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Digital Music Report 2009


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New Business Models for a Changing Environment.

New Business Models for a Changing Environment.

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  • 1. DIGITAL MUSIC REPORT 2009 New BusiNess Models for a ChaNgiNg eNviroNMeNt.
  • 2. 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 p18 n Section 3: The core mission – investing in talent – 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 p22 n Section 4: Monetising music in an era of free – the role of ISPs and governments – 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 – – 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 2
  • 3. 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 itself and its business models. Our world in The second dominant theme of this report 2009 looks fundamentally different from how is the part that record companies – also it looked five years ago. Record companies referred to in this report as “music” companies have changed their whole approach to doing to reflect their expanding role – continue to business, reshaped their operations and play in bringing to market the vast majority responded to the dramatic transformation in of acts that music fans enjoy. The idea that the way music is distributed and consumed. the digital world somehow diminishes the importance of music companies is simply The music business, like others, goes a myth. On the contrary, in a world where a into 2009 under the uncertain cloud of multitude of aspiring artists are competing the global economic downturn. However, for visibility among millions of consumers, we are no stranger to the need to the music company role can only become reform, restructure and reinvent. Record more important in the digital future. The The debate has a huge way to go, but the companies began this process many investment, skills, services and creative campaign for ISPs to act as proper partners in years ago. They are, I believe, as a result, advice that labels provide remain as core helping protect intellectual property is making better placed than many other sectors to a function of the music business as ever. progress. Governments are beginning to manage through more difficult times. understand the scale of the challenge of trying to monetise content in an environment where There are some very positive stories in “Governments are beginning to around 95 per cent of all music is downloaded this report about innovation and change accept that, in the debate over without payment to artists or producers. inside today’s music business. First, record France is leading the drive towards ISP ‘free content’ and engaging companies are building an economic future cooperation, understanding that it is the future based not just on selling music but on ISPs in protecting intellectual of French creative industries that are at stake. “monetising” consumer access to it. Nokia’s property rights, ‘doing nothing’ The UK and a growing number of countries Comes With Music service, launched in is not an option.” have progressed along a similar route in 2008 October 2008, embodies that concept, with and momentum will build further in 2009. music free and unlimited, bundled into the John Kennedy, Chairman cost of a mobile phone. So do the new and Chief Executive of IFPI This report tells the story of the music link-ups between music companies and ISPs, business as it is developing today. Music is the from Sky in the UK to TDC in Denmark and engine and heart of a large number of diverse other European ISPs. These are just tasters businesses and demand for the product is of the enormous potential for licensing and growing year-by-year. Music companies are generating commercial value from music at Finally, there is a momentous debate going changing their business models and refining every point where the consumer is likely to on about the environment on which our their skills in bringing artists to an ever more want it. Meanwhile, as this report goes to business, and all the people working in it, complex and sophisticated marketplace. press Apple announced it had signed deals depends. This is a debate about the future with leading record companies to offer eight not just of music but of all creative industries Governments are beginning to accept million DRM-free tracks at flexible price points. in a digital era where the very principle of that, in the debate over “free content” and getting rewarded for creative work is at risk. engaging ISPs in protecting intellectual Increasingly our partners in these ventures, property rights, doing nothing is not an grappling with consumer demand problems The vast growth of unlawful file-sharing option if there is to be a future for commercial of their own, are seeing the opportunity of quite simply threatens to put the whole digital content. The big question for 2009 – adding music to the value of their offering. music sector out of business. This report with the focus in particular on France and One impressive statistic in this report is the reflects the wide consensus, from major the UK - is what real action will result and confirmation by Danish telecoms company and independent record companies how quick and how effective it will be in TDC that its music service has produced to managers and politicians, that a reversing the devaluation of recorded music a very significant and measureable impact new approach is needed to protect and helping return the industry to growth. in retaining its broadband and mobile copyright – one that involves sharing phone customers. That is a powerful responsibility across the value chain. 3
  • 4. ifPi digital MusiC rePort 2009 shaping a new era in digital music. The music industry is reinventing itself “Music has never been more important to and its business models to meet new forms of the consumer than today. Every year we are consumer demand in an environment that has seeing increased use of music and what been revolutionised by new technology. In 2008 we are doing as music companies is finding the digital music business internationally saw a new ways of playing into that interest,” says sixth year of expansion, growing by an estimated Thomas Hesse, president, global digital 25 per cent to US$3.7 billion in trade value. business, Sony Music Entertainment. Digital platforms now account for around 20 Another key change is the explosion of “With the advent of the access per cent of recorded music sales, up from 15 consumer choice as music companies work per cent in 2007. Recorded music is at the to offer music in as many ways as possible. model, the music industry’s forefront of the online and mobile revolution, These approaches range from à-la-carte economic model is at last aligned generating more revenue in percentage terms download stores like iTunes and AmazonMP3 with the mobile industry’s. Both through digital platforms than the newspaper, to subscription services, licensing of music will view the world through the magazine and film industries combined. in games and films, merchandising, brand same lens - average revenue per Music consumption is becoming far more partnerships, ad-supported streaming ubiquitous and revenue streams for music sites like YouTube and MySpace as well as user, commonly known as ARPU.” companies are expanding and diversifying. collecting revenue generated by broadcast Edgar Bronfman, Chairman & and public performance rights. In 2008 Chief Executive Officer, global digital revenues by industry (2008) a plethora of new channels continued to emerge, reflecting a far more complex and Warner Music Group Digital share sophisticated commercial landscape in which Games 35% consumers are being given the opportunity Recorded music 20% to acquire music legally in many new ways. Newspapers 4% New business models Films 4% A pre-eminent example of the shifting business model is the growth of commerce around Magazines 1% “music access”, with music being bundled Sources: PWC Global Entertainment with other services or devices. Nokia’s Comes and Media Report (2008), IFPI With Music phone and TDC’s PLAY are 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. “A big album worldwide will sell Music industry revenues in the next few years about seven million units but are likely to come increasingly from revenue- 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. 4
  • 5. shaPiNg a New era iN digital MusiC Michael Nash, executive vice president, digital music experience; from being part of the strategy and business development, Warner discovery process, to music in games like Music Group, believes these partnerships will Rock Band and Guitar Hero or recording and 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 any portable device. In January 2009, Apple Nurturing and investing in talent 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 “The campaign against illegal discovery into a commercial the music company’s role well into the future. 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 free” is disastrous, particularly for working on licensing arrangements as a provider of skills and services,” says Martin 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.” Yves Riesel, President, rights, recompenses creators Abeille Musique France for their work and incentivises the role of isPs and government 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. 5
  • 6. ifPi digital MusiC rePort 2009 digital music: key facts and figures. Music companies’ digital revenues n France is also seeing strong digital 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 A few major markets are spearheading downloads totalled 37.4 million in 2008, the digital music revolution: a 22 per cent growth on 2007. Digital album sales increased by 57 per cent, n The US is the world leader in digital totalling 4.4 million (Media music sales, accounting for some 50 per Control GfK International). cent of the global digital music market value. Single track downloads crossed Digital growth rates vary the one billion mark for the first time in sharply between the US, 2008, totalling 1.1 billion, up 27 per cent Japan and the rest of the on 2007. Digital album sales totalled 66 world. Digital accounted for million, an increase of 32 per cent (Nielsen 39 per cent of recorded music SoundScan). Digital albums now account sales in the US in the first half for 15 per cent of total album sales, of 2008 – more than four times compared to 10 per cent in 2007. Atlantic higher than in Germany (9%). Records became the first sizeable label Meanwhile the proportion of to report that the majority of its revenue US consumers’ disposable is now coming through digital channels. income spent on digital music is more than five times higher than in Europe. Online, n Japan, a predominantly mobile market, US broadband users spent an average of continues to be a notable success US$12.5 on music compared to US$7.8 in story, with digital sales helping overall the UK and just US$0.6 in Spain (2007). trade revenues to growth in the first half of 2008. 140 million mobile singles Many factors account for these variations. were sold in 2008, an increase of 26 They include the different levels of mobile per cent on the prior year (RIAJ). and broadband adoption in the different markets and variations in the use and n The UK saw the biggest increase in digital ownership of technology. The differing sales in the first half of 2008 among the strength of the physical retail sectors are also top markets, with sales up by 45 per cent. a factor, as well as piracy levels, credit card 110 million single tracks were downloaded penetration and payment methods available in 2008, up 42 per cent on 2007. Digital to consumers. There are also sharp contrasts album sales also rose sharply, by 65 per in the marketing efforts by digital services in cent to 10.3 million now accounting for different countries. Consumer trust in online 7.7 per cent of the albums market (OCC/ buying also differs from country to country. BPI). The country hosted the first launch of Nokia’s Comes With Music service and Amazon MP3 also expanded its service to British consumers in 2008. 6
