music Report 2010
Piracy hits investment Digital Music: Charting Change
The crippling effects of illegal file-
sharing are clear. Overall music sales 2003 2009
fell by around 30 per cent between
2004 and 2009. The worst-affected Licensed music services Less than 50 400+
markets are countries where, despite Catalogue available 1 million 11m + tracks
the industry’s efforts, legitimate digital
services have had little chance to take Industry’s digital revenues US$20m US$4.2 billion
root. In Spain where legal problems
have frustrated the ability to take action % of industry’s revenues Negligible 27%
against piracy, sales fell by around 17 from digital channels
per cent in 2009 and the market is
now about one third of its level in 2001.
In Spain and elsewhere the victim
has been investment in local acts.
The number of local artist album sales
fell by 65 per cent between
2004 and 2009. In France,
the number of local repertoire
album releases plummeted
from 271 in the first half of
2003 to 107 in the same
period of 2009. In Brazil, local
full priced artist album releases
by the five biggest music
companies slumped 80 per
cent between 2004 and 2008.
Salvador Cufi, Chairman of
indie label Musica Global,
based in Girona, Spain, says
“We have made a great effort
to digitise our catalogues
and to create new business
models for the internet – but
there is no way in today’s
market that we can make
those investments profitable.
It is a very sad situation that
we can no longer invest in
new artists in the way we
would like.”
Eric Daugan, Senior Vice 260+: Number
President, Commercial of different products
Strategy, Warner Music International
EMEA, says “Our vision is music Beyoncé’s I Am...
available everywhere, at any time Research by Harris Interactive in the
and in any place, but the biggest UK shows that although P2P remains Sasha Fierce was made
question is how do we monetise it in the major piracy problem, the illegal available in during 2009
an environment of widespread piracy? distribution of music through other
One way is to come up with products channels grew considerably in 2009.
that people want to consume, and
that is our responsibility. But if these Unlicensed download sites, news
products and services are to flourish groups, specialised search engines,
we also need help from governments forums, blogs and cyberlockers were
and ISPs.” all significant channels for infringement.
6
Executive Summary
“There have to be sanctions, ISPs have to be involved and there
needs to be back-up legislation. I would have preferred a purely
commercial solution to achieve this, but sadly it doesn’t look
as if that is going to happen. That is why there needs to
be the encouragement coming from legislation.”
Martin Mills, Chairman, Beggars Group
Case studies, creative industries education alone, while it has effectively
There are indications, in Sweden raised awareness of the legal and
and South Korea, of the positive ethical issues around unauthorised
impact of a strengthened copyright downloading, does not change
environment on curbing piracy and consumer behaviour. Good legitimate
enhancing legitimate sales. music offerings and meaningful
deterrence are vital in this process.
Case studies in this report show
improved music sales in those countries Legislation, ISP cooperation
in 2009, though sustained action will be The music industry and other creative
needed to maintain this progress. sectors around the world are seeking
to engage ISPs in curbing digital piracy
Digital piracy rose sharply on the on their networks. In most countries,
agenda of all creative industries in this requires help from governments in
2009. With the rapid advance of establishing a consistent and effective
technology, games manufacturers, response from the entire ISP community.
film and television producers and The most widely considered approach
book publishers are now facing the so far is a graduated response model,
same challenges felt by the music involving escalating warnings to infringers
industry at the start of the decade. culminating, as a last resort for those
Simon Renshaw, artist manager, says who refuse to stop, in he sanction of
“What I worry about is that we are temporary account suspension. The
heading into a world where copyright graduated response is a proportionate,
has no value and where there’s effective way to curb piracy.
no incentive for anyone to provide
patronage and support for the creators IFPI first called for ISPs to cooperate
of intellectual property.” in a graduated response system in
2005. Five years later, voluntary
Consumer education means have largely failed to progress.
Consumer education has a vital role A number of governments however,
to play, and the music industry is including France, UK, New Zealand,
currently involved in more than 70 South Korea and Taiwan, have enacted
awareness programmes across the legislation to require such cooperation
world. It is clear however, that consumer or are in the process of doing so. n
“A decade’s worth of music file-sharing and swiping has
made clear that the people it hurts are the creators...
and the people this reverse Robin Hooding benefits are
rich service providers, whose swollen profits perfectly mirror
the lost receipts of the music business.”
Bono, singer-songwriter, in the New York Times, January 2010
7
Digital Music Report 2010
The Diversification Of Business Models
“We are shaping our own future by finding new ways of getting music
into people’s lives.”
Lucian Grainge, Chairman and CEO, Universal Music Group International
Downloads continue to grow consumer demand for
A-la-carte download services account for content such as video
the majority of online revenues and saw is increasing network
steady growth. Three key developments costs. Music and other
in 2009 were: the roll-out of more DRM- entertainment content
free services, continued growth in digital help ISPs reduce ‘churn’
album offerings and the introduction of and retain customers as
variable pricing. well as generating new revenues.
