DIGITAL MUSIC REPORT 2009
New BusiNess Models for a ChaNgiNg eNviroNMeNt.

ifPi digital MusiC rePort 2009
Contents
p3 n Introduction: Music has embraced the future with new business models
– Will governments secure a future for digital content?
p4 n Section 1: Shaping a new era in digital music
– Digital music: key facts and figures
p8 n Section 2: New business models for a changing environment
– The shift to ‘music access’
– More choice in music downloads
– Social networks and ad-supported services deliver
- New frontiers: brands, games and merchandising
– Public performance: getting fair value for music
– Digital music goes global – three countries in focus
Section 3: The core mission – investing in talent
p18 n
– Cutting through the digital noise
– Adding value to artists
– Broadening services
– Marketing an album in the digital world
– A team sharing the same vision: The manager’s view
Section 4: Monetising music in an era of free – the role of ISPs and governments
p22 n
– A future for local music and film? France and Spain in focus
– From concept to reality: governments start to move on ISP cooperation
p26 n Section 5: Education – the campaign for hearts and minds
– Young People, Music and the Internet
– Pro-music.org
– National campaigns
p28 n Section 6: Creative voices speak out
– When did intellectual property become free? – music managers speak out
– Commerce in the era of “free” – a common challenge for creative industries
p30 n Section 7: Pre-release piracy: industry steps-up action
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iNtroduCtioN
Music has embraced the future with new business models –
will governments secure a future for digital content?
By John Kennedy, chairman testimony to the commercial value of
and chief executive, ifPi. music and it will strike a chord among
ISPs and mobile operators elsewhere.
The recorded music industry is reinventing
The second dominant theme of this report
itself and its business models. Our world in
is the part that record companies – also
2009 looks fundamentally different from how
referred to in this report as “music” companies
it looked five years ago. Record companies
to reflect their expanding role – continue to
have changed their whole approach to doing
play in bringing to market the vast majority
business, reshaped their operations and
of acts that music fans enjoy. The idea that
responded to the dramatic transformation in
the digital world somehow diminishes the
the way music is distributed and consumed.
importance of music companies is simply
a myth. On the contrary, in a world where a
The music business, like others, goes
multitude of aspiring artists are competing
into 2009 under the uncertain cloud of
for visibility among millions of consumers,
the global economic downturn. However,
the music company role can only become
we are no stranger to the need to
more important in the digital future. The The debate has a huge way to go, but the
reform, restructure and reinvent. Record
investment, skills, services and creative campaign for ISPs to act as proper partners in
companies began this process many
advice that labels provide remain as core helping protect intellectual property is making
years ago. They are, I believe, as a result,
a function of the music business as ever. progress. Governments are beginning to
better placed than many other sectors to
understand the scale of the challenge of trying
manage through more difficult times.
to monetise content in an environment where
“Governments are beginning to around 95 per cent of all music is downloaded
There are some very positive stories in
without payment to artists or producers.
this report about innovation and change accept that, in the debate over
France is leading the drive towards ISP
inside today’s music business. First, record
‘free content’ and engaging
cooperation, understanding that it is the future
companies are building an economic future
ISPs in protecting intellectual of French creative industries that are at stake.
based not just on selling music but on
property rights, ‘doing nothing’ The UK and a growing number of countries
“monetising” consumer access to it. Nokia’s
have progressed along a similar route in 2008
Comes With Music service, launched in is not an option.”
and momentum will build further in 2009.
October 2008, embodies that concept, with
John Kennedy, Chairman
music free and unlimited, bundled into the
and Chief Executive of IFPI This report tells the story of the music
cost of a mobile phone. So do the new
business as it is developing today. Music is the
link-ups between music companies and ISPs,
engine and heart of a large number of diverse
from Sky in the UK to TDC in Denmark and
businesses and demand for the product is
other European ISPs. These are just tasters
growing year-by-year. Music companies are
of the enormous potential for licensing and
changing their business models and refining
Finally, there is a momentous debate going
generating commercial value from music at
their skills in bringing artists to an ever more
on about the environment on which our
every point where the consumer is likely to
complex and sophisticated marketplace.
