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IFPI DIGITAL MUSIC REPORT 2009Contentsp3 nIntroduction: Music has embraced the future with new business models– Will governments secure a future for digital content?p4 nSection 1: Shaping a new era in digital music– Digital music: key facts and figuresp8 nSection 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 focusp18 nSection 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 viewp22 nSection 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 cooperationp26 nSection 5: Education – the campaign for hearts and minds– Young People, Music and the Internet– Pro-music.org– National campaignsp28 nSection 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 industriesp30 nSection 7: Pre-release piracy: industry steps-up action2

INTRODUCTIONMusic has embraced the future with new business models –will governments secure a future for digital content?By John Kennedy, chairmanand chief executive, IFPI.The recorded music industry is reinventingitself and its business models. Our world in2009 looks fundamentally different from howit looked five years ago. Record companieshave changed their whole approach to doingbusiness, reshaped their operations andresponded to the dramatic transformation inthe way music is distributed and consumed.The music business, like others, goesinto 2009 under the uncertain cloud ofthe global economic downturn. However,we are no stranger to the need toreform, restructure and reinvent. Recordcompanies began this process manyyears ago. They are, I believe, as a result,better placed than many other sectors tomanage through more difficult times.There are some very positive stories inthis report about innovation and changeinside today’s music business. First, recordcompanies are building an economic futurebased not just on selling music but on“monetising” consumer access to it. Nokia’sComes With Music service, launched inOctober 2008, embodies that concept, withmusic free and unlimited, bundled into thecost of a mobile phone. So do the newlink-ups between music companies and ISPs,from Sky in the UK to TDC in Denmark andother European ISPs. These are just tastersof the enormous potential for licensing andgenerating commercial value from music atevery point where the consumer is likely towant it. Meanwhile, as this report goes topress Apple announced it had signed dealswith leading record companies to offer eightmillion DRM-free tracks at flexible price points.Increasingly our partners in these ventures,grappling with consumer demand problemsof their own, are seeing the opportunity ofadding music to the value of their offering.One impressive statistic in this report is theconfirmation by Danish telecoms companyTDC that its music service has produceda very significant and measureable impactin retaining its broadband and mobilephone customers. That is a powerfultestimony to the commercial value ofmusic and it will strike a chord amongISPs and mobile operators elsewhere.The second dominant theme of this reportis the part that record companies – alsoreferred to in this report as “music” companiesto reflect their expanding role – continue toplay in bringing to market the vast majorityof acts that music fans enjoy. The idea thatthe digital world somehow diminishes theimportance of music companies is simplya myth. On the contrary, in a world where amultitude of aspiring artists are competingfor visibility among millions of consumers,the music company role can only becomemore important in the digital future. Theinvestment, skills, services and creativeadvice that labels provide remain as corea function of the music business as ever.“Governments are beginning toaccept that, in the debate over‘free content’ and engagingISPs in protecting intellectualproperty rights, ‘doing nothing’is not an option.”John Kennedy, Chairmanand Chief Executive of IFPIFinally, there is a momentous debate goingon about the environment on which ourbusiness, and all the people working in it,depends. This is a debate about the futurenot just of music but of all creative industriesin a digital era where the very principle ofgetting rewarded for creative work is at risk.The vast growth of unlawful file-sharingquite simply threatens to put the wholemusic sector out of business. This reportreflects the wide consensus, from majorand independent record companiesto managers and politicians, that anew approach is needed to protectcopyright – one that involves sharingresponsibility across the value chain.The debate has a huge way to go, but thecampaign for ISPs to act as proper partners inhelping protect intellectual property is makingprogress. Governments are beginning tounderstand the scale of the challenge of tryingto monetise content in an environment wherearound 95 per cent of all music is downloadedwithout payment to artists or producers.France is leading the drive towards ISPcooperation, understanding that it is the futureof French creative industries that are at stake.The UK and a growing number of countrieshave progressed along a similar route in 2008and momentum will build further in 2009.This report tells the story of the musicbusiness as it is developing today. Music is theengine and heart of a large number of diversebusinesses and demand for the product isgrowing year-by-year. Music companies arechanging their business models and refiningtheir skills in bringing artists to an ever morecomplex and sophisticated marketplace.Governments are beginning to acceptthat, in the debate over “free content” andengaging ISPs in protecting intellectualproperty rights, doing nothing is not anoption if there is to be a future for commercialdigital content. The big question for 2009 –with the focus in particular on France andthe UK - is what real action will result andhow quick and how effective it will be inreversing the devaluation of recorded musicand helping return the industry to growth.3