  • 7. shaPiNg a New era iN digital MusiC 4.0 25% digital music 3.7 revenues (2008). 3.5 2.9 20% 3.0 20% 2.5 US$ billions 2.2 15% % digital 15% 2.0 1.5 11% 10% 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 Source: IFPI. Figures reflect digital 6 Greeeen Kiseki 6.2 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 7
  • 8. 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, based only on sales to one of “monetising” research by TNS shows that total annual “Ultimately, we will see all sorts access to music. The introduction of “access” music spend averages £65, but there are of products come with music – services is the single most important current huge variations above and below that average. home stereos, cars and potentially 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 or as an additional subscription option. lower end of the spending spectrum through providing consumers with a very deals like Comes With Music, without complete and satisfying experience.” 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 download songs at no additional charge. handset if they can see the benefit of gaining high-quality audio and access to a huge unlimited access to music,” says Ulrich music catalogue, providing 1,000 pre-loaded Users access the service by downloading Jaerkel, senior vice president, digital and popular tracks on the handset and a PC a PC application which they can use to new business development EMEA, at Sony player. At the end of their six to 18 month download from the Nokia Music Store Music Entertainment, “Some shy back if there contract, users can keep up to 300 of and subsequently transfer music to is no ownership, which is why the Comes their most played tracks on any device. their handset. At the end of the year With Music concept is so popular. It’s about consumers can keep all the tracks they music discovery as well as keeping songs and Lennard Hoornik, corporate vice president have downloaded and continue to update that is popular across all demographics.” and head of marketing at Sony Ericsson, their collection with à-la-carte purchases says: “All mobile consumers want to have at the Nokia Music Store or upgrade to Sony Ericsson is also advancing the model content on their phone, but many find another Comes With Music handset. of “music access”. Its PlayNow™ plus the experience difficult, slow and time service was first launched in Sweden with consuming. With PlayNow™ plus, there It is believed that the new service can grow operator Telenor on a special edition of will be no more barriers, we’re giving the whole music market, not merely replace Sony Ericsson Walkman phone. The service consumers the freedom to instantly discover, is expected to launch in other markets in download, play and recommend all the early 2009. PlayNow™ plus allows users music they want - anytime, anywhere.” “We believe that Comes With Music to download, play and recommend music wherever they are and whenever they like, PlayNow™ plus is powered by Omnifone, will transform the way people directly over the mobile network. It offers which provides music services for use enjoy music. With unlimited internationally by device vendors, mobile music access for a year, fans can network operators and broadband providers enjoy their favourite artists or such as Vodafone, Telenor, 3 Hong Kong 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 music services globally.” 8
  • 9. New BusiNess Models for a ChaNgiNg eNviroNMeNt Eric Daugan, senior vice president, digital business, at Warner Music EMEA, compares variable pricing models to the way the consumption of films is priced in the home. He explains: “A movie is free if a consumer watches it when it is scheduled on TV, they pay a little more for a ‘video on demand’ service and a premium if they buy it on DVD to watch when they want for as many times as they want. It’s a classic trade-off between payment and control.” Neuf Cegetel, the French ISP, has been Some Internet Service Providers (ISPs) running a “music access” service since 2007, have also begun to operate music services, “The mobile and broadband offering unlimited downloads from 150,000 bundling access to libraries of repertoire markets in Denmark are highly tracks from Universal Music. Consumers are for their customers as part of their mature, hence focus is more on offered two options: Neuf Music Initial, which is broadband and telephony packages. customer retention than customer available for no extra cost and offers unlimited downloads from one of nine music genres, or acquisition.TDC PLAY is vital for us Denmark’s TDC launched a bundled music Neuf Music Optimal which costs an additional subscription service in April 2008. PLAY in our aim to keep our customers €4.99 and offers unlimited downloads of provides unlimited access to 2.2 million tracks and stabilise our turnover.” all Universal Music tracks. Its operators say for the company’s mobile and broadband the service has been a great success at Eva Berneke, Senior Executive customers that sign up to the service, without attracting new broadband subscribers. additional charge while their subscription is Vice President & Chief Strategy ongoing. Uptake for the service has been very Officer, TDC France has other models vying for consumer positive, with a reported 7.2 million downloads interest. Musique Max from Orange is an per month and 54 million by November 2008. unlimited download service. Orange internet Average monthly users of the service now In another landmark deal, media giant BSkyB and mobile customers can subscribe to it for top 92,000 and the service has captured a has partnered with Universal Music to offer an additional €12 per month. The service offers significant share of the Danish digital market. a music service in the UK and Ireland. The more than one million songs from major and service, expected to go live in 2009, will independent labels, which are also available for TDC is seeing benefits from PLAY which will provide users with unlimited on-demand permanent purchase and can be transferred to have caught the attention of ISPs around music listening and the opportunity to five other digital music players or compatible the world. In a very significant indication download tracks for playback at any time for mobile phones. Thierry Chassagne, president of how the music service is helping TDC a monthly fee. Songs will be playable on any of Warner Music France, explains: “Beyond retain its customers, senior executive vice device, including iPods and mobile phones. charging for individual downloads, Orange’s offer president and chief strategy officer Eva A range of subscription options is expected represents a turning point in the development of Berneke observes that the “churn” – the to be announced, offering different download new modes of consumption in France. It is an rate at which subscribers drop the service packages tailored to consumers’ needs. At innovative alternative, which meets music fans’ in favour of a competitor – has fallen very the time of publication, Sky is in talks with needs for more flexibility, mobility and a richer substantially since the launch of TDC PLAY. other labels about licensing their catalogues. music offering, while respecting artists’ rights.” The churn in mobile customers had dropped by 30 to 40 per cent and in broadband Universal sees the Sky venture as opening France’s second largest mobile operator, SFR, customers by some 60 per cent. up a key new market. Beth Appleton, head launched a similar offering in November 2008. of digital of Universal Music Group UK, As part of a three-tiered service, ranging from In October 2008, TDC PLAY 10 was says: “Sky’s new music offering reflects the €22.90 to €56.90 per month, SFR customers launched, allowing TDC PLAY users that evolution we will see in the UK in 2009 as can download music on an unlimited basis. Files are broadband subscribers to download we move from a digital landscape dominated are DRM-free when downloaded to a PC and, and keep 10 tracks per month for a DKK by solely owning music to hybrid models so far, limited to Universal Music’s catalogue. 50 monthly fee (approximately US$9) where customers will access and own music – some 37 per cent below the average as part of an existing and familiar service Other European ISPs are now offering similar price per track in Denmark. Most of the with millions of potential consumers.” music services. Finnish ISP DNA launched tracks are in MP3 format. TDC also offers a bundled music service in December 2008 an à-la-carte service, TDC Play Music. and Swedish telecom company TeliaSonera introduced Telia Musik in six countries. 9
  • 10. ifPi digital MusiC rePort 2009 More choice in music downloads. Music downloading continues to grow Warner Music released four singles and two Download services are spreading strongly internationally, with track sales up EPs by Jason Mraz using a “windowing geographically. In Latin America, 24 per cent to 1.4 billion in 2008. Consumer strategy” to build anticipation for the release established music retail store Mixup choice has widened with increasing sales of of his album We Sing. We Dance. We Steal will enter the download market in Mexico downloads without digital rights management Things. All this extra content was included in in 2009, offering DRM-free downloads (DRM), allowing consumers to freely transfer the premium album bundle, which outsold for the first time in the region. legally acquired songs onto any device. the standard version by three to one and Interoperability between platforms and devices became the top ‘complete my album’ offering There have also been stepped-up efforts to was previously prevented by technology on iTunes in the US. Further evidence was improve consumer awareness of legitimate companies’ proprietary DRM systems. provided by Madonna’s Hard Candy album, DRM-free sites. In November 2008, seven which was made available for pre-release UK digital music retailers launched a new iTunes continues to be the leading player order on iTunes in the US in April, when ‘MP3 compatible’ logo, in partnership with in the online à-la-carte download market. It the premium US$13.99 version outsold the ERA (Entertainment Retailers Association) announced in January 2009 that it had sold six standard US$11.99 version eight to one. Digital, designed to help consumers identify billion downloads since launch and it now has a legal DRM-free download services. presence in 22 countries worldwide. In February Amazon, one of the biggest brand names 2008, it became the largest music retailer in the in online retail, launched its AmazonMP3 US, according to NPD’s MusicWatch survey. The DRM-free download service in the US back online store carries more than eight million DRM- in 2007. AmazonMP3 offers more than six free licensed music tracks, as well as 20,000 TV million DRM-free MP3 tracks from all the episodes and more than 2,000 films. In January major labels and thousands of independents. 2009 the store announced it was introducing Research from NPD Group, published in April flexible pricing for its eight million DRM-free 2008, suggested Amazon’s growth in the tracks at 69 cents, 99 cents and US$1.29. US has not come at the expense of iTunes Users of the third generation iPhone are able to sales, with just 10 per cent of the store’s download tracks, including ringtones, over the air. customers having previously bought music through iTunes. Amazon has a stronger bias iTunes works closely with labels to market to male users (64%) than iTunes (44%) and albums and premium content. The is weaker among the teen audience (3%) ‘complete my album’ function allows fans than iTunes (18%) in part due to iTunes to redeem the price of the songs they have gift voucher payment system. The service already downloaded from an album from launched in the UK in December 2008, the price of the complete album if they offering consumers selected digital albums go on to purchase it. US soul singer John from £3 and singles from 59 pence. Legend, signed to Columbia, became the first artist to launch a global ‘complete my Online stores are having a particular impact album’ marketing campaign with iTunes. on music consumption in the US. Beggars Banquet, a leading independent label, reports It is clear fans place a high value on the that it regularly has new releases that sell more deeper connection with artists that exclusive than 50 per cent of their copies through digital or additional premium content can provide. platforms in the US during the first week of release. The album Ear Park, by American indie rock band Department of Eagles, sold 66 per cent of its copies through digital channels in the first week, a record high for the label. Other download services in Europe such as 7digital, Tesco, HMV and have launched non-DRM offerings. 7digital reports that sales of tracks produced by major labels have tripled since they were made available in a DRM-free format. Some services, such as Italian-based Dada, offer a blend of subscription services Madonna and DRM-free tracks to download. 10