business, and all the people working in it,
want it. Meanwhile, as this report goes to
depends. This is a debate about the future
press Apple announced it had signed deals
Governments are beginning to accept
not just of music but of all creative industries
with leading record companies to offer eight
that, in the debate over “free content” and
in a digital era where the very principle of
million DRM-free tracks at flexible price points.
engaging ISPs in protecting intellectual
getting rewarded for creative work is at risk.
property rights, doing nothing is not an
Increasingly our partners in these ventures,
option if there is to be a future for commercial
The vast growth of unlawful file-sharing
grappling with consumer demand problems
digital content. The big question for 2009 –
quite simply threatens to put the whole
of their own, are seeing the opportunity of
with the focus in particular on France and
music sector out of business. This report
adding music to the value of their offering.
the UK - is what real action will result and
reflects the wide consensus, from major
One impressive statistic in this report is the
how quick and how effective it will be in
and independent record companies
confirmation by Danish telecoms company
reversing the devaluation of recorded music
to managers and politicians, that a
TDC that its music service has produced
and helping return the industry to growth.
new approach is needed to protect
a very significant and measureable impact
copyright – one that involves sharing
in retaining its broadband and mobile
responsibility across the value chain.
phone customers. That is a powerful
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ifPi digital MusiC rePort 2009
shaping a new era in digital music.
“Music has never been more important to
The music industry is reinventing itself
the consumer than today. Every year we are
and its business models to meet new forms of
seeing increased use of music and what
consumer demand in an environment that has
we are doing as music companies is finding
been revolutionised by new technology. In 2008
new ways of playing into that interest,” says
the digital music business internationally saw a
Thomas Hesse, president, global digital
sixth year of expansion, growing by an estimated
business, Sony Music Entertainment.
25 per cent to US$3.7 billion in trade value.
Another key change is the explosion of
Digital platforms now account for around 20 “With the advent of the access
consumer choice as music companies work
per cent of recorded music sales, up from 15
model, the music industry’s
to offer music in as many ways as possible.
per cent in 2007. Recorded music is at the
economic model is at last aligned
These approaches range from à-la-carte
forefront of the online and mobile revolution,
with the mobile industry’s. Both
download stores like iTunes and AmazonMP3
generating more revenue in percentage terms
to subscription services, licensing of music
through digital platforms than the newspaper, will view the world through the
in games and films, merchandising, brand
magazine and film industries combined.
same lens - average revenue per
partnerships, ad-supported streaming
Music consumption is becoming far more
user, commonly known as ARPU.”
sites like YouTube and MySpace as well as
ubiquitous and revenue streams for music
collecting revenue generated by broadcast
companies are expanding and diversifying. Edgar Bronfman, Chairman &
and public performance rights. In 2008
Chief Executive Officer,
a plethora of new channels continued to
global digital revenues by industry (2008)
Warner Music Group
emerge, reflecting a far more complex and
Digital share
sophisticated commercial landscape in which
consumers are being given the opportunity
Games 35%
to acquire music legally in many new ways.
Recorded music 20%
Newspapers 4% New business models
A pre-eminent example of the shifting business
Films 4%
model is the growth of commerce around
Magazines 1%
“music access”, with music being bundled
with other services or devices. Nokia’s Comes
Sources: PWC Global Entertainment
With Music phone and TDC’s PLAY are
and Media Report (2008), IFPI
examples of music access services launched
A number of key themes underpin these in 2008. Others, rolled out mainly in Europe,
changes. First is the unflagging consumer involve partnerships with ISPs and mobile
demand for music. In the US, research operators. Record labels see music access
by NPD Group found that total music models as a big opportunity. “A big album
consumption (both licensed and unlicensed) worldwide will sell about seven million units
increased by one third between 2003 and but during the course of a year many more
2007. Nielsen SoundScan reports overall people will listen to and enjoy the album,”
sales in the US hit an all time high in 2008, says Rob Wells, senior vice president, digital,
with music purchases across all formats Universal Music Group International: “This is
totalling 1.5 billion, up 10.5 per cent. about lighting up all these other consumers.”
Partnerships with technology companies
are integral to the changing business model.