IFPI DIGITAL MUSIC REPORT 2009Shaping a new era in digital music.The music industry is reinventing itselfand its business models to meet new forms ofconsumer demand in an environment that hasbeen revolutionised by new technology. In 2008the digital music business internationally saw asixth year of expansion, growing by an estimated25 per cent to US$3.7 billion in trade value.Digital platforms now account for around 20per cent of recorded music sales, up from 15per cent in 2007. Recorded music is at theforefront of the online and mobile revolution,generating more revenue in percentage termsthrough digital platforms than the newspaper,magazine and film industries combined.Music consumption is becoming far moreubiquitous and revenue streams for musiccompanies are expanding and diversifying.Global digital revenues by industry (2008)Digital shareGames 35%Recorded music 20%Newspapers 4%Films 4%Magazines 1%Sources: PWC Global Entertainmentand Media Report (2008), IFPIA number of key themes underpin thesechanges. First is the unflagging consumerdemand for music. In the US, researchby NPD Group found that total musicconsumption (both licensed and unlicensed)increased by one third between 2003 and2007. Nielsen SoundScan reports overallsales in the US hit an all time high in 2008,with music purchases across all formatstotalling 1.5 billion, up 10.5 per cent.“A big album worldwide will sellabout seven million units butmany more people will enjoythe album. This is about lightingup all these other consumers.”Rob Wells, Senior VicePresident, Digital, UniversalMusic Group International“Music has never been more important tothe consumer than today. Every year we areseeing increased use of music and whatwe are doing as music companies is findingnew ways of playing into that interest,” saysThomas Hesse, president, global digitalbusiness, Sony Music Entertainment.Another key change is the explosion ofconsumer choice as music companies workto offer music in as many ways as possible.These approaches range from à-la-cartedownload stores like iTunes and AmazonMP3to subscription services, licensing of musicin games and films, merchandising, brandpartnerships, ad-supported streamingsites like YouTube and MySpace as well ascollecting revenue generated by broadcastand public performance rights. In 2008a plethora of new channels continued toemerge, reflecting a far more complex andsophisticated commercial landscape in whichconsumers are being given the opportunityto acquire music legally in many new ways.New business modelsA pre-eminent example of the shifting businessmodel is the growth of commerce around“music access”, with music being bundledwith other services or devices. Nokia’s ComesWith Music phone and TDC’s PLAY areexamples of music access services launchedin 2008. Others, rolled out mainly in Europe,involve partnerships with ISPs and mobileoperators. Record labels see music accessmodels as a big opportunity. “A big albumworldwide will sell about seven million unitsbut during the course of a year many morepeople will listen to and enjoy the album,”says Rob Wells, senior vice president, digital,Universal Music Group International: “This isabout lighting up all these other consumers.”Partnerships with technology companiesare integral to the changing business model.Music industry revenues in the next few yearsare likely to come increasingly from revenuesharingdeals with Internet Service Providers(ISPs), hardware manufacturers, handsetmakers and other technology companies.Technology companies look to music to addvalue to their services and enhance their ownbusiness model while music companies lookto these partners for their enormous reachinto consumers’ homes and lifestyles.“With the advent of the accessmodel, the music industry’seconomic model is at last alignedwith the mobile industry’s. Bothwill view the world through thesame lens - average revenue peruser, commonly known as ARPU.”Edgar Bronfman, Chairman &Chief Executive Officer,Warner Music Group4