Music companies have expanded their TDC’s PLAY service was the first
licensing of DRM-free à-la-carte services ISP music service to
internationally. Fans can now transfer launch. Today it offers
their purchased music files to different TDC’s broadband, mobile
portable players when they buy from and cable customers in
virtually any online service. Digital album Denmark unlimited music
sales grew faster than single track streaming from a catalogue
purchases in many markets. Variable of 6.1 million tracks at no
pricing, by which catalogue music is additional cost. TDC’s online customer Vodafone for example is active in more
discounted relative to new top charting churn was reduced by 50 per cent, for than 20 countries, offering both à-la-carte
tracks, helps increase the conversion of those who used TDC Play. and unlimited subscription services. In
track purchases into album sales. April 2009 Vodafone Spain launched
In the UK, home entertainment company an unlimited music subscription service
The launch of iTunes LP – a deluxe digital Sky launched Sky Songs in October bundled with an overall mobile service
format – boosted demand for premium 2009 offering consumers unlimited which attracted more than 100,000 users
albums which account, on average, for 65- streaming of more than four million tracks shortly after launch.
70 per cent of the sales of a major digital with packages of 10-15 downloads per
album release. Artists from Bob Dylan to month. This new offering is powered by Music subscriptions bundled
Jay-Z are engaging fans in this new way. music service Omnifone. with devices
Premium album downloads often outsell Mobile handset manufacturers Nokia
regular versions. During the first week of In Brazil, Terra Networks, part of and SonyEricsson started offering
sales through iTunes in Europe, the deluxe the Telefonica Group, launched Sonora unlimited music services bundled with
version of Michael Bublé’s Crazy Love out- in 2006. The service offers unlimited mobile phones in 2008. The global
sold the standard version by a ratio of 3:1. music streaming through a “tethered” reach of these players brings enormous
subscription service with a fee bundled opportunities. Nokia is the biggest
ISP and mobile partnerships into the ISP bill. In February 2009 Sonora mobile device manufacturer in the
Internet service providers (ISPs) launched a new service tier – 20 hours world selling more than 450 million
are increasingly looking to become of music streams per month, free-to- phones every year.
commercial partners of music consumer on an ad-supported basis.
companies. They can add value to The new offer attracted more than three Nokia’s Comes With Music (CWM)
the ISPs’ offers at a time when their million users in less than one year. Mobile expanded widely into international markets
traditional broadband market is close operators also increasingly offer added- in 2009, launching in 11 countries.
to saturation in many markets and value content. The service has enjoyed particular
8
The Diversification Of Business Models
signed-up to date. Unlimited streaming deal with YouTube in September 2009
“The key for all of us in the is free on a computer and is advertising- that created a feature-rich experience
industry is to continue to supported. Portable access through a for fans accessing music related-content
mobile application with no advertising from Warner Music artists, including a
experiment, to be somewhat is available for €9.99 a month. Spotify high-quality premium player, enhanced
agnostic in our approach.” has reached an agreement with Swedish channels and links to artist websites.
Ron Werre, President, EMI ISP TeliaSonera, allowing its customers The agreement also allowed the record
to pay for the premium service on their company to sell advertising alongside
Music Services broadband bill. videos that use its music across
multiple channels.
Another service operating a similar
model is Deezer, a web-based Thomas Hesse, president, Global Digital
service which users can access on Business, US Sales and Corporate
any computer without the need to Strategy, Sony Music Entertainment,
download software. It offers music says “VEVO was created to improve
streaming and personalised web the experience for both customers
radios and has attracted more than and advertisers with a new premium
16 million users to date, including environment dedicated to viewing
10 million in France. Advertising- professionally produced content.”
supported models have shown some
success in migrating users unwilling Hulu is another service offering
to pay for music and who have mainly music videos and live concerts
used illegal file-sharing services. online. MySpace Music has also
According to GfK, six out of 12 extended its service to launch
Swedish users of Spotify reported MySpace Music Videos.
in July they had stopped or cut
down on their file-sharing activity Direct to consumer
since using the service. Labels also work to support artists in
success in Latin America. In Mexico, direct-to-consumer sales of music,
there were 10 million downloads in the iTunes announced in late 2009 that merchandising and concert tickets.
first six months of the service’s operation it was purchasing Lala, in a move Warner Music started to take artist
and Brazil is now CWM’s top-selling that industry commentators said could websites in-house in 2008 and now
territory. “Comes with Music is a strategic lead to the company becoming involved operates them for around a quarter
move to transform the company from a in the streaming market. of its European roster. In Spain, the
handset manufacturer into an internet company runs artist Alejandro Sanz’s
services company. Music is obviously an Monetising music videos online official site, signing up around 80
important pillar out of all the services that Music video is a leading growth area per cent of his fan club to premium
we’re launching”, says Adrian Harley, in digital music, driven by the success membership for €38.99 a year.