Music industry revenues in the next few years
“A big album worldwide will sell
are likely to come increasingly from revenue-
about seven million units but
sharing deals with Internet Service Providers
many more people will enjoy (ISPs), hardware manufacturers, handset
the album. This is about lighting makers and other technology companies.
up all these other consumers.” Technology companies look to music to add
value to their services and enhance their own
Rob Wells, Senior Vice
business model while music companies look
President, Digital, Universal to these partners for their enormous reach
Music Group International into consumers’ homes and lifestyles.
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shaPiNg a New era iN digital MusiC
music experience; from being part of the
Michael Nash, executive vice president, digital
discovery process, to music in games like
strategy and business development, Warner
Rock Band and Guitar Hero or recording and
Music Group, believes these partnerships will
play an important role in returning the music selling music at live events and so on. Our
industry to growth: “There is a multi-trillion role is not to put physical discs on a shelf but
dollar economy of digital connectivity, made to reach consumers wherever they are.”
up of digital networks, wireless, broadband
and hardware. Music is extremely important to This is also reflected in the new expertise
this economy and is also the driver of a wide music companies are bringing into their
range of larger industries. These industries are businesses. For example, Douglas Merrill,
thinking about how to partner with the music president, digital business at EMI Music, joined
industry in new ways. The health of the music the company from Google in April 2008. He
industry is going to contribute significantly to says that one of the big lessons from Google
the health of this trillion-dollar economy.” is to focus not on consumers’ destination
sites but on the ways they discover music:
Music downloads continue to grow healthily, “Social networks have been terrific for fans
with AmazonMP3 joining the European market looking for bands they know, but far more
broadening consumer choice. An important challenging as a way of finding new bands.
development in 2008 was the licensing of We have to help fans find music wherever
more online stores to sell downloads without they are and at the moment they want it. If we
digital rights management (DRM), meaning can do that we will find ways to monetise it.”
consumers can play the music they acquire on
Nurturing and investing in talent
any portable device. In January 2009, Apple
announced it had signed deals with leading Along with all the dramatic changes of the
record companies to offer eight million DRM- digital music revolution, however, there is
free tracks at flexible price points. The move is continuity as well. Music companies, large
expected to significantly boost download sales. and small, believe their primary role in all these
new business partnerships is to remain the
Music companies are, meanwhile, commercially main investors in new talent and developers
licensing many of the most popular channels of artists’ careers. The skills, expertise,
of music discovery. One of the top brands investment capacity, creative understanding
in social networking, MySpace, and, above all, the ability to connect the
extended from the world of music artists’ work with their audience will remain
discovery into a commercial the music company’s role well into the future.
“The campaign against illegal
music service. Video-streaming
file-sharing is a fight against the
sites like YouTube are hugely “The record company has two fundamental roles
perverse idea that music has no popular with consumers in search and both are from time to time undervalued and
cost. That illusion of “music for of music. Music companies are misunderstood - one as an investor, the other
working on licensing arrangements as a provider of skills and services,” says Martin
free” is disastrous, particularly for
to make these sites part of Mills, chairman of Beggars Group, one of the
independent record companies
the legitimate music economy UK’s largest independent record companies:
producing specialised repertoire.” which respects content owners’ “These roles are always going to be required.”
rights, recompenses creators
Yves Riesel, President,
the role of isPs and government
for their work and incentivises
Abeille Musique France
the creation of new music. Music’s digital reinvention is happening in an
(independent label) environment where the vast majority – IFPI
Record labels are transforming estimates around 95 per cent – of tracks
themselves in this new are downloaded without payment to rights
environment, marrying traditional skills of artist holders. Online piracy is swamping the
development with new expertise in reaching legitimate music business, harming sales,
consumers. Elio Leoni Sceti, chief executive innovation, artists’ careers and investment
of EMI Music, says this has fundamentally in repertoire. Government regulation holds
changed the role, though not the value, the key to addressing this critical issue.
of the music company: “We don’t just sell In 2008, France led the way internationally
records any more, we act wherever people with draft legislation requiring ISPs to
experience music, from digital and physical be effective partners in addressing large-
formats to all the other ‘touchpoints’ of the scale copyright theft on their networks.