shaping a new era in digital music“The campaign against illegalfile-sharing is a fight against theperverse idea that music has nocost. That illusion of “music forfree” is disastrous, particularly forindependent record companiesproducing specialised repertoire.”Yves Riesel, President,Abeille Musique France(independent label)Michael Nash, executive vice president, digitalstrategy and business development, WarnerMusic Group, believes these partnerships willplay an important role in returning the musicindustry to growth: “There is a multi-trilliondollar economy of digital connectivity, madeup of digital networks, wireless, broadbandand hardware. Music is extremely important tothis economy and is also the driver of a widerange of larger industries. These industries arethinking about how to partner with the musicindustry in new ways. The health of the musicindustry is going to contribute significantly tothe health of this trillion-dollar economy.”Music downloads continue to grow healthily,with AmazonMP3 joining the European marketbroadening consumer choice. An importantdevelopment in 2008 was the licensing ofmore online stores to sell downloads withoutdigital rights management (DRM), meaningconsumers can play the music they acquire onany portable device. In January 2009, Appleannounced it had signed deals with leadingrecord companies to offer eight million DRMfreetracks at flexible price points. The move isexpected to significantly boost download sales.Music companies are, meanwhile, commerciallylicensing many of the most popular channelsof music discovery. One of the top brandsin social networking, MySpace,extended from the world of musicdiscovery into a commercialmusic service. Video-streamingsites like YouTube are hugelypopular with consumers in searchof music. Music companies areworking on licensing arrangementsto make these sites part ofthe legitimate music economywhich respects content owners’rights, recompenses creatorsfor their work and incentivisesthe creation of new music.Record labels are transformingthemselves in this newenvironment, marrying traditional skills of artistdevelopment with new expertise in reachingconsumers. Elio Leoni Sceti, chief executiveof EMI Music, says this has fundamentallychanged the role, though not the value,of the music company: “We don’t just sellrecords any more, we act wherever peopleexperience music, from digital and physicalformats to all the other ‘touchpoints’ of themusic experience; from being part of thediscovery process, to music in games likeRock Band and Guitar Hero or recording andselling music at live events and so on. Ourrole is not to put physical discs on a shelf butto reach consumers wherever they are.”This is also reflected in the new expertisemusic companies are bringing into theirbusinesses. For example, Douglas Merrill,president, digital business at EMI Music, joinedthe company from Google in April 2008. Hesays that one of the big lessons from Googleis to focus not on consumers’ destinationsites but on the ways they discover music:“Social networks have been terrific for fanslooking for bands they know, but far morechallenging as a way of finding new bands.We have to help fans find music whereverthey are and at the moment they want it. If wecan do that we will find ways to monetise it.”Nurturing and investing in talentAlong with all the dramatic changes of thedigital music revolution, however, there iscontinuity as well. Music companies, largeand small, believe their primary role in all thesenew business partnerships is to remain themain investors in new talent and developersof artists’ careers. The skills, expertise,investment capacity, creative understandingand, above all, the ability to connect theartists’ work with their audience will remainthe music company’s role well into the future.“The record company has two fundamental rolesand both are from time to time undervalued andmisunderstood - one as an investor, the otheras a provider of skills and services,” says MartinMills, chairman of Beggars Group, one of thethe UK’s largest independent record companies:“These roles are always going to be required.”The role of ISPs and governmentMusic’s digital reinvention is happening in anenvironment where the vast majority – IFPIestimates around 95 per cent – of tracksare downloaded without payment to rightsholders. Online piracy is swamping thelegitimate music business, harming sales,innovation, artists’ careers and investmentin repertoire. Where necessary governmentregulation holds the key to addressing thiscritical issue. In 2008, France led the wayinternationally with draft legislation requiringISPs to be effective partners in addressinglarge-scale copyright theft on their networks.5

IFPI DIGITAL MUSIC REPORT 2009Digital music: key facts and figures.Music companies’ digital revenuesinternationally grew by an estimated 25per cent in 2008 to US$3.7 billion. Digitalplatforms now account for around 20 per centof recorded music sales, up from 15 per centin 2007. The continued growth in digital saleshas helped slow down the rate of declinein the overall market for recorded music.Single track downloads, up 24 percent in 2008 to 1.4 billion units globally,continue to drive the online market, butdigital albums are also growing healthily(up 37%). The top-selling digital singleof 2008 was Lil Wayne’s Lollipop.A few major markets are spearheadingthe digital music revolution:n The US is the world leader in digitalmusic sales, accounting for some 50 percent of the global digital music marketvalue. Single track downloads crossedthe one billion mark for the first time in2008, totalling 1.1 billion, up 27 per centon 2007. Digital album sales totalled 66million, an increase of 32 per cent (NielsenSoundScan). Digital albums now accountfor 15 per cent of total album sales,compared to 10 per cent in 2007. AtlanticRecords became the first sizeable labelto report that the majority of its revenueis now coming through digital channels.n Japan, a predominantly mobile market,continues to be a notable successstory, with digital sales helping overalltrade revenues to growth in the firsthalf of 2008. 