Nokia Music Manager, Brazil of streaming services. According to a The site’s monthly unique user
and Southern Cone. study by Jupiter Research in 2009, sites numbers soared by 300 per cent
such as YouTube dominate digital music since Warner began to work with
Other types of device partnerships activity in Europe with nearly one-third of Sanz on it, with the artist blogging
include Dell’s bundling of the all internet users (31%) watching music four or five times a day to help generate
subscription service Rhapsody with its videos online. an active online community. n
computers in the US and with Napster
in the UK for a limited period. In December 2009, Universal Music
Group and Sony Music Entertainment
The rise of streaming services
1/3: Nearly a third
partnered with YouTube and the Abu
A key development in 2009 was Dhabi Media Company to launch VEVO
the growth of advertising-supported in the US and Canada. The service has
services that offer music streaming at also signed an agreement with EMI of European internet
no cost to fans. The “upselling” of users Music. The service is focused on the users watch music
to premium services is critical to the ad-supported distribution of professional
long-term success of these companies. music videos online through the VEVO videos online
Spotify is one of the highest-profile channel within YouTube, through VEVO.
of such services. More than seven com and other online destinations. In a
million users across six countries have separate move, Warner Music signed a
9
Lady Gaga Jason Mraz
Black Eyed Peas
Digital Music Sales Around The World
Music companies’ global digital revenues Top 10 Digital Songs 2009
grew by an estimated 12 per cent in
2009 totalling US$ 4.2 billion in trade
ARTIST TITLE SALES
revenues. Digital channels now account Lady Gaga Poker Face 9.8m
for 27 per cent of music sales, up from Black Eyed Peas Boom Boom Pow 8.5m
21 per cent in 2008 (IFPI). The music Jason Mraz I’m Yours 8.1m
sector is generating far greater value from Lady Gaga Just Dance 7.7m
the online and mobile market than any
Black Eyed Peas I Gotta Feeling 7.1m
other sector in the creative industries,
Taylor Swift Love Story 6.5m
with the exception of electronic games.
Music companies’ revenues from digital Beyoncé Single Ladies (Put A Ring On It) 6.1m
channels are now proportionately more Soulja Boy Tell’Em Kiss Me Thru The Phone 5.7m
than double that of the film, newspaper Kanye West Heartless 5.5m
and magazine industries combined. Britney Spears Circus 5.5m
Source: IFPI. Chart includes online single tracks, audio and video mastertones, ringback tones and full track downloads
Despite this success, the increase in to mobile. Period of 12 months to November 2009. Sales are rounded. Combines all versions of the same song.
the music industry’s digital sales is not
offsetting the sharp decline in sales of Global Digital Revenues Share
physical formats. Overall, global music
35
sales fell for the tenth year running
in 2009. Full year figures were not
available at the time of going to press, 30
but digital and physical global sales
in the first half of 2009 were down 25
12 per cent, excluding performance
rights income (IFPI). 20
In the largest digital music market, 32%
15
the US, within the space of eight 27%
years digital revenues have gone from
10
practically zero to accounting for around
40 per cent of the US music market
5
(RIAA). iTunes is now the biggest music
5% 4%
retailer in the US, accounting for 25 2%
per cent of the overall music market, 0
Games Recorded music Films Newspapers Magazines
followed by Walmart, Best Buy and
Amazon (NPD Music Watch). Sources: IFPI, PWC Global Entertainment and Media Outlook
10Taylor Swift
Beyoncé
In Asia, around a quarter of the music A study by Jupiter Research in March Globally, single tracks crossed the
business is now composed of digital 2009 highlighted some reasons for 1.5 billion mark for the first time,
revenues, set against a backdrop of Europe’s digital lag: up an estimated 10 per cent on 2008.
sharply falling physical sales (IFPI). Digital albums grew an estimated
Digital sales in China, Indonesia, n The impact of music piracy – there 20 per cent, double the rate of single
South Korea and Thailand now are 29.8 million frequent users of tracks. Today, around 20 per cent
account for more than half of all file-sharing services in the top five of albums sold in the US are digital
music sales. South Korea has seen EU markets alone and other forms of and around 15 per cent in the UK
the benefits of a stronger copyright piracy are growing. Trends indicate a (RIAA, BPI).
environment and there has been north-south divide, with Italy and Spain
strong growth in MP3 subscription showing considerably higher piracy The best selling single track of 2009
services (see page 26). Japan, the levels. Paid digital music services have a was Lady Gaga’s Poker Face, selling a
biggest market in the region, was fundamental problem in competing with total of 9.8 million units. By comparison,
hit by mobile piracy and economic widespread illegal downloading. the best-selling digital single track
downturn, seeing CD sales fall by in 2008, Lil Wayne’s Lollipop, sold
more than 20 per cent in the first n Europe’s higher taxation levels compared 9.1 million units and in 2007 Avril
half of 2009, while digital sales to the US, different royalty structures and Lavigne’s Girlfriend sold 7.3 million
were flat. a fragmented rights landscape makes units (IFPI).