  • 11. New BusiNess Models for a ChaNgiNg eNviroNMeNt social networks and ad-supported services deliver. New revenue streams are being MySpace Music offers its users the opened up by the licensing of services that opportunity to listen to unlimited audio and are free to use, but which reward artists, music video streams from a catalogue of composers and music companies through hundreds of thousands of tracks. Users licensing fees or a share of advertising can create their own playlists and post revenues. One of the highest profile moves up to ten songs on their profile page for to monetise social networking to date is others to listen to. An important feature of News Corporation’s MySpace, which the service is a ‘buy button’ that directs partnered with all the major labels in a joint users to AmazonMP3 for DRM-free venture to launch MySpace Music in the US downloads and Jamster for ringtones. in September 2008. The service is expected to roll out internationally in 2009. Rihanna “Twenty to thirty per cent of MySpace US monthly traffic in 2007 was made up of music destination unique visitors.” YouTube has equivalents from many countries with similar video streaming platforms Michael Nash, Executive Vice including MyVideo and Daily Motion. President, Digital Strategy & Business Development, Advertising-supported services are a Warner Music Group potential way to wean habitual non-payers on to legitimate music services. Research in the US suggests that at least 45 million US consumers are willing to view adverts This move into open music sampling as the price of listening to music (NPD represents a significant expansion of MySpace Group). Younger consumers are the most from a simple social networking site to “a likely to want to use such services. Existing place for music” using its core community ad-supported services include and features as its foundation. In the first few days We7 in the UK, QTrax internationally, Imeem of operation the service generated more than in the US, Deezer and Spotify in Europe. one billion streams and in the first month more than 80 million playlists were created. We7, supported by Peter Gabriel, launched in November 2008 and offers a combination Video streaming has dramatically increased of advertising-supported downloads and in popularity, with 83 per cent of active music streaming. It has a catalogue of around internet users worldwide watching a video four million tracks. Deezer is a French- clip online in 2008 compared to 31 per cent based service with membership of more in 2006 (Universal McCann). YouTube is the than three million users and a catalogue overwhelming global market leader in the of 3.7 million tracks. Spotify, launched in video streaming sector. While user-generated October 2008, offers users free-to-consumer content is still crucial to the site’s appeal, streamed music supported by advertising. it now carries licensed music, movies and television programmes. Half the most popular streams ever viewed on YouTube are licensed “We have to help fans find music videos from artists such as Alicia Keys, Avril Lavigne, Chris Brown, Leona Lewis music wherever they are at and Rihanna. No other content category the moment they want it. delivers as much permanent value as music. If we can do that we will A vast catalogue of music videos is watched find ways to monetise it.” repeatedly by consumers and keeps them coming back. Douglas Merrill, President, Digital Business, EMI Music Leona Lewis 11
  • 12. ifPi digital MusiC rePort 2009 New frontiers: games, brands and merchandising. As the music business evolves away Music boosts the games sector from a single format environment to one As the games sector rapidly changes with Music games were of multiple channels for monetising music new technology, it is becoming an increasingly responsible for 15 per new opportunities and revenue streams are significant source of demand for music. The cent of all games sales emerging. Synchronisation (the use of music in games industry globally was worth an estimated in the first half of 2008 films, adverts and games), brand partnerships, US$48.3 billion in 2008 and is projected merchandising and performance rights to grow to US$68.3 billion by 2012 (PWC, and 32 per cent of the income are key areas of music licensing. Global Entertainment and Media Outlook). industry’s year-on-year growth (NPD Group). Generating value from the links between The use of music is driving a significant artists and brands is a key area of focus proportion of that revenue. A report by for music companies. In 2008 Sony Music NPD Group noted that music games were Many artists have been receptive to releasing Entertainment teamed up with communications responsible for 15 per cent of all games sales music through video games. In 2008 Metallica agency Exposure to launch a pan-European in the first half of 2008 and 32 per cent of the released their latest album Death Magnetic creative agency called SBX that will develop industry’s year-on-year growth in the US. The as a game premium download on the same marketing partnerships between music original Guitar Hero and its sequels have sold day as the general release of the album. artists and brands. “Our job is to match the more than 23 million copies across all platforms Mötley Crüe released the single Saints of Los right artist with the right brand for the right in less than three years (Reuters), grossing more Angeles through Rock Band as a download campaign,” says Richard Story, chief operating than US$1 billion in North America alone (PWC). on the same day as its commercial release. officer of Sony Music Continental Europe. The single generated 50,000 sales through the game, compared to 14,000 downloads from Companies have introduced specialised iTunes during its first week of release. It was synchronisation departments as the sector announced in late 2008 that The Beatles will becomes more sophisticated and its revenues be making their catalogue available digitally grow. In some markets synchronisation helps for the first time through a video game in break new acts. In Germany, Deutsche Telecom partnership with EMI Music and Harmonix. ran online adverts taking footage from the TV talent show Britain’s Got Talent which The music-games partnership has great featured the artist Paul Potts. They used it as potential, but raises concerns over the fair an inspirational story and it connected with valuation of the music being licensed. Francis fans. Paul Potts went on to sell more than Keeling commercial director, digital, Universal 800,000 albums in Germany in the following Music Group International says music is six months. Paolo Nutini, signed to Warner helping drive the games market: “People Music, featured in PUMA’s global ‘Sportlifestyle’ consume music in different ways. Music fans campaign performing his track New Shoes. love interactive experiences like Guitar Hero Additional and exclusive content was used to and Singstar and as people are more likely extend the campaign into the online space. to stay at home in an economic downturn, the popularity of such platforms could grow. But there needs to be a fair partnership that recognises that it is music that makes people Universal Music UK reports that synchronisation want to play these games in the first place.” “Games are an increasingly popular way revenue from games has now overtaken that for new acts to reach new audiences. from films and is second only to advertising. Merchandising – towards Greg Turner, creative licensing manager for an integrated approach As the games get more sophisticated, film and computer games at Universal Music Music companies are increasingly selling the opportunities for in-game UK, says: “Many younger bands who have bundles of products; combining digital advertising, product placement and grown up in the games culture ask their label downloads with merchandising or live tickets personalisation of the experience will if their music can be played on games. They to create what is in effect an “unpiratable” play interactive games themselves and a product. Labels have become more involved in increase. The possibilities are endless.” game console is an essential part of the tour selling artist merchandise, either by acquiring Greg Turner, Creative Licensing bus.” Titles such as Rock Band and Guitar specialist firms or by partnering with existing Manager, Film & Computer Hero also offer music downloads through the suppliers. Traditionally, merchandising game console – and gamers have proven to product was placed separately in retail Games, Universal Music UK have a healthy appetite for premium music display areas with no link to recorded music downloads. Microsoft reported sales of 3.8 million songs a month through Xbox Live, which includes downloads from both games. 12
  • 13. New BusiNess Models for a ChaNgiNg eNviroNMeNt release dates. By including the merchandising “We did extensive research into AC/DC’s in the core digital and physical marketing customer base – not just their relationship campaign of a new album and enabling music companies to work more closely with with the band, but their jobs, their lifestyles, specialist retailers, artists can more effectively where they shop, what they read. We reach and broaden their audiences. Warner discovered that for the typical fan AC/DC’s AC/DC retail campaign in US Music, for example, sold a branded t-shirt music provides escapism from their daily for Esser, an up and coming act, which grind. As a result, we came up with the had a code sewn into it that enabled fans ‘release the rock n’ roll within’ campaign to download a track at no extra charge. and produced our own TV advert focused around a day in the life of an AC/DC fan.” Sony Music Entertainment teamed with retailers Mike Smith, Managing Director, and AC/DC’s merchandising partners to offer the band’s new album Black Ice alongside Columbia Records other related products. Wal-Mart, the exclusive distributor for Black Ice in the US, positioned the band’s album within an AC/DC Rock Again Store, a mini-department that also featured DVDs, merchandise and the video game AC/DC Live: Rock Band Track Pack. In addition, fans were able to go to either the band’s website or to preview tracks from the album, watch videos and pre-order the CD. Black Ice became Wal-Mart’s fastest selling album of the year. The campaign was aimed at reaching not only the band’s core fan base, but also connecting them with a new, younger audience. Outside the US, Black Ice-branded merchandise was similarly presented alongside the CD in many stores and online. In the UK, consumer insight was used to inform the marketing campaign messages and tools. Sony Music looked at the lifestyle of AC/DC fans and what the band mean to them to shape their TV advertising. The UK campaign also saw the world’s first ever music video created as an Excel spreadsheet. Released virally, it received 1.1 million views on YouTube and 650,000 direct downloads, penetrated company firewalls to reach AC/DC fans at work and was critically acclaimed by the blogosphere receiving multiple awards. Kanye West Picture credit: Willy Vanderperre In the summer of 2008, Universal Music acquired the global merchandising company Bravado, which develops and markets licensed merchandise that is sold on live tours and through selected retail outlets and web-based stores. The company also licenses rights to an extensive network of third-party licensees around the world. Bravado artists include Kanye West, Gwen Stefani, Metallica, Guns N’ Roses and Led Zeppelin. 13