140 million mobile singleswere sold in 2008, an increase of 26per cent on the prior year (RIAJ).n The UK saw the biggest increase in digitalsales in the first half of 2008 among thetop markets, with sales up by 45 per cent.110 million single tracks were downloadedin 2008, up 42 per cent on 2007. Digitalalbum sales also rose sharply, by 65 percent to 10.3 million now accounting for7.7 per cent of the albums market (OCC/BPI). The country hosted the first launchof Nokia’s Comes With Music serviceand Amazon MP3 also expanded itsservice to British consumers in 2008.n France is also seeing strong digital growth,with sales up 41 per cent in the first half of2008. 14.5 million online single tracks weredownloaded in 2008, up 20 per cent on2007, while 1.4 million digital albums weresold, up 27 per cent (SNEP). In addition, 12million tracks were downloaded in 2008.France is at the forefront of experimentswith new “music access” models such asthe revenue-sharing ventures with NeufCegetel, SFR and Orange. The country isleading the world in terms of governmentaction intended to curb internet piracy.n Digital music sales in Germany areshowing steady growth. Online single trackdownloads totalled 37.4 million in 2008,a 22 per cent growth on 2007. Digitalalbum sales increased by 57 per cent,totalling 4.4 million (MediaControl GfK International).Digital growth rates varysharply between the US,Japan and the rest of theworld. Digital accounted for39 per cent of recorded musicsales in the US in the first halfof 2008 – more than four timeshigher than in Germany (9%).Meanwhile the proportion ofUS consumers’ disposableincome spent on digital music is more thanfive times higher than in Europe. Online,US broadband users spent an average ofUS$12.5 on music compared to US$7.8 inthe UK and just US$0.6 in Spain (2007).Many factors account for these variations.They include the different levels of mobileand broadband adoption in the differentmarkets and variations in the use andownership of technology. The differingstrength of the physical retail sectors are alsoa factor, as well as piracy levels, credit cardpenetration and payment methods availableto consumers. There are also sharp contrastsin the marketing efforts by digital services indifferent countries. Consumer trust in onlinebuying also differs from country to country.6

shaping a new era in digital musicDigital musicrevenues (2008).4.0 3.7 25%3.52.920%3.020%US$ billions2.52.01.51.22.211%15%15%10%% digital1.00.50.45%5%0.02%200420052006200720080%Source: IFPI. Figures include online, mobile and subscription trade revenues. 2008figures are estimates. Figures rounded and expressed on a fixed exchange rate.Top five digital music markets (2008)CountryDigital shareUS 39%Japan 19%UK 16%France 12%Germany 9%Source: IFPI. Figures reflect digitalshares for the period of Jan-Jun 2008.Top 10 Digital Single Tracks 2008No. Artist Title Sales (m units)1 Lil Wayne Lollipop 9.12 Thelma Aoyama Sobaniirune 8.23 Flo Rida feat. T-Pain Low 8.04 Leona Lewis Bleeding Love 7.75 Timbaland Apologize 6.26 Greeeen Kiseki 6.27 Katy Perry I Kissed A Girl 5.78 Alicia Keys No One 5.69 Usher feat. Young Jeezy Love In This Club 5.610 Chris Brown With You 5.5Source: IFPI. Chart includes online single tracks, audio andvideo mastertones, ringback tones and full track downloadsto mobile. Period of 12 months to November 2008. Salesfigures are rounded. Combines all versions of the same song.Some top digital selling artists of 2008.Lil WayneAlicia KeysKaty PerryFlo Rida7

IFPI DIGITAL MUSIC REPORT 2009The shift to ‘music access’.The music business is moving from a modelbased only on sales to one of “monetising”access to music. The introduction of “access”services is the single most important currentdevelopment in the music business. While theservices differ in detail, they all operate on thesame principle of offering consumers accessto music, either bundled with other servicesor as an additional subscription option.Nokia launched its Comes With Music servicein the UK in the run-up to Christmas 2008.It is expected to be rolled out to other keymarkets in 2009. When consumers buy aNokia Comes With Music phone, they gainunlimited music access for a year and candownload songs at no additional charge.Users access the service by downloadinga PC application which they can use todownload from the Nokia Music Storeand subsequently transfer music totheir handset. At the end of the yearconsumers can keep all the tracks theyhave downloaded and continue to updatetheir collection with à-la-carte purchasesat the Nokia Music Store or upgrade toanother Comes With Music handset.It is believed that the new service can growthe whole music market, not merely replace“We believe that Comes With Musicwill transform the way peopleenjoy music. With unlimitedmusic access for a year, fans canenjoy their favourite artists ordelve into new genres withouthaving to worry about individualtrack or album purchases.”Tera Ojanpera, Head ofEntertainment, Nokia.existing sales. In the UK, for example,research by TNS shows that total