pan-European licensing a resource-
Strong downloading demand helped intensive and complicated process. Global mobile music revenues fell in
Australia become one of the few 2009, hit by piracy, lack of operator
developed music markets to achieve the n High-street retail consolidation started support for music services in some
“holy grail” of overall growth in the first earlier in the US. This drove active markets and saturation of the
half of 2009, as the rise in digital music music fans online earlier, both to mastertones sector. On the other
sales offset a small decline in revenues online CD retailers such as Amazon hand, single track mobile downloads
from physical formats. Digital album as well as digital stores. were stable and ringback tones
sales nearly doubled in the first half of continued to grow thanks to strong
2009, representing almost 8 per cent of n The $0.99 à-la-carte model has been sales in the US, Japan and India.
overall album sales, and digital albums better suited to the US compared to the
are proving especially popular in the fragmented European market given the Music subscriptions continued, and
early days after a title’s release (ARIA). comparatively low margins, which favour are expected to grow, account for
Some local artist releases, for example large players and economies of scale. more than 5 per cent of digital sales
those by Australian artists Eskimo Joe, in 2009 (IFPI). Services such as
Hilltop Hoods and Paul Dempsey, saw Latin America closely follows Europe TDC PLAY, Nokia Comes With Music,
digital album sales of between 15 and in terms of digital share, with nearly Spotify Premium and Vodafone drove
20 per cent of total first week sales. 15 per cent of revenues coming from this growth. Despite still accounting
digital channels. Brazil is the biggest for a modest share of overall digital
Europe continues to lag behind in digital market in the region and saw revenues, advertising-supported
digital adoption, with only around the successful development of services revenues are also expected to
15 per cent of sales coming from including Nokia Comes With Music and show strong growth in 2009. n
digital channels. In 2009 however, Terra Sonora in 2009. Mexico saw the
Europe was the fastest growing region introduction of the iTunes store in August
in terms of digital sales. 2009 – the first in the region.
11Digital Music Report 2010
In Profile: Pioneers Of Digital Music
People thought after six months that they had
Music To The Household nothing to show for the money they had spent.
Neil Martin, Business Development And who are we to determine how people should
Director, Sky Songs enjoy music? If people want to buy music in bursts,
we want their business.”
The UK home entertainment company Sky’s music
service, launched in partnership with all major and Sky has invested heavily in editorial support for the
many independent record companies in October site. “You can’t just dump people in front of 150 years’
2009, is the most high-profile tie-up to date worth of repertoire and leave them to get on with it.
between the music industry and an ISP. You need to help people explore and discover new
music otherwise they will be hit by choice paralysis.”
“Sky is synonymous with premium content and
great hi-tech driven solutions. We’re also known “We understand this through our work in television,
for our pioneering work in launching and growing where schedulers provide choice that ensures people
subscription services where people are happy watch more than two or three of the 600 channels
to pay for content. We therefore had skills in available on the Sky platform. With Sky Songs,
the company that were relevant to launching a editorial can lead people to
digital music service” says Neil Martin, business explore certain genres or tracks.
development director. The other day, the most visited
page on the service was a playlist
Sky Songs is part of the company’s broader move of the greatest-ever funeral
to multi-platform delivery, which includes the songs, something that was driven
launch of Sky Player on Xbox and mobile TV on the by a piece of editorial.”
iPhone. “The way people use media is changing.
A mainstream audience is now comfortable with Sky believes the increased
enjoying content on different media – their phone, adoption of digital services will
their PC and their TV.” be driven by the quality of the
user experience offered. “When
The service offers music fans unlimited streaming of we sold Sky Plus (a personal
more than four million tracks and the opportunity to video recorder service), we didn’t
download an album or 10 individual tracks for £6.49 sell the technology, we sold what
per month or 15 tracks for £7.99 per month. Users it enabled you to do. Now it is in
have the option of signing up for one month only. 25 per cent of UK homes. You
“Subscription don’t sell bits and bytes, you
services that sell the user experience. People
locked people enthused about Sky Plus to
into long their friends at parties or
contracts without down the pub. We want to
the option of generate such advocacy for
downloading Sky Songs because of the
were not popular. quality of the service.” n
12In Profile: Pioneers Of Digital Music
Replacing Piracy
With Partnership
Jonathan Benassaya, CEO of Deezer
Deezer is a France-based ad-supported music
streaming service. It has made the migration from
being unlicensed and illegal to being a valued
partner to the music industry. “In the US, start-ups
usually begin in a garage; in Paris my partner started
out in the music business in my kitchen – launching
a website called blogmusik.net” says Jonathan
Benassaya. “He soon received letters from bodies
representing rights holders saying the service was
illegal and must be shut
down. He did that and then I sat down with him and the
rights holders to see if we could work out a way forward.”