  • 14. ifPi digital MusiC rePort 2009 Public performance: getting fair value for music. A huge economy of third-party businesses The corporate radio industry in the US use music to attract and retain customers, generates US$17.6 billion in advertising drive productivity and improve employee revenue every year (PWC), yet terrestrial morale. One such sector is restaurants and broadcasters in America pay nothing to hotels, valued at US$2.3 trillion internationally artists and producers for the music they (Datamonitor). Another is radio, a US$32.5 play to attract the listeners that advertisers billion global business (PWC) underpinned pay to reach. Artists, producers and by recorded music. Public performance and others have come together to form the broadcast income are important areas of musicFIRST (Fairness In Radio Starting revenue growth for the music industry, but Today) coalition, which is pressing the artists and producers face hurdles in getting US Congress to reform the law. Recently, fair payment for the use of their music. legislation to end broadcast radio’s unique exemption from paying creators for use In August 2008, PriceWaterhouseCoopers of their works was marked up in the U.S. published a study on this issue finding that House Judiciary Subcommittee on Courts, historical methods for setting royalties for the Internet, and Intellectual Property, and performance licenses were “inconsistent the legislation will once again be introduced and lacked robustness”, resulting in the early on in the 111th Congress this year. widespread undervaluing of music (see box). New forms of digital and satellite radio are Other independent research confirms the seeing spectacular growth in the US. Satellite considerable value of music to commercial radio is the fastest growing subscription third parties. In the UK, Entertainment Media service in the US, building up a subscriber Research found there is a direct link between base of 20 million users in just seven years. effective music policy, revenues and customer loyalty. As many as 79 per cent of consumers John Simson, managing director of said that music encourages them to stay SoundExchange, the performance rights longer in stores and spend more. According to music licensing company in the US, a report in the Financial Times in August 2008, says: “Radio is going through transitional “Retailers have long known that the right song times. The radio experience will change on the overhead speakers can keep shoppers even further as radio becomes more in a store. Such is the power of music over interactive. Artists and record producers consumer behaviour, claim the advertising will have to constantly revisit the terms on executives, academics, music consultants which such radio stations are licensed. It and market researchers who are all part of a could be that radio totally transitions to cottage industry springing up around retailers a personalised online environment.” using music to attract and keep clientele.” Extraordinarily, it is in the US, the world’s largest music market, that has traditionally championed intellectual property rights, that “There is just no logical explanation performers and producers have no rights to why musicians can earn radio be paid when their music is broadcast over the radio. Other countries without broadcast royalties in virtually every market rights are Rwanda, China, Iran and North of the world and yet not in the Korea. Japan has no public performance country with the world’s largest right. Redressing these anomalies is a commercial radio sector.” major priority for the music sector. John Smith, President, International Federation of Musicians (FIM) 14
  • 15. New BusiNess Models foraaNew era iN eNviroNMeNt shaPiNg ChaNgiNg digital MusiC how music is driving big business. PriceWaterhouseCoopers’ report (2008) outlines key examples of how music is driving businesses in sectors ranging from radio to nightclubs: n Canadian commercial radio’s use of music showed that it accounted for 76 per cent of air time between six in the morning and midnight, excluding commercials. A conservative estimate of the contribution of music to advertising revenue, compared to news and other elements, was 62 per cent. n Research in Australia found music was being substantially undervalued in nightclubs. It looked at the end consumers’ willingness to pay for music and found that the average nightclub patron valued its worth at A$6.97 as part of their evening’s experience. The Australian Copyright Tribunal determined the fair price of using protected sound recordings at nightclubs should be set at A$1.05 per person, an increase of 1,400 per cent on what was previously being paid. “A whole range of businesses, from restaurants to broadcasters, are playing US$17 billion US radio annual recorded music to attract advertising revenue customers, improve US$0 productivity and drive commercial growth.” Jeremy Thorpe, Royalty payments PWC Partner by US radio to artists 15
  • 16. ifPi digital MusiC rePort 2009 digital music goes global – three countries in focus. Japan leads the world Local labels are now looking to ringback China promises but Japan in mobile music tones as a promising new revenue China Baidu stifles the market Japan, the world’s second stream. As with master ringtones, China is a potentially huge largest digital music ringback tones are usually released music market that is being market, saw a 26 per before the CD version goes on sale. throttled by online music cent increase in mobile piracy. The biggest infringers single sales in 2008. Music fans are offered New digital products also include the are the country’s largest internet companies – a range of digital music products – mainly “chaku-uta long”, edited songs of ninety Baidu, Sohu-Sogu and Yahoo China – which through mobile platforms, which account seconds to two minutes, and “uta gift”, provide specialised “deep link” services giving for 90 per cent of digital music sales. which are mastertones that can be sent users direct access to millions of copyright- to other consumers as a greeting. The infringing music files. Baidu is the biggest single Nonetheless, mobile-based piracy remains “Kisekae Tool” or dynamic mobile theme violator of music copyrights and by far the a big problem and labels, carriers and is currently supported by three major greatest obstacle to legitimate digital commerce content distributors are working closely wireless carriers in Japan and compatible in China. IFPI estimates that it accounts for over together to deal with more than 40 half of the illegal music track downloads in the with the problem. million handsets in country and attracts three quarters of the traffic Thelma Aoyama the market. In July to infringing “deep link” sites. Baidu’s download Japan’s success 2008, Warner Music service is thought to be highly profitable. Based can partly be launched a range on its advertising rate card, the service is attributed to the of Kisekae Tools for estimated to bring in annual advertising earnings industry partnership local artists, including of at least RMB330 million (US$50 million). Label Mobile, now Rip Slyme, for whom Recochoku, a joint the product has been venture between their most successful “Baidu has become 12 record labels mobile bundle yet. the largest and most that runs all of its stakeholders’ mobile Japan has also incorrigible distributor of commerce activities. seen important pirated music in China.” moves to improve Qu Jing Ming, Director Takashi Kimoto, consumer awareness General of the Music managing director of sales, marketing and of legitimate music. Digital music sites digital at Universal Music Japan, says his offering licensed tracks now bear an “L Copyright Society of China label uses master ringtones to maximize MARK” on their web pages. The system, sales of physical product: “We tend to release initiated by RIAJ in February 2008, already “chaku-uta” (mastertones) one or two months covers most of local digital music services, before the physical release for test-marketing being adopted by 158 content providers Music companies represented by IFPI launched and use the market’s response to judge and 953 licensed music sites by the end legal action against Baidu in February 2008, the song’s hit potential in physical form.” of 2008. “The increasing variety of digital claiming damages for copyright infringement. music products gives consumers more A judgment is expected in 2009. Meanwhile, an This strategy paid off with Sobaniirune choice,” says Yoichiro Hata, director investigation into Baidu’s MP3 Search service, (I’ll Be With You), the second single by and general manager of the Recording published in September 2008 by The Register Universal Music Japan female vocalist Industry Association of Japan’s (RIAJ) found that it frequently located music in a Thelma Aoyama, which also featured the information and technology division. network of sites with closely-related domain rapper SoulJa. In 2007, Sobaniirune, which names, did not link to China’s two leading legal debuted as a master ringtone but saw sales Warner Music’s Asia President Lachie music download sites and linked to significantly take off as a full track download and CD Rutherford says: “It’s about working with fewer blogs and forums than a regular search single, became the first single to sell two our business partners and coming up with engine. “The cumulative effect is to keep million full-track downloads in Japan. consumer-friendly options. We are starting the ‘free music flowing’ for Baidu’s users — with the consumer and working backwards with devastating consequences not just for Full-length song downloads to mobile which is proving a successful approach.” creators, but for rival internet businesses,” are currently powering the Japanese concluded The Register. There has also been market’s growth and now account for unprecedented criticism from local producers, nearly 60 per cent of mobile revenues. L MARK logo for licensed led by the Music Copyright Society of China. Japanese music sites. Some legitimate digital music sites in China are emerging however including 9sky and 16 1