annualmusic spend averages £65, but there arehuge variations above and below that average.Francis Keeling, commercial director, digital,Universal Music Group International, says thissuggests the new model will complementothers: “We want to convert people at thelower end of the spending spectrum throughdeals like Comes With Music, withoutcannibalising the top end of the market.”Key to Comes With Music is the offer oflimitless music and the combination ofsubscription and ownership. “Our researchshows that consumers will pay extra for ahandset if they can see the benefit of gainingunlimited access to music,” says UlrichJaerkel, senior vice president, digital andnew business development EMEA, at SonyMusic Entertainment, “Some shy back if thereis no ownership, which is why the ComesWith Music concept is so popular. It’s aboutmusic discovery as well as keeping songs andthat is popular across all demographics.”Sony Ericsson is also advancing the modelof “music access”. Its PlayNow plusservice was first launched in Sweden withoperator Telenor on a special edition ofSony Ericsson Walkman phone. The serviceis expected to launch in other markets inearly 2009. PlayNow plus allows usersto download, play and recommend musicwherever they are and whenever they like,directly over the mobile network. It offers“Ultimately, we will see all sortsof products come with music –home stereos, cars and potentiallytelevisions. Music can become animportant element that enhances thevalue of consumer electronics devices,providing consumers with a verycomplete and satisfying experience.”Thomas Hesse, President,Global Digital Business,Sony Music Entertainment.high-quality audio and access to a hugemusic catalogue, providing 1,000 pre-loadedpopular tracks on the handset and a PCplayer. At the end of their six to 18 monthcontract, users can keep up to 300 oftheir most played tracks on any device.Lennard Hoornik, corporate vice presidentand head of marketing at Sony Ericsson,says: “All mobile consumers want to havecontent on their phone, but many findthe experience difficult, slow and timeconsuming. With PlayNow plus, therewill be no more barriers, we’re givingconsumers the freedom to instantly discover,download, play and recommend all themusic they want - anytime, anywhere.”PlayNow plus is powered by Omnifone,which provides music services for useinternationally by device vendors, mobilenetwork operators and broadband providerssuch as Vodafone, Telenor, 3 Hong Kongand Vodacom. Omnifone chief executive RobLewis says: “We believe there is an increasingemphasis on services that are delivered incooperation with device makers and we arein talks with a wide range of vendors fromin-car audio providers to personal computerand set-top box manufacturers that will bedelivering unlimited music services globally.”8

New business models for a changing environmentEric Daugan, senior vice president,digital business, at Warner Music EMEA,compares variable pricing models to theway the consumption of films is priced inthe home. He explains: “A movie is free if aconsumer watches it when it is scheduledon TV, they pay a little more for a ‘videoon demand’ service and a premium if theybuy it on DVD to watch when they want foras many times as they want. It’s a classictrade-off between payment and control.”Some Internet Service Providers (ISPs)have also begun to operate music services,bundling access to libraries of repertoirefor their customers as part of theirbroadband and telephony packages.Denmark’s TDC launched a bundled musicsubscription service in April 2008. PLAYprovides unlimited access to 2.2 million tracksfor the company’s mobile and broadbandcustomers that sign up to the service, withoutadditional charge while their subscription isongoing. Uptake for the service has been verypositive, with a reported 7.2 million downloadsper month and 54 million by November 2008.Average monthly users of the service nowtop 92,000 and the service has captured asignificant share of the Danish digital market.TDC is seeing benefits from PLAY which willhave caught the attention of ISPs aroundthe world. In a very significant indicationof how the music service is helping TDCretain its customers, senior executive vicepresident and chief strategy officer EvaBerneke observes that the “churn” – therate at which subscribers drop the servicein favour of a competitor – has fallen verysubstantially since the launch of TDC PLAY.The churn in mobile customers had droppedby 30 to 40 per cent and in broadbandcustomers by some 60 per cent.In October 2008, TDC PLAY 10 waslaunched, allowing TDC PLAY users thatare broadband subscribers to downloadand keep 10 tracks per month for a DKK50 monthly fee (approximately US$9)– some 37 per cent below the averageprice per track in Denmark. Most of thetracks are in MP3 format. TDC also offersan à-la-carte service, TDC Play Music.