The result was Deezer, a licensed and legal website that
users can access anywhere using a browser. The service
offers on demand music streaming, web radio and a smart
radio tool similar to Last.fm or Pandora. Once users have
listened to their own playlist a number of times they tend to
switch to web radio to find out about new hits or the smart
radio tool to discover new tracks. Deezer also offers a free
mobile application for its web radio service. For the on-
demand portable feature users pay €9.99 per month.
The company has gone from three people in August 2007
to 45 people to date. “Our focus is on profitability instead
of international expansion. That’s why we’ve done a huge
job in France trying to optimise everything - from the
music rights to the cost structure. We’ve grown from
100,000 unique visitors to 16 million across Europe,
including almost 12 million in France.” n
13Digital Music Report 2010
Around 65-70 per cent of the music accessed on
Spotify is back catalogue rather than new releases,
with the service functioning highly effectively as
a music discovery tool. “Ultimately, it’s
because the platform is so quick and
it’s so easy to listen to whatever music
you want within three seconds.”
Spotify’s primary objective is to migrate
illegal file-sharers to its service, shifting
15-25 year old music fans to a legal
model that puts money back into the
creation of new music. The service is
also attracting music fans over the age
of 30 and this demographic has a much
higher conversion rate from Spotify’s
free service to its premium offering.
Spot & Identify
Daniel Ek, CEO of Spotify “If you take one per cent of all the radio
advertising and display advertising
Spotify today offers registered users free access revenue and put it into the digital music
to more than 6.5 million tracks to stream, while market then you have the equivalent of
premium services enable fans that pay a monthly 16-20 per cent of the UK digital music
fee to listen to music on their mobile handsets market. So it’s not impossible to build
and to strip away the advertising that supports an advertising-supported service that
the free model. delivers revenues for the music industry,
but ultimately it’s the mix between this
“In 2006 when we started working on the project, model and paid models that will help
the company was just me and a colleague. grow overall revenue.”
We quickly hired another four guys. When we
launched in October 2008 we had around 40 Spotify is planning international
people on the staff. Right now, there are about expansion. The company is partnering
110 people working for the company.” with tom.com, the biggest internet portal
in China, which also has established
“When I launched Spotify, I felt there was an partnerships with handset manufacturers
inconsistency between how people consumed and telecoms. “Chinese people are very
music and the way the business model worked. used to paying for mobile
We are now using technology to bridge a business content. That’s something
problem and make it more accessible for that’s been proved over
consumers to get music. At the same time, and over.”
the protection of the content is important so that
the revenues derived flow back to the artists.” In the US, Spotify’s
goal is to increase the
Ek believes that the digital music business in number of subscribers
Europe can grow at least fourfold in the next to a music service
few years. “We’ve been focusing on the user by a factor of five.
experience. Our aim has been to do something “This is obviously a huge
that consumers love and then figure out how to task and might take a couple years to reach.” n
monetise it.”
14In Profile: Pioneers Of Digital Music
The Pioneer ISP
Tejs Bautrup, Music Manager,
TDC Play
TDC was the first ISP worldwide to offer a free-
to-user music access service. Customers can The company has seen competitors enter the
access the service through their computer at market in Denmark, but these all offer standalone
home or their mobile phone if they are on the subscriptions for around US$14 per month, while
TDC network. the TDC service is free to customers and also offers
unlimited streaming. “We think that the launch
By November 2009, the company reported that of TDC PLAY has had some impact on piracy in
more than 140 million downloads had been Denmark. A third-party survey last year suggested
made using the service, the equivalent of 2.5 that 40 per cent of PLAY customers said they have
downloads a second since launch. The hundred stopped engaging in music piracy.”
most popular artists accounted for 35 per cent
of all downloaded tracks and 50 per cent of the “We were the pioneers in offering this type of
tracks available had been downloaded in the first service for consumers and we are proud of that.
year of launch. We have had people from around the world asking
about how it can be imitated. This is a genuinely
“The Danish market has a high rate of customer new way of looking at the online music market.” n
churn in the broadband market. TDC PLAY
has allowed us to reduce our churn among our
broadband customers.”
15
33Digital Music Report 2010
there’s a significant opportunity to
build a large and global audience,
perhaps the largest audience around
music there’s ever been.”
