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“An optimistic future for the music industry … yet we are nowhere near that future today”, says John Kennedy, Chairman and Chief Executive of the International Federation of the Phonographic Industry (IFPI).
This curious cocktail is laced with bitters – something like P. J. O’Rourke’s “Zen martini”: a martini with no vermouth at all, and no gin either. As John Kennedy notes, the progress towards tackling mass piracy is “agonisingly slow for an industry which does not have a lot of time to play with”.
The tonic prescribed in the latest IFPI Digital Music Report is government intervention. Underpinning the report is a recognition – now shared by government in the UK and elsewhere – that a purely commercial solution is not feasible, and that piracy cannot be curbed in an unregulated digital market. For Martin Mills, the Chairman of Beggars Group, “there have to be sanctions, ISPs have to be involved and there needs to be back-up legislation”.
There is a sweetener in the sour mash: digital platforms are finally beginning to deliver on the long-promised infinite library of content that is ubiquitously accessible on any device. This development is sign-posted in the report’s subtitle: “Music how, when, where you want it.” But this sense of break-through is quickly dashed (quite literally) with the caveat “– but not without addressing piracy”. The report is essentially a call to arms: while many in the technology community might vehemently disagree, the report celebrates that in the UK it is now “understood that government has a key role in protecting content on the internet”.
This is a tacit acknowledgement of the government’s Digital Economy Bill (which the report alludes to in a round-up of legislative developments around the world). Although the report does not specifically comment on it, the triple tier of measures set out in the Bill is exactly the blend of restoratives that the report recommends. Certainly, the report’s distillation of the state of the market is a thorough endorsement of that triple sec.
The Fizz – increase in digital sales and choice
Statistically focused, the report highlights overall growth in the global digital music arena over the past year, coupled with increased choice and accessibility.
Twenty-seven per cent of the recorded music industry’s global revenues came from digital channels in the past year, totalling an estimated $4.2 billion. This represents a 12 per cent increase on last year. Forty per cent of the US music market is made up of digital sales, followed by 25 per cent in Asia and 15 per cent in Europe. iTunes is the biggest music retailer in the US, accounting for 25 per cent of the music market. The report suggests that there is huge scope for digital expansion: NPD Group research indicates that in the US only 18 per cent of internet users aged 13 and over regularly buy digital music, and Forrester claims that in Europe only 8 per cent of users in the top five EU markets regularly purchase digital music.
2009 was a year of diversification, seeing the continuing evolution of new business models. Conventional à-la-carte download services still account for the majority of online revenues, but various new services are beginning to compete. The new offerings focus on “bundling” and range from ISP and mobile packages to ad-supported streaming and music video partnerships. Impressive examples include TDC’s PLAY service, which has grown in popularity in Denmark, offering unlimited music streaming from a catalogue of 6.1 million tracks, and Sky Songs, which launched in the UK in October 2009 and offers consumers unlimited streaming of more than 4 million tracks and download packages bundled into Sky subscriptions. Vodafone Spain, Nokia and Dell also offer music services with their phone and computer packages.
Advertiser-supported streaming services have been a smash. Spotify has over 7 million subscribers with access to unlimited streaming supported by advertising. Deezer offers music streaming and personalised web radios to 16 million users, without any software download requirements. GfK research indicates that the benefits of these services extend beyond immediate revenue returns, as 6 out of 12 Swedish Spotify users claim to have stopped or cut down on file-sharing activity since joining the service.
Monetisation of music videos is another success story of 2009. Jupiter Research reports that sites such as YouTube dominate digital music activity in Europe, with 31 per cent of all internet users watching music videos online. The major labels appear to have embraced the wave of change, with Warner partnering with YouTube in September 2009, and with Universal and Sony partnering with YouTube and the Abu Dhabi Media Company to launch Vevo in Canada and the US in December 2009. Hulu and MySpace Music are also helping to feed the growing appetite for music videos on demand.
The report amply illustrates that music companies are “finding new ways of getting music into people’s lives”, as Universal’s Chairman and CEO Lucian Grainge puts it. It is vital to make this virtue out of a vice: as any lover of music knows instinctively, music itself will never die. But as the report signals, the industry as we know it (alongside other creative industries) faces challenges that could, if not averted, prove terminal.
The Cooler – “climate change”
For the creative industries, the digital environment is (in the words of Homer Simpson) like “alcohol, the cause of, and solution to, all of life’s problems”. It is as much an opportunity as a challenge for content owners.
The report aptly comments that “the music industry is the pathfinder of the creative industries”: the publishing, film and television industries are now also falling victim to piracy. Research by Big Champagne suggests that illegal distribution of TV content is growing faster than music and film piracy. This “climate change” has been noted by Stephen Garrett, Chief Executive of Kudos, who is concerned that “we are heading into a world where copyright has no value and where there’s no incentive for anyone to provide patronage and support for the creators of intellectual property”.