“The mobile and broadbandmarkets in Denmark are highlymature, hence focus is more oncustomer retention than customeracquisition.TDC PLAY is vital for usin our aim to keep our customersand stabilise our turnover.”Eva Berneke, Senior ExecutiveVice President & Chief StrategyOfficer, TDC.In another landmark deal, media giant BSkyBhas partnered with Universal Music to offera music service in the UK and Ireland. Theservice, expected to go live in 2009, willprovide users with unlimited on-demandmusic listening and the opportunity todownload tracks for playback at any time fora monthly fee. Songs will be playable on anydevice, including iPods and mobile phones.A range of subscription options is expectedto be announced, offering different downloadpackages tailored to consumers’ needs. Atthe time of publication, Sky is in talks withother labels about licensing their catalogues.Universal sees the Sky venture as openingup a key new market. Beth Appleton, headof digital of Universal Music Group UK,says: “Sky’s new music offering reflects theevolution we will see in the UK in 2009 aswe move from a digital landscape dominatedby solely owning music to hybrid modelswhere customers will access and own musicas part of an existing and familiar servicewith millions of potential consumers.”Neuf Cegetel, the French ISP, has beenrunning a “music access” service since 2007,offering unlimited downloads from 150,000tracks from Universal Music. Consumers areoffered two options: Neuf Music Initial, which isavailable for no extra cost and offers unlimiteddownloads from one of nine music genres, orNeuf Music Optimal which costs an additional€4.99 and offers unlimited downloads ofall Universal Music tracks. Its operators saythe service has been a great success atattracting new broadband subscribers.France has other models vying for consumerinterest. Musique Max from Orange is anunlimited download service. Orange internetand mobile customers can subscribe to it foran additional €12 per month. The service offersmore than one million songs from major andindependent labels, which are also available forpermanent purchase and can be transferred tofive other digital music players or compatiblemobile phones. Thierry Chassagne, presidentof Warner Music France, explains: “Beyondcharging for individual downloads, Orange’s offerrepresents a turning point in the development ofnew modes of consumption in France. It is aninnovative alternative, which meets music fans’needs for more flexibility, mobility and a richermusic offering, while respecting artists’ rights.”France’s second largest mobile operator, SFR,launched a similar offering in November 2008.As part of a three-tiered service, ranging from€22.90 to €56.90 per month, SFR customerscan download music on an unlimited basis. Filesare DRM-free when downloaded to a PC and,so far, limited to Universal Music’s catalogue.Other European ISPs are now offering similarmusic services. Finnish ISP DNA launcheda bundled music service in December 2008and Swedish telecom company TeliaSoneraintroduced Telia Musik in six countries.9

IFPI DIGITAL MUSIC REPORT 2009More choice in music downloads.Music downloading continues to growstrongly internationally, with track sales up24 per cent to 1.4 billion in 2008. Consumerchoice has widened with increasing sales ofdownloads without digital rights management(DRM), allowing consumers to freely transferlegally acquired songs onto any device.Interoperability between platforms and deviceswas previously prevented by technologycompanies’ proprietary DRM systems.iTunes continues to be the leading playerin the online à-la-carte download market. Itannounced in January 2009 that it had sold sixbillion downloads since launch and it now has apresence in 22 countries worldwide. In February2008, it became the largest music retailer in theUS, according to NPD’s MusicWatch survey. Theonline store carries more than eight million DRMfreelicensed music tracks, as well as 20,000 TVepisodes and more than 2,000 films. In January2009 the store announced it was introducingflexible pricing for its eight million DRM-freetracks at 69 cents, 99 cents and US$1.29.Users of the third generation iPhone are able todownload tracks, including ringtones, over the air.iTunes works closely with labels to marketalbums and premium content. The‘complete my album’ function allows fansto redeem the price of the songs they havealready downloaded from an album fromthe price of the complete album if theygo on to purchase it. US soul singer JohnLegend, signed to Columbia, became thefirst artist to launch a global ‘complete myalbum’ marketing campaign with iTunes.It is clear fans place a high value on thedeeper connection with artists that exclusiveor additional premium content can provide.Warner Music released four singles and twoEPs by Jason Mraz using a “windowingstrategy” to build anticipation for the releaseof his album We Sing. We Dance. We StealThings. All this extra content was included inthe premium album bundle, which outsoldthe standard version by three to one andbecame the top ‘complete my album’ offeringon iTunes in the US. Further evidence wasprovided by Madonna’s Hard Candy album,which was made available for pre-releaseorder on iTunes in the US in April, whenthe premium US$13.99 version outsold thestandard US$11.99 version eight to one.Amazon, one of the biggest brand namesin online retail, launched its AmazonMP3DRM-free download service in the US backin 2007. AmazonMP3 offers more than sixmillion DRM-free MP3 tracks from all themajor labels and thousands of independents.Research from NPD Group, published in April2008, suggested Amazon’s growth in theUS has not come at the expense of