Music videos and related content are
embedded in YouTube, but will also be
available on VEVO’s own website and
through many other platforms. There
is a huge potential audience. Some
450 million people a month worldwide
visit YouTube and more than 60 per
A New Take On cent of them consume some form of
music programming. The site became
Music Videos the largest music video network on the
Rio Caraeff, CEO Of Vevo web when it launched in December
and will roll-out to key territories
VEVO is a new concept created worldwide this year.
in partnership between Google’s
YouTube, Universal Music and “Music videos are largely the same
Sony Music. The organisation has as they have been for the last 30
also signed a multi-year licence with years. They don’t reflect the transition
EMI Music. With three of the four from being primarily consumed
major record labels on board and on television, a linear medium, to
partnerships with independent music the internet, which is a two-way
companies including The Orchard communication platform.”
and INgrooves, VEVO offers 85 per
cent of the music videos available The company is focused on
on the market and is looking to sign advertising and integrated brand
future deals with additional music sponsorship. Caraeff brushes off
companies. It aims to create a better fears that such revenue may not be
music video experience for fans and available in tight economic times.
a more attractive online environment “Online video advertising grew by 300
for advertisers. per cent last year, with brands looking
for more premium content than is
“The idea behind VEVO is for music currently available.”
companies to be more responsible
for their destiny. We’re not trying to “We will be producing new original
protect old business models, we’re programming and we will be licensing
only focused on what’s best for the in content that’s never been made
music lover. If we can do that then available before. Music video will form
we will be interesting to artists, labels the foundation of what is VEVO but it
and advertisers. Doing things the old won’t end at music videos, it will just
way is clearly not working. We think grow from there.” n
16In Profile: Pioneers Of Digital Music
Brazil is the number one market for Nokia Comes
From Handset With Music. By the end of the third quarter of
Makers To 2009, Comes With Music had claimed around
10 per cent of the digital music market in Brazil.
Music Providers This success is partly put down to the fact that
Tero Ojanpero, Executive VP the phones are not sold there without premium
Of Services, Nokia CWM music service. Availability of licensed local
repertoire is also important - Nokia secured a
Nokia Comes With Music (CWM) was catalogue of six million tracks including 200
one of the most high-profile launches Brazilian independents and more than 2,000
of 2008 and 2009 saw it roll out to international independent labels.
13 countries around the world.
Ojanpero says: “Each market is unique and
“We are optimistic about the digital music business you need to align different things: the service
and how it can expand. We want to make music needs to be great, you need a great mobile
discovery as simple as possible and remove device, a good approach to the market and
obstacles” says Tero Ojanpero. “CWM is a service channel support from the retailers and operators.
that’s part of your handset – you get unlimited Only by aligning all of those things can you can
downloads and you keep them forever. That’s the get a scalable model.” n
special selling point, and there is no other service
with these terms available in the marketplace.”
Top100.cn is
A Legitimate Foothold licensed by
the majors
In China and 10,000
Gary Chen, CEO Of Top100.cn independent
labels to make
China’s digital music landscape remains dominated four million
by mass-scale copyright infringer Baidu and other tracks available.
“deep link” infringing distributors. However, a very The company
small legitimate sector is battling to gain a foothold. currently
Top100.cn is the streaming and downloading service facilitates five
behind the Google music search in China, launched million music
in March 2009. The company aims its service at streams and downloads daily.
the 217 million online users in China that stream or
download music illegally. “We are the first licensed “It is a labour intensive task to add extra tracks
service to really exploit this user base and take on the to the service. We have 60 full-time and 30 part-
pirate services.” time staff working on this. We have to wait for
clearance to use tracks and only distribute them
Gary Chen thinks he can take on pirate when they are officially released. Pirate services
services by offering a better user experience. do not operate under those restrictions.”
“We provide access to music for free in just two
clicks, compared with the three clicks it takes on The service places cost-per-click advertising and
unlicensed sites. We offer 100,000 Chinese tracks targets international brands that want to reach
alone, representing virtually all the local repertoire younger consumers in China, now the world’s
ever digitised and licensed.” second largest advertising market. n
17Digital Music Report 2010
Competing In A Rigged Market –
The Problem Of Illegal File Sharing
“We can no longer invest in new artists in the way we would like.”
Salvador Cufi, Chairman of indie label Musica Global
Piracy – The impact on sales relationship between file-sharing and sales increased their file-sharing activity
Music companies and legitimate music of sound recordings.” Research from in 2008 did so “because it’s free”.
services are trying to build their online Harris Interactive in 2009 among 3,400 In Norway, research by Norstat in 2009
business in a rigged market deluged by online consumers aged 16-54 in the also found the most cited reason for
unauthorised free content. The growth UK highlighted that nearly one in four illegal downloading from P2P
of illegal file-sharing has been a major P2P file-sharers (24%) typically spend services was “because it’s free”.
factor in the decline in legitimate music nothing on music, while also finding an Further studies came to broadly
sales over the last decade, with global overlap of legal and illegal downloading the same conclusion in Japan
industry revenues down around 30 per among some file-sharers. and Belgium in 2009 (IFPI).