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ifPi digital MusiC rePort 2009
digital music: key facts and figures.
n France is also seeing strong digital
Music companies’ digital revenues
internationally grew by an estimated 25 growth, with sales up 49 per cent in 2008.
per cent in 2008 to US$3.7 billion. Digital 14.5 million online single tracks were
platforms now account for around 20 per cent downloaded in 2008, up 20 per cent on
of recorded music sales, up from 15 per cent 2007, while 1.4 million digital albums were
in 2007. The continued growth in digital sales sold, up 27 per cent (SNEP). In addition,
has helped slow down the rate of decline 12 million tracks were downloaded in 2008.
in the overall market for recorded music. France is at the forefront of experiments
with new “music access” models such as
Single track downloads, up 24 per the revenue-sharing ventures with Neuf
cent in 2008 to 1.4 billion units globally, Cegetel, SFR and Orange. The country is
continue to drive the online market, but leading the world in terms of government
digital albums are also growing healthily action intended to curb internet piracy.
(up 37%). The top-selling digital single
of 2008 was Lil Wayne’s Lollipop. n Digital music sales in Germany are
showing steady growth. Online single track
downloads totalled 37.4 million in 2008,
A few major markets are spearheading
a 22 per cent growth on 2007. Digital
the digital music revolution:
album sales increased by 57 per cent,
totalling 4.4 million (Media
n The US is the world leader in digital
Control GfK International).
music sales, accounting for some 50 per
cent of the global digital music market
Digital growth rates vary
value. Single track downloads crossed
sharply between the US,
the one billion mark for the first time in
Japan and the rest of the
2008, totalling 1.1 billion, up 27 per cent
world. Digital accounted for
on 2007. Digital album sales totalled 66
39 per cent of recorded music
million, an increase of 32 per cent (Nielsen
sales in the US in the first half
SoundScan). Digital albums now account
of 2008 – more than four times
for 15 per cent of total album sales,
higher than in Germany (9%).
compared to 10 per cent in 2007. Atlantic
Meanwhile the proportion of
Records became the first sizeable label
US consumers’ disposable
to report that the majority of its revenue
income spent on digital music is more than
is now coming through digital channels.
five times higher than in Europe. Online,
US broadband users spent an average of
n Japan, a predominantly mobile market,
US$12.5 on music compared to US$7.8 in
continues to be a notable success
the UK and just US$0.6 in Spain (2007).
story, with digital sales helping overall
trade revenues to growth in the first
Many factors account for these variations.
half of 2008. 140 million mobile singles
They include the different levels of mobile
were sold in 2008, an increase of 26
and broadband adoption in the different
per cent on the prior year (RIAJ).
markets and variations in the use and
ownership of technology. The differing
n The UK saw the biggest increase in digital
strength of the physical retail sectors are also
sales in the first half of 2008 among the
a factor, as well as piracy levels, credit card
top markets, with sales up by 45 per cent.
penetration and payment methods available
110 million single tracks were downloaded
to consumers. There are also sharp contrasts
in 2008, up 42 per cent on 2007. Digital
in the marketing efforts by digital services in
album sales also rose sharply, by 65 per
different countries. Consumer trust in online
cent to 10.3 million now accounting for
buying also differs from country to country.
7.7 per cent of the albums market (OCC/
BPI). The country hosted the first launch
of Nokia’s Comes With Music service
and Amazon MP3 also expanded its
service to British consumers in 2008.
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shaPiNg a New era iN digital MusiC
25%
4.0
digital music 3.7
revenues (2008). 3.5
20%
2.9
3.0 20%
2.5
US$ billions 15%
2.2
% digital
15%
2.0
10%
1.5 11%
1.2
1.0
5%
0.4 5%
0.5
2%
0%
0.0
2004 2005 2006 2007 2008
Source: IFPI. Figures include online, mobile and subscription trade revenues. 2008
figures are estimates. Figures rounded and expressed on a fixed exchange rate.
top five digital music markets (2008) top 10 digital single tracks 2008
Country Digital share No. Artist Title Sales (m units)
US 39% 1 Lil Wayne Lollipop 9.1
Japan 19% 2 Thelma Aoyama Sobaniirune 8.2
UK 16% 3 Flo Rida feat. T-Pain Low 8.0
France 12% 4 Leona Lewis Bleeding Love 7.7
Germany 9% 5 Timbaland Apologize 6.2
6 Greeeen Kiseki 6.2
Source: IFPI. Figures reflect digital
shares for the period of Jan-Jun 2008. 7 Katy Perry I Kissed A Girl 5.7
8 Alicia Keys No One 5.6
9 Usher feat. Young Jeezy Love In This Club 5.6
10 Chris Brown With You 5.5
Source: IFPI. Chart includes online single tracks, audio and
video mastertones, ringback tones and full track downloads
to mobile. Period of 12 months to November 2008. Sales
figures are rounded. Combines all versions of the same song.
some top digital selling artists of 2008.