iTunessales, with just 10 per cent of the store’scustomers having previously bought musicthrough iTunes. Amazon has a stronger biasto male users (64%) than iTunes (44%) andis weaker among the teen audience (3%)than iTunes (18%) in part due to iTunesgift voucher payment system. The servicelaunched in the UK in December 2008,offering consumers selected digital albumsfrom £3 and singles from 59 pence.Online stores are having a particular impacton music consumption in the US. BeggarsBanquet, a leading independent label, reportsthat it regularly has new releases that sell morethan 50 per cent of their copies through digitalplatforms in the US during the first week ofrelease. The album Ear Park, by Americanindie rock band Department of Eagles, sold 66per cent of its copies through digital channelsin the first week, a record high for the label.Download services are spreadinggeographically. In Latin America,established music retail store Mixupwill enter the download market in Mexicoin 2009, offering DRM-free downloadsfor the first time in the region.There have also been stepped-up efforts toimprove consumer awareness of legitimateDRM-free sites. In November 2008, sevenUK digital music retailers launched a new‘MP3 compatible’ logo, in partnership withERA (Entertainment Retailers Association)Digital, designed to help consumers identifylegal DRM-free download services.MadonnaOther download services in Europe suchas 7digital, Tesco, HMV and Play.comhave launched non-DRM offerings. 7digitalreports that sales of tracks produced bymajor labels have tripled since they weremade available in a DRM-free format.Some services, such as Italian-basedDada, offer a blend of subscription servicesand DRM-free tracks to download.10

New business models for a changing environmentSocial networks and ad-supported services deliver.New revenue streams are beingopened up by the licensing of services thatare free to use, but which reward artists,composers and music companies throughlicensing fees or a share of advertisingrevenues. One of the highest profile movesto monetise social networking to date isNews Corporation’s MySpace, whichpartnered with all the major labels in a jointventure to launch MySpace Music in the USin September 2008. The service is expectedto roll out internationally in 2009.Leona LewisMySpace Music offers its users theopportunity to listen to unlimited audio andmusic video streams from a catalogue ofhundreds of thousands of tracks. Userscan create their own playlists and postup to ten songs on their profile page forothers to listen to. An important feature ofthe service is a ‘buy button’ that directsusers to AmazonMP3 for DRM-freedownloads and Jamster for ringtones.“Twenty to thirty per cent ofMySpace US monthly traffic in2007 was made up of musicdestination unique visitors.”Michael Nash, Executive VicePresident, Digital Strategy& Business Development,Warner Music GroupThis move into open music samplingrepresents a significant expansion of MySpacefrom a simple social networking site to “aplace for music” using its core communityfeatures as its foundation. In the first few daysof operation the service generated more thanone billion streams and in the first monthmore than 80 million playlists were created.Video streaming has dramatically increasedin popularity, with 83 per cent of activeinternet users worldwide watching a videoclip online in 2008 compared to 31 per centin 2006 (Universal McCann). YouTube is theoverwhelming global market leader in thevideo streaming sector. While user-generatedcontent is still crucial to the site’s appeal,it now carries licensed music, movies andtelevision programmes. Half the most popularstreams ever viewed on YouTube are licensedmusic videos from artists such as Alicia Keys,Avril Lavigne, Chris Brown, Leona Lewisand Rihanna. No other content categorydelivers as much permanent value as music.A vast catalogue of music videos is watchedrepeatedly by consumers and keeps themcoming back.YouTube has equivalents from many countrieswith similar video streaming platformsincluding MyVideo and Daily Motion.Advertising-supported services are apotential way to wean habitual non-payerson to legitimate music services. Researchin the US suggests that at least 45 millionUS consumers are willing to view advertsas the price of listening to music (NPDGroup). Younger consumers are the mostlikely to want to use such services. Existingad-supported services include Last.fm andWe7 in the UK, QTrax internationally, Imeemin the US, Deezer and Spotify in Europe.We7, supported by Peter Gabriel, launchedin November 2008 and offers a combinationof advertising-supported downloads andmusic streaming. It has a catalogue of aroundfour million tracks. Deezer is a Frenchbasedservice with membership of morethan three million users and a catalogueof 3.7 million tracks. Spotify, launched inOctober 2008, offers users free-to-consumerstreamed music supported by advertising.“We have to help fans findmusic wherever they are atthe moment they want it.If we can do that we willfind ways to monetise it.”Douglas Merrill, President,Digital Business, EMI MusicRihanna11