  • 17. New BusiNess Models for a ChaNgiNg eNviroNMeNt Brazil – mobile today, Brazil online tomorrow Brazil exemplifies how innovative business models can generate significant consumer demand. The Brazilian digital music market, the largest in Latin America, nearly doubled in value in 2008 and now accounts for more than 10 per cent of recorded music sales in the country, with nearly 80 per cent of revenue coming from mobile channels. Brazilians spend more time on the internet than any other nation and social networks such as YouTube, MySpace and Orkut have already attracted big audiences. Yet the online market in Brazil is in its infancy. In the mobile sector, operators have launched 3G networks offering fast download speeds, but there is still enormous untapped potential for growth. Brazil’s mobile music business has grown rapidly, with the number of mobile users up 60 per cent in the past three years. Leading operators such as Vivo, Tim and Claro have around 30 million subscribers each and are increasingly looking to differentiate their services. Handsets pre- loaded with music are a growing business, with operators using them to aggressively promote their products and services. Music companies have been active in the Universal Music has carried out similar Sony Music Entertainment and Sony- pre-loaded mobile business. In a partnership campaigns with artists such as Sandy & Junior Ericsson, reached a similar deal with music between Warner Music International and and Ivete Sangalo. Universal partnered with by established local act Jota Quest. In the Sony Ericsson, Madonna’s album Hard Candy Motorola to offer a pre-loaded song from local first wave of the campaign at the end of was pre-loaded on Sony Ericsson phones. rock band NX Zero on Motorola’s phones 2007, some 800,000 Sony Ericsson Walkman Two packages were made available with prior to the release of the band’s album. “It’s handsets were sold with the album Ate Onde the phone - one with five tracks from the a good example of a developing act working Vai plus video tracks, behind-the-scenes album and another with the full album. Both with digital,” says John Echevarria, chief footage and wallpapers. Many more were featured extra content such as wallpapers and operating officer, Universal Latin America: “The sold with the band’s new album La Plata. ringtones and were launched in the run-up coordination of traditional radio and digital pre- The package included behind-the-scenes to Madonna’s tour of Latin America – one release promotion led to the sale of a million footage and an exclusive song for download. of the fastest selling tours of all time in the handsets containing tracks from NX Zero.” In total, more than one million handsets region. “The campaign drove substantial were sold pre-loaded with Jota Quest’s re-orders following strong consumer music. Sony Music is expanding its mobile demand,” says Alfonso Pérez-Soto, head deals with artists. International deals include of business development and strategic partnerships with Justin Timberlake and P!nk. partnerships, Warner Music Latin America. 17
  • 18. ifPi digital MusiC rePort 2009 the core mission: investing in talent. The digital revolution has transformed Music companies’ marketing role is all the the way the music industry engages greater in the digital space because of the with consumers and distributes its sheer volume of music available online. product – but providing investment and, MySpace, for example, lists more than 2.5 developing and marketing talent remain million hip hop acts and 1.8 million rock a core function of the record industry. artists alone. Moreover, consumers’ tastes are fragmenting. Research by Bauer Media in the UK found that even the least engaged “Fast food corporations, coffee music fans are open to about 15 different shop chains and radio stations genres. Music companies work to market are among those who have tried and promote their artists’ music to ensure that it catches the public’s attention. to break acts by creating their own labels. They have all failed and shut their labels down. No Number of acts on Myspace (2008) successful new artists have come Musical genre Number of acts through that route.” Hip Hop 2.5 million Ged Doherty, Chairman and Chief Rap 2.4 million Executive, Sony Music UK Rock 1.8 million R&B 1.6 million Music companies are overwhelmingly Pop 723,000 the largest investors in artists’ careers, Metal 611,000 ploughing back around 20 per cent of their Punk 468,000 revenues into the development of talent. Labels bring financial backing and a wealth Electronica 413,000 of expertise that adds value to artists, Techno 335,000 helping them develop their art and bring it to a broad audience. The fragmented Reggae 314,000 world of the digital environment, in which Source: MySpace website, December 2008 millions of bands are vying for the attention Note: Some acts may be registered under of hundreds of millions of fans, makes this more than one category. Figures are rounded. role as a partner, investor, promoter and advisor for artists more important than ever. Cutting through the digital noise “Breaking an act and sustaining While technology has made “do it yourself” their career requires more varied releases possible, in reality these have, to expertise than ever before. We can date, been largely the preserve of a few provide artists with the investment, long-established acts. Erik Nielsen, who runs resources, tools and collaborators Marillion’s Racket Records label, told the EconMusic conference in September 2008 to achieve their creative potential, that while “do it yourself” works well for a attract an audience and develop band that has built a fan base since 1983, it long-term appeal.” is not a panacea for up and coming acts. In the UK in 2008, the band Hamfatter created John Reid, CEO, Warner Music a media splash when it was backed by the UK & Europe millionaire entrepreneur Peter Jones on the TV programme Dragon’s Den. Despite a wave of publicity, the band’s first single peaked at number 71 in the charts in its first week and dropped out of the Top 75 the following week. 18
  • 19. the MusiC CoMPaNy MissioN: NurturiNg & iNvestiNg iN taleNt adding value to artists Music companies are also able to match Music companies are working to cut through artists with other talent, such as world class the “noise” from myriad digital channels to songwriters and producers. Duffy was generate commercial value for the works introduced to songwriters David McAlmont of their artists. EMI Music’s chief executive and Bernard Butler and producers Steve Elio Leoni Sceti says the work of a music Brooker, Jimmy Hogarth and Eg White for the company today is “managing multiplicity production of her debut album Rockferry. The and complexity” and that its role is to help result was the UK’s most successful release artists reach consumers wherever they are of 2008, with more than 1.6 million in sales. with great music in a marketplace that is increasingly complex, with partners ranging Broadening services from games companies to mobile phone Music companies are broadening the operators. In order to better understand work they undertake for artists. This consumers, EMI plans to rollout its includes managing direct-to-consumer site. Its main purpose is to be a “learning channels such as websites and social laboratory” where the company can develop network pages on artists’ behalf. These a deeper knowledge of how consumers often include merchandising, DRM-free experience, interact with and purchase music. downloads, streams, premium content, links to other fans, updates on touring and Simon Wheeler, director of strategy at ticket sales. Universal Music now runs Beggar’s Group, which includes brands like websites for artists such as Snow Patrol XL Recordings, Rough Trade and Beggars and Keane. Warner Music works with artists Banquet, says music companies’ skills are as diverse as Pendulum and Alesha Dixon essential in connecting artists to consumers to create comprehensive artist sites. in the complex digital world: “For the artist to connect with the consumer through all In a new approach to marketing, labels of these new channels needs a big team of also bundle sales of recorded music with people – without that it’s just not realistic, other products, such as merchandise or live even for the biggest management company.” tickets to create an “unpiratable” product. In 2008 Sony Music ran campaigns that Helping build an artist’s career does not bundled products, such as the Funhouse mean just telling them what they want to album campaign for P!nk, which enabled hear. Ged Doherty, chairman and chief her fans to buy first preference tickets executive of Sony Music UK, says that he for her 2009 UK tour dates when they twice had to tell one well-known act that their pre-ordered the album on iTunes. new album was not up to the standard that they could achieve. Because of their good Meanwhile, new broader rights deals are relationship, that act reworked the album emerging. These provide artists with additional which has now proved very successful. support for touring, further opportunities “Sometimes you have to be brave enough in brand and synchronisation deals, wider to say the baby is ugly,” says Doherty. marketing campaigns including the sale of merchandise and extra strategic marketing Labels open other doors for artists too. muscle. In exchange, music companies Nick Gatfield, president of A&R Labels, recoup their investment in an act through a North America and UK, EMI, recalls variety of revenue streams including record signing Amy Winehouse when he worked sales, live tickets, sponsorship, merchandise at Island Records: “She had real, raw sales and publishing rights. In July 2008, talent, but she was just 17 and it took time Edgar Bronfman, Jr., chairman and chief to develop her vocal skills and her song executive, Warner Music Group said his writing. We experimented with different company has expanded rights relationships styles and rehearsed and improved her live with more than a third of its current roster. performances. The pay off came when she Duffy released Back to Black as we harnessed her natural talent to produce a coherent album.” 19
  • 20. ifPi digital MusiC rePort 2009 Marketing an album in the digital world. Once marketing an album was The track Violet Hill was offered as a free By the end of June, the album had sold more comparatively simple. You hired a venue, download for one week from 29th April on downloads than any other in digital history threw a lavish launch party and plugged Coldplay’s website and the band announced and debuted at number one in 36 countries. the album to your trusted contacts in free concerts for fans would be held in The album was also released on vinyl, an radio stations and reviewers working for London, New York and Barcelona in June, enduringly popular format with audiophiles, specialist press or national newspapers. in addition to the band’s regular tour dates. a week after the CD was made available. Things are very different now. A good In early June the album leaked onto the Viva La Vida became the top selling album illustration of a modern launch campaign internet and the band responded by of 2008 on iTunes, selling two million copies was Coldplay’s fourth studio album Viva making it available as a stream on their through the service. In November 2008, the La Vida or Death and All His Friends. MySpace profile. The band also undertook band released a deluxe album, Viva La Vida The track listing and release date were a series of high-profile media appearances – Prospekt’s March, which contained extra announced in April 2008 on the band’s in the US to promote the album. material from Coldplay’s recording sessions. website The title track Viva la Vida was used in partnership with Apple, forming the soundtrack for the company’s new iPod TV ad campaign. 20
  • 21. the MusiC CoMPaNy MissioN: NurturiNg & iNvestiNg iN taleNt a team sharing the same vision: the manager’s view Diane Wagg works with numerous artists generate income, there are only so many of day jobs working in Threshers, the Carphone including UK rock band Scouting for Girls. these deals professionals can take on. Having Warehouse and as a builder, worrying about a record deal also offers confidence to such where their next meal was coming from. “Technology has opened up all kinds of new third-parties that an act has a potentially opportunities for artists and labels. A number secure future and is an ongoing project. The partnership between Epic and Scouting of artists release music on their own labels – For Girls proved to be a perfect example or rely on other channels to get their music Ultimately though, it boils down to people. of how both parties can achieve huge heard. YouTube and MySpace are great ways Scouting For Girls signed to Epic because success whilst enjoying a friendly and for bands and labels to communicate with Nick Raphael and Jo Charrington immediately productive relationship along the way.” potential fans and an excellent way for new connected with the band and their music. artists to start reaching music lovers. But They shared the same vision as the band, signing a record deal remains a solid option respecting their values, creativity and identity, provided the people at the label believe whilst working with them to develop their in the band and the deal makes sense. music and their growing following. The band had a team working with them with Music labels provide access to creative the manpower, contacts, expertise and professionals that an artist may not be able to finance to reach further and possibly be Scouting For Girls reach themselves, such as first-class record more creative than they could have been producers, video directors, artwork designers alone struggling with funding and trying to and photographers. While some producers do everything themselves. And it meant work with acts on the basis of royalties and that they were able to devote all their time advances tied to when the artist starts to to music, rather than fitting it in around their Coldplay 21
