IFPI Digital Music Report 2007 published

February 2007

Record labels, internet

Record labels have sold an estimated US$2 billion worth of music online or through mobile phones in 2006 (trade revenues), almost doubling the market in the last year according to latest figures form the International federation of Phonographic Industries. Digital sales now account for around 10% of the music market as record companies experiment and innovate with an array of business models and digital music products, involving hundreds of licensing partners. Among new developments in 2006, the number of songs available online doubled to four million, thousands of albums were released across many digital formats and platforms, classical music saw a “digital dividend” and advertising-funded services became a revenue stream for record companies. However, despite this success, digital music has not yet achieved the “holy grail” of compensating for the decline in CD sales. Meanwhile, digital piracy and the “devaluation of music content” (IFPI wording) are a “real threat to the emerging digital music business”. IFPI Research suggests legal actions against large-scale P2P uploaders – some 10,000 of which were announced in 18 countries in 2006 – have helped contain piracy, reducing the proportion of internet users frequently file-sharing in key European markets.

The IFPI say that consumers are finding that digital technology is helping to change their purchasing habits. They are taking advantage of the unlimited ‘shelf space’ in online stores, buying recordings that would have long vanished from the shelves of even the largest offline stores.  Recent months have also seen digital music distribution channels diversify.  A-la-carte download services, led by iTunes, remain the dominant digital format, but they compete in a mixed economy with subscription services, mobile mastertones and more recently new advertising-supported models and video licensing deals on sites like YouTube and MySpace. Mobile music accounted for about half of global digital revenues in 2006, but the split between mobile and online varies sharply by country. In Japan around 90% of digital music sales are accounted for by mobile purchases. 2007 could prove to be a landmark year in the mobile music market, as handset makers such as Nokia and Sony Ericsson develop their music phone series. Meanwhile, Apple has announced the launch of the much anticipated iPhone. The IFPI see portable players are one of the major drivers of growth in the digital sector.  New figures show that the proportion of portable player owners who source mainly from paid downloads is roughly the same as the proportion who source mainly from unauthorised P2P and free websites (14%). Yet The IFPI say that there is still concern at the relatively low levels of digitally purchased music that is stored on devices.

There is mixed news for the industry when it comes to digital piracy.  Independent research analysts Jupiter suggest that record number of high-profile lawsuits against large-scale uploaders in 2006 did have a deterrent effect on illegal file-sharers.  As broadband penetration across Europe doubled to 40% between 2004 and 2006, the proportion of users regularly file-sharing fell from 18% to 14%.  In the US, lawsuits were the most cited reason by computer users for changing from unauthorised P2P to legal downloading (NPD Group, June 2006). Key successes for the IFPI against illegal operators were recorded in 2006, including Kazaa in Australia, Bearshare in the US, ZoekMP3 in Netherlands and Kuro in Taiwan. Yet digital piracy is still a massive problem for the music industry and one of the major reasons that the surging legitimate digital market is not expected to make up the shortfall in the decline of the physical market in 2006.

You can download a copy of the Digital Music Report 2007 and accompanying factsheets at www.ifpi.org

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