Alicia Keys
Katy Perry
Lil Wayne
Flo Rida
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ifPi digital MusiC rePort 2009
the shift to ‘music access’.
The music business is moving from a model existing sales. In the UK, for example,
“Ultimately, we will see all sorts
based only on sales to one of “monetising” research by TNS shows that total annual
of products come with music –
access to music. The introduction of “access” music spend averages £65, but there are
home stereos, cars and potentially
services is the single most important current huge variations above and below that average.
development in the music business. While the Francis Keeling, commercial director, digital, televisions. Music can become an
services differ in detail, they all operate on the Universal Music Group International, says this important element that enhances the
same principle of offering consumers access suggests the new model will complement
value of consumer electronics devices,
to music, either bundled with other services others: “We want to convert people at the
providing consumers with a very
or as an additional subscription option. lower end of the spending spectrum through
complete and satisfying experience.”
deals like Comes With Music, without
Nokia launched its Comes With Music service cannibalising the top end of the market.” Thomas Hesse, President,
in the UK in the run-up to Christmas 2008. Global Digital Business,
It is expected to be rolled out to other key Key to Comes With Music is the offer of
Sony Music Entertainment
markets in 2009. When consumers buy a limitless music and the combination of
Nokia Comes With Music phone, they gain subscription and ownership. “Our research
unlimited music access for a year and can shows that consumers will pay extra for a
high-quality audio and access to a huge
download songs at no additional charge. handset if they can see the benefit of gaining
music catalogue, providing 1,000 pre-loaded
unlimited access to music,” says Ulrich
popular tracks on the handset and a PC
Users access the service by downloading Jaerkel, senior vice president, digital and
player. At the end of their six to 18 month
a PC application which they can use to new business development EMEA, at Sony
contract, users can keep up to 300 of
download from the Nokia Music Store Music Entertainment, “Some shy back if there
their most played tracks on any device.
and subsequently transfer music to is no ownership, which is why the Comes
their handset. At the end of the year With Music concept is so popular. It’s about
Lennard Hoornik, corporate vice president
consumers can keep all the tracks they music discovery as well as keeping songs and
and head of marketing at Sony Ericsson,
have downloaded and continue to update that is popular across all demographics.”
says: “All mobile consumers want to have
their collection with à-la-carte purchases
content on their phone, but many find
at the Nokia Music Store or upgrade to Sony Ericsson is also advancing the model
the experience difficult, slow and time
another Comes With Music handset. of “music access”. Its PlayNow™ plus
consuming. With PlayNow™ plus, there
service was first launched in Sweden with
will be no more barriers, we’re giving
It is believed that the new service can grow operator Telenor on a special edition of
consumers the freedom to instantly discover,
the whole music market, not merely replace Sony Ericsson Walkman phone. The service
download, play and recommend all the
is expected to launch in other markets in
music they want - anytime, anywhere.”
early 2009. PlayNow™ plus allows users
to download, play and recommend music
“We believe that Comes With Music
PlayNow™ plus is powered by Omnifone,
wherever they are and whenever they like,
will transform the way people
which provides music services for use
directly over the mobile network. It offers
enjoy music. With unlimited internationally by device vendors, mobile
music access for a year, fans can network operators and broadband providers
such as Vodafone, Telenor, 3 Hong Kong
enjoy their favourite artists or
and Vodacom. Omnifone chief executive Rob
delve into new genres without
Lewis says: “We believe there is an increasing
having to worry about individual emphasis on services that are delivered in
track or album purchases.” cooperation with device makers and we are
in talks with a wide range of vendors from
Tero Ojanpera, Head of
in-car audio providers to personal computer
Entertainment, Nokia and set-top box manufacturers that will be
delivering unlimited