cent from 2004 to 2009. In virtually
every country of the world, spending on Jupiter Research study in five
A
recorded music has fallen since illegal European countries among 5,000
file-sharing became widespread. internet users aged 15 and over in 2009
found that, although there is an overlap
All but a few of the independent surveys between the habits of online music
confirm that the net impact of illegal buyers and file-sharers, most illegal file-
file-sharing is to reduce spending on sharers “do not buy music and are nearly
legitimate music. Most academic studies half as likely as music buyers to buy CDs
exploring the dramatic fall in sales in a high street shop or from an online
of recorded music conclude that the store.” The study also finds that the net
damage caused by illegal file-sharing effect of illegal file-sharing is negative.
is a major factor in the decline. “Although it is possible that file-sharing
functions as some sort of discovery tool
These include Norbert Michael (The for those digital music buyers that also
Impact of Digital File-Sharing on the file-share, it is reasonable to assume that
Music Industry: An Empirical Analysis, their spend would be higher if they were
2006), Rob & Waldfogel (Piracy on the not file-sharing. The overall impact of file
High C’s, 2006) and Alejandro Zenter sharing on music spending is negative.”
(Measuring the Effect of File Sharing
on Music Purchases, 2003). The lure of free
A separate body of research helps
2006 study by Professor Stan Liebowitz,
A explain why illegal file-sharing is having
File-Sharing: Creative Destruction this impact on consumer behaviour,
or Just Plain Destruction? concludes: confirming the main driver of piracy to
“The papers that have examined the be not better choice or quality, but the
impact of file-sharing can be categorised “lure of free”. Researchers GFK found
by result and by methodology. By results that “because it’s free” was the main
the classification is quite simple. There is answer given among over 400 illegal file-
one study (Oberholzer and Strumpf, 2004) sharers in research unveiled in Sweden
that claims to find a zero impact but it in July 2009. A study by Entertainment
has been frequently discredited. All the Media Research in the UK found that
other studies find some degree of negative 71 per cent of those who admitted they
18Competing In A Rigged Market
The Spanish legitimate music
It is the “free-to-user” appeal of illegal market is now only one third
1 in 4:
file-sharing that creates its unfair of its size in 2001 and fell by
advantage over legitimate music around 17 per cent in 2009 alone.
services, whose cost base, including Local artist album sales in the
payments to artists and copyright P2P file-sharers Top 50 declined by 65 per cent
holders, cannot compete with the free typically spend between 2004 and 2009.
illegal alternative. This, more than any
other factor, explains why the growth nothing on music n In Brazil, music sales fell by more
of an innovative and entrepreneurial than 40 per cent between 2005 and
legitimate music sector is being stunted 2009, with a disastrous impact
in the absence of an effective response on investment in local repertoire.
to digital piracy. In 2008 there were only 67 full
Live performance earnings are priced local artist album releases
The impact on local talent generally more to the benefit of by the five biggest music companies
Illegal file-sharing has also had a very veteran, established acts, while in Brazil – just one tenth of the
significant, and sometimes disastrous, it is the younger developing acts, number (625) a decade earlier.
impact on investment in artists and local without lucrative live careers, who This has been particularly
repertoire. With their revenues eroded by do not have the chance to develop damaging in a market where
piracy, music companies have their reputation through recorded 70 per cent of music consumed
far less to plough back into music sales. is domestic repertoire.
local artist development. Much
has been made of the idea that Clear evidence of this impact can New forms of piracy emerge
growing live music revenues be seen in markets including France, Although P2P file-sharing remains the
can compensate for the fall-off Spain and Brazil. most damaging form of piracy due to
in recorded music sales, but the volume of files shared by users,
this is, in reality, a myth. n In France, there has been a striking the last two years have seen a sharp
fall in the number of local repertoire rise in non-P2P piracy, such as
albums released in recent years. downloading from hosting sites,
In the first half of 2009, 107 French- mobile piracy, stream ripping, instant
repertoire albums were released, message sharing and downloading
60 per cent down on the 271 from forums and blogs.
in the same period of 2003.
French artist signings have also According to a study by Jupiter
slumped by 60 per cent, from Research in 2009, about one in
91 in the first half of 2002 to 35 five people across Europe’s top
in the same period of 2009. markets (21%) are engaged in
Overall investment in marketing frequent unauthorised music-sharing.
and promotion by the French music P2P piracy is still the biggest single
industry fell nine per cent in the first source of this, with around two-thirds
six months of 2009. It is estimated of music sharers file-swapping on
that 25 per cent of the French internet P2P networks despite the increase
population currently download music in non-network file-sharing.
illegally from P2P networks or other
sources on a monthly basis (Jupiter Research by Harris Interactive in
Research, 2009). the UK shows that, although P2P
piracy is the single biggest problem
n In Spain, a culture of state-tolerated and did not diminish in 2009, the
apathy towards illegal file-sharing illegal distribution of infringing music
has contributed to a dramatic slump through non-P2P channels is growing
in the music market. Spain has the considerably. The research showed the
worst online piracy problem of any biggest increases in usage for overseas
major market in Europe. Today, P2P unlicensed MP3 pay sites (47%) and
usage in Spain, at 32 per cent of newsgroups (42%). Other significant
internet users, is more than double rises included MP3 search engines
* By
the five the European rate of 15 per cent (28%) and forum, blog and board
biggest music (Jupiter Research, 2009). links to cyberlockers (18%). n
companies
19Digital Music Report 2010
‘Climate Change’ For All Creative Industries
“We are in danger of creating a world where nothing appears to have any value at all,
and the things that we make...will become scarce or disappearing commodities.”