  • 22. ifPi digital MusiC rePort 2009 Monetising music in an era of free - the role of isPs and governments. The music industry is evolving new business models, offering consumers access to music “There is a growing understanding a future for local in many new ways. The industry’s greatest that everything on the internet isn’t challenge remains generating commercial free. As people are getting older music and film? france value in an environment dominated by free and more used to the internet they and spain in focus unauthorised music. Estimates on the impact are starting to understand that it’s of internet piracy vary but are consistently not quite the free model that they The French and Spanish music huge in scale. IFPI, collating separate studies thought it was at the start.” industries illustrate the impact of online in 16 countries over a four-year period, Stephen Conroy, Minister for piracy on the health of local repertoire. estimated unauthorised file-sharing at over 40 Figures released by French music Broadband, Communications and billion files in 2008. This means that globally industry association SNEP and Spanish the Digital Economy, Australia around 95 per cent of music tracks are association Promusicae highlight: downloaded without payment to the artist or the music company that produced them. n The declining sales of local artists. In France, the number of album releases the cost of ‘free’ music example of Pendragon, a progressive rock by new artists fell 16 per cent in the Estimates on the economic and employment band from his constituency, who had sold first half of 2008. The French share of damage caused by piracy vary. In the 50 copies of their new music DVD in its newly released albums domestically fell UK, Jupiter Research valued the loss at first week of sale, but saw 3,000 copies to 10 per cent in the first half of 2008, £180 million in 2008, with a cumulative illegally downloaded in the same period. compared to 15 per cent in the first half loss to the industry of £1.1 billion by of 2005. In Spain, just one new local 2012 if nothing is done to address the Unlawful distribution of music on peer-to- artist featured in the Top 50 albums from problem. Europe Economics estimated peer (P2P) networks remains by a large January to November 2008 (Pitingo the potential employment losses from margin the music sector’s chief piracy at number 20) and just two in the Top piracy to the music, film and TV sectors at problem. Overall 16 per cent of internet 50 digital songs (Pitingo at number 43 30,000 jobs in the UK (December 2008). users in Europe regularly swap music on P2P and Despistaos at number 44). Back networks, according to Jupiter Research. in 2003 there were 10 new Spanish Few dispute that the vast scale of Those networks in turn account for up to artists in the Top 50 album chart. unauthorised music consumption is 80 per cent of all internet traffic (ipoque) massively damaging investment in music and file-swapping of copyrighted music n Scale of piracy. There were an and the careers of artists. One British MP and movies is widely-acknowledged to estimated 1.6 billion songs downloaded raised the issue in Parliament, citing the account for a large part of P2P activity. illegally in Spain in 2008 (Promusicae/ Gfk), compared to two million legal à-la-carte downloads. This means just 0.1 per cent of total tracks downloaded in Spain were legal. Digital sales are flat at 10 per cent of the market, around half the global average. n The impact beyond music. 13.7 million films were distributed on P2P networks in France in May 2008, compared to 12.2 million cinema tickets sold (Equancy and Co and Tera Consultants). “ He loves the album – he wants to know where he can download it for free.” 22
  • 23. MoNetisiNg MusiC iN aN era of free - the role of isPs aNd goverNMeNts the case for isP cooperation: key facts n Internet Service Providers (ISPs) would be enforcing their own contracted terms and conditions and applying the same approach towards illegal behaviour as they would with non-paying subscribers. n It can solve the problem. Seven out of 10 music consumers download music illegally because it’s available free (Entertainment Media Research, UK 2008). n P2P file-sharing, a large part of which is unauthorised copyrighted music and film, accounts for up to 80 per cent of all internet traffic (ipoque). n ISPs have an extensive technical ability to control traffic on their networks. AT&T, the largest American Entertainment Media Research in the UK ISP, is testing a system to limit “We were one of the first content found that 71 per cent of people who said monthly uploads and downloads of businesses to have to grapple with they file-shared more heavily in 2008 cited its subscribers in order to contain a business model that suddenly the fact that they could obtain music without “bandwidth hogs” who use a payment as the number one reason for disproportionate share of network wasn’t a business model at all. their activity. It is the avoidance of payment capacity. Comcast, the second Suddenly it became common for rather than a superior service that prompts largest American ISP, has imposed consumers – and businesses – to use internet users to illegally swap copyrighted nationwide download capacity our music without paying for it.“ music. Reinforcing this finding, research limits on subscribers and will cancel from NPD in the US in 2008 found that subscriptions of repeat infringers. Elio Leoni Sceti, Chief Executive, users were describing their experience of EMI Music unauthorised P2P networks as getting worse. There is clear evidence that consumers, though often unlikely to pay voluntarily, “The victim of online music Internationally, demographic analysis nonetheless want artists and copyright piracy is the freedom of points to future trends and suggests the holders to be paid and their intellectual problem, in the absence of a solution, will property to be respected. Research artistic expression.” rapidly get worse. In the US, Europe and commissioned by the Canadian government Yves Riesel, President, Australia, independent research confirms found that nine in ten consumers backed Abeille Musique France, that teenagers and young adults – the strong copyright laws to protect creators. generation of future music consumers – independent label acquire the most unlicensed music. Jupiter IPSOS in France found that 84 per cent Research found in 2008 that one in three of people who had downloaded music 15-24 years olds in Europe uses copyright- illegally thought artists and authors should infringing P2P networks – three times the be paid for their work. These figures point proportion that consumes music legally. to a central principle in the music industry’s current priorities for improving the digital Further research points to a key trend: environment: namely that while consumers’ unlawful downloading is driven by free instincts are to acquire music legitimately, availability - not by greater choice of the widespread availability of unlicensed repertoire. It is the lack of a requirement free music acts as a disincentive. to pay that is the single biggest attraction for consumers who illegally file-share. 23
  • 24. ifPi digital MusiC rePort 2009 from concept to reality: governments start to move on isP cooperation. The principle that Internet Service Providers system of graduated response by which ISPs While the record industry hopes ISPs will (ISPs) should play a greater role in protecting will educate and warn persistent copyright voluntarily adopt reasonable policies to content online is moving from concept to abusers and, as a last resort, sanction them prevent their networks being used to transmit implementation. The music industry first with loss of internet access for between infringing material, experience suggests proposed a solution to the online piracy one and 12 months. The system targets a robust and complete response requires problem – extending responsibility for persistent offenders who have ignored two a level of goverment intervention, even if copyright protection across the value chain warnings and will be overseen just to prevent unfair competition in the to include ISPs – in 2005. Three years by an independent provision of internet connectivity by less later, government-backed systems of ISP authority. Research scrupulous actors. In July 2008 the UK cooperation are being advanced or considered suggests it will have government brokered a joint ‘Memorandum in many countries. In 2008 a tipping point real impact and that of Understanding’ between the recording was reached, with governments in the number of actual and film industries and the UK’s six largest France and the UK leading suspensions will be low. ISPs, binding the parties to work to achieve a the way in requiring ISPs to The law was adopted significant reduction in unauthorised file-sharing. help bring piracy on their by the government in networks under control. the summer of 2008 and As part of the MOU, a working group was approved by the established to identify solutions for repeat There is growing infringement, to form the basis of a government- acceptance that sponsored code of conduct. At the government pressure same time, the government is crucial to producing initiated a consultation collective action by on legislative options to all ISPs. A French deal with internet piracy. The EU Presidency consultation is based on three communiqué to the principles: new business models, European Commission public education and enforcement in September 2008 against copyright infringement. confirmed: “Experience has shown that some level of During a three month trial period, which started government involvement is essential in October 2008, ISPs sent out thousands to achieve rapid and meaningful progress.” of letters warning users about the illegal acquisition of music and promoting legitimate In France the government continues to set Senate in November. It will be voted on consumption. The UK and French plans are the pace in introducing legislation to require by the French National Assembly in early being watched closely in Europe: in December concrete steps by ISPs to encourage legal 2009. The French music sector strongly 2008 the Italian Parliament adopted a resolution music consumption and deter piracy. A new supports the draft law, arguing that it is vital to follow other initiatives in Europe to step draft “Creation and Internet Law” sets up a to secure the future of French repertoire. up cooperation by ISPs in curbing piracy. “Music has been hit hard over the the evidence that graduated response will work last ten years and if we don’t do something there is a real danger n Seven out of ten (72%) UK music consumers would stop illegally downloading if told to do so by their ISP (Entertainment Media Research, 2008) that parts of the music industry will be washed away.” n Seven out of ten (74%) French consumers agree internet account disconnection is a better approach than fines and criminal sanctions (IPSOS, France, May 2008) Andy Burnham, UK Secretary of n Eight out of ten (82%) American teenagers familiar with the law think sanctions for illegal downloading are appropriate; 57 per cent of State for Culture those unfamiliar with the law agree (KRC US, January 2008) n 90 per cent of consumers would stop illegally file-sharing after two warnings from their ISP (IPSOS, France, May 2008) 24