The Stinger – falling physical revenues
The report reminds us that, despite the wealth of online offerings and global embrace of digital services, the reported growth is not enough to offset the sharp decline in sales of physical music formats. Overall music revenues have fallen by around 30 per cent since 2004, with sales down by 12 per cent in the first half of 2009.
The Slammer – illegal downloads
There remains no shortage of what Rupert Murdoch has characterised as “content kleptomaniacs”. Educational programmes do not appear to be dissuading repeat infringers from what is effectively theft.
Peer-to-peer (P2P) file-sharing is still rife. Harris Interactive research suggests that nearly one in four P2P file-sharers (24 per cent) typically spends nothing on music. In Spain, which the report accuses of “a culture of state-tolerated apathy”, P2P usage is reported by Jupiter to be at 32 per cent of internet users, more than double the European rate of 15 per cent.
While P2P remains the commonest form of piracy, new forms of piracy are emerging, such as mobile piracy, stream ripping, instant message sharing and downloading from hosting sites, forums and blogs.
The IFPI lays blame on the lure of “free”. According to the report, “a variety of third-party research conclusively indicates that the net effect of illegal file-sharing is reduced purchasing of music”. Keith Armstrong of Kitchenware Records points out that even bands such as the Editors, who sell thousands of tickets for live concerts in the US, have still failed to establish respectable record sales. He observes that “we live in a world where €1 is considered extravagant for a music download, but a couple of euro is considered reasonable for a Starbucks coffee”.
The bottom line is an overall fall in global music revenue for the tenth successive year. This statistic alone has the distinct savour of that Zen martini.
The Painkiller – government intervention
For the IFPI, a shot needs to be served and fast: “we will not get there without a secure legal environment where … copyright theft is effectively deterred”. Alongside better commercial music services, the IFPI calls for widespread introduction of “graduated response” legislation and ISP co operation to unlock the potential of the digital market. The common “three strikes” approach emerging internationally is that rights-holders will first identify accounts used for infringement, and ISPs will then send infringers escalating warning notices which, if ignored, could lead to temporary suspensions of internet access.
Legislation has already been introduced in France under the HADOPI administrative authority, giving criminal courts the power to order the suspension of infringers’ internet access after two warnings. New Zealand and the UK are (in their own ways) following suit. Taiwan has implemented similar laws, and Germany, Australia, Brazil, Hong Kong and Japan are discussing similar measures. Surveys conducted in countries including France and New Zealand suggest that this strategy will be effective in reducing piracy. A slightly different approach has been taken in the US, where deals have been struck between ISPs and individual rights-owners to put in place a system of graduated responses.
For rights-owners, there are encouraging reports of success in South Korea and Sweden:
- In July 2009, legislation was passed in South Korea giving authorities the power to order ISPs to send warning notices to infringers and to suspend accounts after three warnings. Digital and physical sales figures increased, and an indicative survey reveals that 45 per cent have reduced their illegal downloading.
- Music sales in Sweden have benefited in 2009 through the success of iTunes and Spotify, the implementation in April 2009 of the IPRED anti-piracy law and the hard stance taken in the Pirate Bay court battle. GfK research in July 2009 found that 60 per cent of infringers had curbed or stopped their activity, although piracy levels are now believed to be on the rise again, highlighting the need for continuing action against web pirates.
Comment
The report cites compelling evidence in support of its central tenet. Unsurprisingly, it gives little consideration to those that advocate “be careful what you wish for”: sceptics (including prominent musicians and managers) remain concerned that anti-piracy legislation could undermine the music industry’s relationship with its key audience, alongside the potential to remove the very means (in the digital world) of communicating with that audience. Other unresolved concerns include (a) responsibility for the costs of implementing the measures, (b) how to ensure that technical measures are proportionate, compliant with human rights and fairly imposed in practice and (c) whether the measures will ultimately have any effect at all on determined and inventive infringers that can easily circumvent the new laws. Some commentators favour abandoning legislation altogether and concentrating instead on levies on sales of devices and/or licensing partnerships with providers of “all that you can eat” services.
But without the benefit of hindsight, it is impossible to measure whether alternative approaches will work, and a broad consensus has already arisen amongst legislatures around the world to impose some form of responsibility on ISPs, if nothing else to bring the law-abiding majority into line. Besides, as the report emphasises, the fight against piracy is only likely to be won – or at least to restore a more effective content market – with a mixed blend of incentives and deterrents.
The outlook is not all bleak: the report shows how a combination of increased consumer choice and a hard legislative stance have already yielded increased music sales. Much in the report suggests that the cup is half full, but the part that is half empty threatens to drain the cup.
Nobody wants to see last orders for the music industry, and that includes the user community. Ultimately, nobody would welcome the demise of content itself, which would be the inescapable result of reduced investment in talent and marketing: creators and users alike (whether businesses or individual fans) need content, and perhaps the long-term solution will flow from this community of interest.
Governments around the world are slowly mixing a fix. But, as the report evokes with piquancy, unless effective action is taken quickly, music industry executives could be heading for a sundowner.
Ed Baden-Powell and Alexandra Duboff
Article to be published in Entertainment Law Review
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