Stephen Garrett, Chief Executive, Kudos
Piracy’s impact on the business and you’re going to start
creative sector seeing piracy of novels and reference
For years digital piracy has been a books.” Renshaw passionately believes
problem most associated with music. that the stakes involved go far wider The cost of digital
Today, however, creative industries than the music industry. “What I worry piracy for creative
including movie, publishing and
television, regard “monetising” the
about is that we are heading into a
world where copyright has no value and
industries
online world and addressing digital where there’s no incentive for anyone to n Major film release Wolverine
piracy as their greatest challenges. provide patronage and support for the was illegally downloaded
creators of intellectual property.” 100,000 times in 24 hours
“The music industry was hit first, but
now with increased broadband you He says the world has transformed, n Six out of 10 music file-
have a situation where all the creative for both young and established artists sharers in the UK also illegally
industries are at a tipping point” says and the economy of jobs and activity that download films
Simon Renshaw, Los Angeles-based surround them. “We’re dealing with this
manager of a long list of major artists every week – everything that you can afford n Illegal distribution of TV
including the Dixie Chicks. “You can see to do around a record is greatly reduced content is growing faster than
it in the collapsing DVD market; you can and that also means that everything that music and movie piracy
see what’s going on in TV, newspapers you’re spending with video companies,
and magazines. And now we’re seeing with hotels, with airlines, with graphic
the same thing in the book publishing artists, make up - everything’s reduced,
20‘Climate Change’ For All Creative Industries
maybe by 70 per cent. The money is
not there anymore. And if there are no “We have to find a way of funding our future and not pretend
rock stars the whole industry and the that new revenue models are magically going to rescue us as
people working in it suffer.” the world of recorded music is destroyed by piracy .”
Movie and TV piracy grows Björn Ulvaeus, singer-songwriter, formerly of ABBA
The movie industry is also seeing the
impact of digital piracy. The MPA,
representing movie studios, estimates downloading of his company’s shows,
that illegal streaming and such as the acclaimed series Spooks,
film downloads now account for is threatening the future of TV and film
40 per cent of its piracy problem companies. He calls this a moment of
by volume. Case studies around “climate change of the entertainment
blockbuster movies show how top films industries” across the creative sector.
now suffer from the same digital piracy “We are nurturing a generation who
problems as popular albums. Pre-release are growing up to believe not only that
copies of Wolverine everything is free
were downloaded but that everything
100,000 times in should be free.
24 hours after a leak
in April 2009. In US$1.4 And the problem
with that is what
2008, seven million
copies of Batman:
trillion: we do - making
music, television
Dark Knight were The value of the programmes and
downloaded on films - is incredibly
BitTorrent. This has entertainment and expensive. We
a ripple effect across media industry are in danger of
the industry, on creating a world
investment in 2009 (PWC) where nothing
and jobs. In the US appears to have
alone, the film any value at all,
and television and the things that
industries are estimated to employ 2.5 we make, which do have real value,
million people, according to MPA. will become scarce or disappearing
commodities. And that’s also threatening
The problem is highlighted by Judy hundreds of thousands of jobs –
Craymer, producer of both stage and not the fabulously wealthy or
film versions of Mamma Mia, the UK the fat cats – these are drivers,
film industry’s biggest ever box office electricians, carpenters,
success. “It is clear that the technology ordinary working people.
that has so badly damaged the music The combination of piracy
business is now fast catching up with and recession is a pretty potent
movies and TV – and it’s a frightening job killer.”
prospect. Creative film making needs
the revenues that come from sales of Garrett sees the solution as a
works – but these are now being eroded combination of “monetisation” and
as they are downloaded rampantly legislation engaging ISPs in curbing
across the world. There is virtually piracy. “The music industry blazed an
no perception of risk in this activity, impressive trail and is probably ahead
even if most people know, as they of all the creative industries in terms of
do, that stealing other people’s work finding ways of monetising the products
is illegal and wrong.” of their labours. That said, it clearly has
an enormous piracy problem. So we
The television industry also raised have to do our best to plug the gaps
the alarm over digital piracy in 2009. and curtail illegal activity.” The impact
Stephen Garrett, executive chairman of of film piracy is being felt worldwide.
television company Kudos, says mass In the UK alone, a 2009 report by
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