  • 25. MoNetisiNg MusiC iN aN era of free - the role of isPs aNd goverNMeNts Similar initiatives are being taken elsewhere. The momentum in favour of ISP cooperation In December 2008 the US recording has reached Asia as well. In April 2008 in industry announced it is working with the Japan, a consortium of ISP, music and New law ‘will sustain Attorney General of New York and leading film trade associations was established to ISPs on a series of voluntary online anti- agree measures against copyright abuse on french creative industry’. piracy initiatives, with Attorney General Japan’s chief ISP network. The national police President Andrew Cuomo urging a deal involving and senior government representatives are Sarkozy’s ground- a graduated response approach. In a observers on the consortium. ISP actions to breaking proposal separate but parallel move, the RIAA and notify infringers and terminate the accounts of for legislation several leading ISPs agreed on principles repeat offenders are on the agenda. The Hong in France owes under which ISPs will take responsibility to Kong government launched a discussion much to the send notices and institute a programme forum between content industries and ISPs in leading economist of escalating sanctions for subscribers 2008 and has said it is prepared to legislate Olivier Bomsel, who says its key who are repeat copyright infringers. if necessary. In South Korea the government objective is “to sustain a content has issued for consultation a draft law industry in France in the future.” In February 2009 New Zealand will start introducing a system of graduated sanctions operating a graduated response system against online infringement, including Bomsel sees the graduated response following enactment of a law in April 2008 terminating the accounts of repeat offenders. as important to the next development requiring ISPs to adopt and reasonably phase of the creative internet economy. implement a policy of terminating the Meanwhile, courts in different countries have In phase one, during the rapid expansion accounts of repeat infringers. helped clarify the existing legal obligations of broadband networks, ISPs used free for ISPs to help fight piracy. In a landmark content to boost the roll-out of their In Australia the Minister for Broadband, judgment in 2007, a court in Belgium ordered fast-growing new businesses. In this first communications and the digital economy, the ISP Scarlet (formerly Tiscali) to make it phase “content” took second place to Stephen Conroy, interviewed on national impossible for its users to infringe copyright the perceived benefits of the broadband television, said illegal file-sharing has using peer-to-peer protocols on its networks. revolution. “The consequences were “decimated the music industry” and would The court found filtering to be a feasible and a free ride for distributors, while the IT do the same to film and other sectors unless appropriate means to distinguish between industry successfully argued that the there are “significant changes”. He added: legitimate and unauthorised files. In October advantages of network rollout offset the “The so-called three strikes legislation has 2008, a further court ruling rejected the ISP’s losses to the content industry,” says been talked about in Australia and we’re claims that filtering was impossible. The court Bomsel. As a result, consumers were watching closely what’s happening in said it was “not unreasonable to require of SA prepared to pay for new equipment France and the UK and we’re considering Scarlet that it make greater efforts than those and network access while content what we can do to support intellectual which it had shown thus far” to stop copyright was made available largely via massive property rights. People will change their infringement. The ISP has been liable for intellectual property infringement. behaviour if there’s an economic cost.” fines of €2,500 every day from 1st November 2008 until it takes effective steps to curb its The new French law, says Bomsel, users’ infringement of Belgian copyright law. aims at a fair solution for the next phase of the internet revolution. Courts have also confirmed the need for “When I exceed the speed limit on the In phase two, once the rollout of ISPs to block access to copyright-infringing roads too many times, I know I will lose broadband is over, the ISPs have to websites. In November 2008, an appeal court become fair distributors. A graduated my licence for six months and I accept that in Denmark upheld a decision requiring an ISP response system will be introduced by as normal. There’s no reason for a change to block access to The Pirate Bay website. which the repeat infringer would face Courts have also ruled that the suspension of attitude when it comes to the internet. suspension of internet access after two of internet accounts being used illegally is As human beings we don’t like rules and warnings. A government-appointed acceptable under EU law. In Finland, a court independent watchdog supervises regulations, but we don’t live in an ideal ordered TeliaSonera, a leading ISP, to suspend the system and relays the warnings world and a free-for-all benefits nobody.” the internet connection of a customer via the ISP. Bomsel says the element whose connection was used to upload a Chris Ancliff, of sanction in this system is essential: considerable number of infringing music files. “The system depends on the reliability General Counsel, EMI and deterrence of the sanction.” 25
  • 26. ifPi digital MusiC rePort 2009 education: the campaign for hearts and minds. New business models and rights enforcement are two key elements of the transforming music industry. A third critical component is public education. In 2008, the recording industry launched or was active in more than 70 campaigns worldwide, including television advertising, documentary productions, letter-writing in partnership with ISPs, live debates at universities, school band tours, education packs for teachers, digital music web portals and the publication of information to support parents. Parents and teachers are a particularly receptive audience. A Canadian report shows that 93 per cent of Canadians think parents should teach their children how to use the internet in a responsible way (Environics’ annual Social Values Monitor, 2008). Yet parents and academics realise how difficult it is to keep tabs on children’s online activity, let alone control it. The Byron Review, conducted on behalf of the UK government, concluded Ronan Keating there is a growing adult insecurity when “I am a father of three young kids it comes to teaching young people about who are all very interested in music the benefits and risks of an environment and computers. They are forever they do not understand themselves. asking to use the computer to young People, Music and the internet. download their favourite songs. 2008 saw the launch of a global information There is a constant worry about the campaign to explain the world of music security of the internet with children. downloading to teachers and parents This new guide helps adults and children worldwide. The simple guide, Young People, Music and the Internet was published by to use the internet safely and securely.” children’s internet charity Childnet International Ronan Keating, Singer-songwriter and supported by Pro-music (, the international alliance of music sector groups. It is being distributed through schools and colleges, libraries, record stores, teaching portals and websites in Argentina, “The new guide...should help to Australia, China, Mexico, Singapore, spark off those vital conversations Spain, the UK and the US, with a further between parents, teachers and 12 countries set to publish it in 2009. young people that are so essential Endorsed by the European Commission, it aims for promoting responsible behaviour to help close the “knowledge gap” between on the Internet..” young people and their parents and teachers, Viviane Reding, EU Commissioner for in order to promote the safe and legal use of Information Society and Media the internet and mobile phones to download music. Hundreds of thousands of copies were requested by teachers, libraries, local authorities, parents and even computer repair stores. Commissioner Reding 26
  • 27. eduCatioN: the CaMPaigN for hearts aNd MiNds. n School tours. The author and illustrator and is accompanied by A key challenge is to raise awareness of Rock the Schools a teachers’ guide, exercise booklet, lesson legitimate sources of music. In 2008 IFPI Tour in Australia plans on each theme, a poster and a board and an alliance of international right holder showcased six bands game, all of which can be downloaded from groups relaunched the in secondary schools for home or school use. portal “for all you need to know about music around the country online”. The site offers the largest listing of alongside workshops n Online public debate. legal online music stores, monthly digital about creating and protecting content. The French music industry charts from around the world and information association launched for those wanting to succeed in the music n School resources, business. It also lists the best education and education where the hot issues of tools and resources from around the world packs. Governments the day are commented to inform all audiences about the rights increasingly recognise on by SNEP and people and wrongs of obtaining music online. the importance of are invited to participate in education programmes. a discussion thread. National campaigns In the UK, Ireland Below are examples of some of the and Australia the core curriculum is being n Competitions. projects run by music industry associations changed in order to promote a better The Frank Hardcase and partner organisations in 2008: understanding of the value and importance competition is of intellectual property. In the US, the RIAA supported by an n Documentaries. works in partnership with education experts animation and website In 2008 In Tune was to develop curriculum materials, including asking students to distributed as part of DVDs, assemblies, and online curriculum, for prepare an anti-music the Music for Free? students at every level from grades 3-12. piracy campaign for fellow students for campaign in Australia. a A$1,000 prize. It was spearheaded by In Tune features IFPI Finland produced an education pack CrimeStoppers Australia with the participation interviews with Australian called Copyright Protects Creative Work of the recording industry and formed part of artists who speak on issues from what it’s for 10-12 year old students. It features a the government’s Music for Free? campaign. like to be part of a band to how the digital storybook written by a well-known children’s revolution has affected their livelihoods. © The New Yorker Collection 2002 Alex Gregory from All Rights Reserved. “I swear I wasn’t looking at smut – I was just stealing music.” 27
  • 28. ifPi digital MusiC rePort 2009 when did intellectual property become free? – music managers speak out. Music managers, the voices closest huge amount of work to do to press the case, to the artist community, are becoming but in many parts of many governments increasingly vocal in supporting the people are seeing the statistics, realising the case for Internet Service Provider (ISP) cultural catastrophe that we are facing and cooperation in protecting music online. understanding the inherent benefits of a system which addresses piracy near its source. For Arthur Spivak, the US manager behind a raft Paul McGuinness the first time, there is now the prospect that of top-selling acts from Tori Amos to We Are if ISPs do not cooperate with steps to help Scientists, says the idea that future talent will be tackle copyright theft, then legislation may supported solely from live music, sponsorship require them to do so. This is real progress.” and merchandising is an illusion: “I work with a band that performed 300 shows on a two- Technology, says McGuinness, should pose no year cycle to support their last album. They obstacle for ISPs. The “deep packet inspection” went around the world three times and yet techniques routinely engaged in now by all ISPs only sold around 400,000 copies. They made could be used in future to identify and interdict about US $30,000 each before taxes. They illegal P2P files of film and music content.” could have made more money on welfare.” David Holmes, manager of Coldplay, also Bertis Downs, manager of REM, believes favours a change of approach from ISPs. “We the key question for new bands is how to need to think differently about how to ensure Bertis Downs make a living and build a long-term career music gets properly protected on the internet. in an environment where new technology is We will all lose out if we let the idea take hold challenging the very right for creators to be that the creators of recorded music don’t paid: “For REM it wasn’t an overnight launch need rewarding for their work. I support the to fame and fortune. It was a slow grind to campaign for ISPs to be involved in this. I would success that took place over many years. I’m like them to do more to protect artist rights.” not saying you can put the technological genie Spivak believes the artist community has to back in the bottle – that would be absurd. speak out more if real change is going to But I am saying that if we don’t take better happen: “The artists and music companies steps to protect the value of music, then you should work together, not separately. They have to ask where the next REM is going to Arthur Spivak must speak out and lobby their governments come from? That’s why the whole idea of to force the ISPs to combat internet music widening responsibility for copyright protection piracy. Educate and legislate. Why and across the value chain is so important.” when did intellectual property become U2 manager Paul McGuinness says ISP free? If we do not speak up and fight cooperation has moved firmly on to the back, the music business will be the next agenda of governments, led by France and vaudeville – a thriving industry and culture the UK, within just two years: “There is a that disappeared in a few short years”. “Artists and music companies should work together.” Arthur Spivak, Manager 28
  • 29. Creative voiCes sPeaK out. Commerce in the era of ‘free’ – a common challenge for creative industries. For many years, the music industry has Both elements played a key role in the could even eventually be forced out of their been dubbed the “canary in the coalmine” company’s anti-piracy efforts during their trade by piracy: “The question for the book for other creative sectors entering the digital 17-day coverage of the Beijing Olympics. industry, watching the music industry, is that environment. Today, for the film, book, The network made massive amounts of if the whole idea of people buying individual newspaper, television and other sectors, Olympic material available to consumers works is going to disappear, then how are the digital future has now either arrived or is on, while at the same writers going to make a living in the future?” approaching fast. A common theme confronts time working with User Generated Content all these sectors - how to “monetise” their (UGC) sites such as YouTube to filter Chevalier is interested in the kind of new business in an era of widespread free content. and take down illegitimate material. business models being experimented with in the music business. Some similar For the film business, physical piracy has As a result of their efforts, 99 per cent of new solutions in publishing might include traditionally been the greatest threat, but all online views in the U.S. took place on sponsorship or ad-supported books. She the figures from IPSOS (November 2007) NBC’s platform. “This was the most viewed says: “The alarm bells start ringing when you reflect how rapidly consumers are becoming TV production in American history, and hear from the music business that for some comfortable with accessing illegal sites. Some the overwhelming access point for online 95 per cent of all the tracks downloaded, three million people in the UK download viewers was at - and there is no payment going to the artist.” unauthorised films online, with a dramatic the thing that essentially eliminated pirated fall in the previous year from 30 per cent to Olympic content from video sharing sites Electronic commerce came much closer to the 11 per cent in the number of consumers was content recognition technology and book industry in 2008 with the announcement, who think the practice is “too much effort”. filtering,” says Cotton. The case highlights the of competing forms of e-Book by Sony, value of technology in tackling the common Amazon and Waterstones. However, digital In December 2008 the issue was highlighted piracy threats facing music and TV, and its sales in the sector are still miniscule. by leading names from the UK’s film and particular effectiveness in dealing with real- television industry, including Kenneth Branagh, time streaming and time-sensitive content. Chevalier says change is coming for the book Richard Curtis, Terry Jones, Mike Leigh and world, though not with the suddenness with Sir Alan Parker in a letter the The Times. They which it hit the music business. She believes noted that ISPs “have the ability to change “There is a tsunami of raising public awareness about the real value the behaviour of those customers who illegally of creative works has a very important role digital theft on the distribute content online” and calling on them to to play: “It’s a complicated task you have “act responsibly” or “be compelled to do so”. internet that extends because as well as changing legislation and across multiple shutting down illegal sites, there needs to The film and television industry is fast adapting content sectors.” be a broader education effort to get people its business model with the aim of migrating to appreciate that getting content for free millions of consumers from illegal to legitimate Rick Cotton means the creator doesn’t get paid.” sources of content. “There is a tsunami of NBC Universal digital theft on the internet that extends across multiple content sectors, most notoriously affecting music but also spreading across TV, NBC Universal believes that responsibility movies, games, software and books,” says for copyright protection needs to be spread Rick Cotton, general counsel of the US TV and across the value chain. “The infrastructure film company NBC Universal: “The challenge industries need to come to the table to help is to stop this undermining the evolution reduce the flow of stolen content. We are of very exciting and enormously positive now seeing many forms of dialogue, and legitimate digital distribution capabilities.” those are absolutely critical to reducing both physical and digital piracy,” says Cotton. Tracy Chevalier In order to limit piracy, migrate consumers and drive revenues, NBC has been pursuing The book publishing world is grappling with a two-pronged strategy of making content a similar challenge. Tracy Chevalier, until easily accessible to internet consumers, recently chair of the UK Society of Authors while at the same time advocating the and author of Girl with a Pearl Earring, says implementation of technology-based anti- book publishers need to take a hard look at Tracy Chevalier, author of Girl With A piracy measures across the internet. new revenue models. She warns that authors Pearl Earring, warns on book piracy 29
  • 30. ifPi digital MusiC rePort 2009 Pre-release piracy: industry steps up action. Pre-release piracy is probably the most Containing pre-release piracy, 500,000 infringing damaging form of copyright infringement boosting sales as it impacts on sales of the original Stopping an album leak prior to release links removed by tracks or album at what should be the aims to help boost its legitimate sales. IFPI 2007 high point of consumer interest. Zomba Records called in IFPI’s anti- 3 million infringing piracy team after Usher’s latest album, Pre-release copies are leaked days or weeks Here I Stand, leaked weeks before its links removed by before the official release date and then the May 2008 official release date. IFPI 2008 number of files online containing the music quickly proliferates. There are special networks Investigators tracked down the original and ripping groups that work to maximise the source of the leaks and issued more action on campus in the us distribution of pre-release infringing music. than 4,000 ‘notice and takedown’ orders The US music industry is focusing its The damage this and subsequent file-sharing to remove links from blogs and forums education and deterrence programmes causes can mean the difference between an to the copyright-infringing music. directly on the issue of music theft on college album charting in the Top 10 or missing out – campuses. Illegal file-sharing by college something that can have a huge impact on an For Zomba, as for other record companies, students is disproportionately high. A survey artist’s career. Illegal services are able to offer this kind of action supports the marketing by Student Monitor in spring 2006 found music before legitimate sites can – a major strategy, allows anticipation to build that more than half of students downloaded advantage for them in terms of securing users. up ahead of release day and contains music and movies illegally and according to the damage caused by the leak. Here NPD, students accounted for more than 1.3 Music companies are increasingly using I Stand went on to be a big success, billion illegal music downloads in 2006. This the services of IFPI’s internet anti-piracy topping the Billboard Hot 100 chart. is despite the fact that every student in the team to fight pre-release piracy. Searching country has access to affordable (even free), the internet for infringing uploaders and A similar exercise by the IFPI team stopped legal music through innovative music industry the operators of servers and indexing and all online pre-release leaks of Enya’s supported models like those offered by tracking sites, the team sends notices November 2008 album And Winter Came.... Ruckus, AmazonMP3, and MySpace Music. and warnings which may, if necessary, be Investigators ensured that sufficient security followed up with legal steps, either criminal measures were in place on all aspects of Many universities have successfully or civil. The results of this work are visible. the manufacturing process and artwork implemented anti-piracy technology tools and production and also ensured that all report receiving fewer copyright infringement In 2008, IFPI removed three million unauthorised content was taken down from (DMCA) notices. Several university officials have infringing web links, up from 500,000 the internet as soon as it was discovered. testified about the efficacy and cost benefits in 2007, stopping potentially hundreds The album subsequently became a top ten of adopting an anti-piracy technology. While of millions of unlicensed downloads. hit in the US and many European countries. each university has its own policies and tools, technology has clearly been part of the answer. “About three weeks prior to its release, our album got leaked. A gloom came over me when I saw it available on blogs all across the globe. It has nothing to do with money, that doesn’t come into it, but it felt like someone had come into my house and nicked stuff, then put it on the internet for everyone to have a look at.” Kaiser Chiefs Kaiser Chiefs’ Nick Hodgson speaking to 30
  • 31. tells ‘all Recording Industry In Numbers you need to know about is the definitive source of global music online’. Users can music market information; find out where to get music an annual report containing legally online and discover global sales figures, country more about the music specific data and insight into industry. The website is key consumer trends. To find backed by a cross-industry out more or to purchase a group of rights holders. copy go to Published by IFPI. January 2009. Copyright © IFPI. All data, copy and images are subject to copyright and may not be reproduced, transmitted or made available without permission from IFPI. Designed by Band London