IFPI DIGITAL MUSIC REPORT 2009New frontiers: games, brands and merchandising.As the music business evolves awayfrom a single format environment to oneof multiple channels for monetising musicnew opportunities and revenue streams areemerging. Synchronisation (the use of music infilms, adverts and games), brand partnerships,merchandising and performance rightsincome are key areas of music licensing.Generating value from the links betweenartists and brands is a key area of focusfor music companies. In 2008 Sony MusicEntertainment teamed up with communicationsagency Exposure to launch a pan-Europeancreative agency called SBX that will developmarketing partnerships between musicartists and brands. “Our job is to match theright artist with the right brand for the rightcampaign,” says Richard Story, chief operatingofficer of Sony Music Continental Europe.Companies have introduced specialisedsynchronisation departments as the sectorbecomes more sophisticated and its revenuesgrow. In some markets synchronisation helpsbreak new acts. In Germany, Deutsche Telecomran online adverts taking footage from theTV talent show Britain’s Got Talent whichfeatured the artist Paul Potts. They used it asan inspirational story and it connected withfans. Paul Potts went on to sell more than800,000 albums in Germany in the followingsix months. Paolo Nutini, signed to WarnerMusic, featured in PUMA’s global ‘Sportlifestyle’campaign performing his track New Shoes.Additional and exclusive content was used toextend the campaign into the online space.“Games are an increasingly popular wayfor new acts to reach new audiences.As the games get more sophisticated,the opportunities for in-gameadvertising, product placement andpersonalisation of the experience willincrease. The possibilities are endless.”Greg Turner, Creative LicensingManager, Film & ComputerGames, Universal Music UKMusic boosts the games sectorAs the games sector rapidly changes withnew technology, it is becoming an increasinglysignificant source of demand for music. Thegames industry globally was worth an estimatedUS$48.3 billion in 2008 and is projectedto grow to US$68.3 billion by 2012 (PWC,Global Entertainment and Media Outlook).The use of music is driving a significantproportion of that revenue. A report byNPD Group noted that music games wereresponsible for 15 per cent of all games salesin the first half of 2008 and 32 per cent of theindustry’s year-on-year growth in the US. Theoriginal Guitar Hero and its sequels have soldmore than 23 million copies across all platformsin less than three years (Reuters), grossing morethan US$1 billion in North America alone (PWC).Universal Music UK reports that synchronisationrevenue from games has now overtaken thatfrom films and is second only to advertising.Greg Turner, creative licensing manager forfilm and computer games at Universal MusicUK, says: “Many younger bands who havegrown up in the games culture ask their labelif their music can be played on games. Theyplay interactive games themselves and agame console is an essential part of the tourbus.” Titles such as Rock Band and GuitarHero also offer music downloads through thegame console – and gamers have proven tohave a healthy appetite for premium musicdownloads. Microsoft reported sales of 3.8million songs a month through Xbox Live,which includes downloads from both games.Music games wereresponsible for 15 percent of all games salesin the first half of 2008and 32 per cent of theindustry’s year-on-yeargrowth (NPD Group).Many artists have been receptive to releasingmusic through video games. In 2008 Metallicareleased their latest album Death Magneticas a game premium download on the sameday as the general release of the album.Mötley Crüe released the single Saints of LosAngeles through Rock Band as a downloadon the same day as its commercial release.The single generated 50,000 sales through thegame, compared to 14,000 downloads fromiTunes during its first week of release. It wasannounced in late 2008 that The Beatles willbe making their catalogue available digitallyfor the first time through a video game inpartnership with EMI Music and Harmonix.The music-games partnership has greatpotential, but raises concerns over the fairvaluation of the music being licensed. FrancisKeeling commercial director, digital, UniversalMusic Group International says music ishelping drive the games market: “Peopleconsume music in different ways. Music fanslove interactive experiences like Guitar Heroand Singstar and as people are more likelyto stay at home in an economic downturn,the popularity of such platforms could grow.But there needs to be a fair partnership thatrecognises that it is music that makes peoplewant to play these games in the first place.”Merchandising – towardsan integrated approachMusic companies are increasingly sellingbundles of products; combining digitaldownloads with merchandising or live ticketsto create what is in effect an “unpiratable”product. Labels have become more involved inselling artist merchandise, either by acquiringspecialist firms or by partnering with existingsuppliers. Traditionally, merchandisingproduct was placed separately in retaildisplay areas with no link to recorded music12

New business models for a changing environmentrelease dates. By including the merchandisingin the core digital and physical marketingcampaign of a new album and enablingmusic companies to work more closely withspecialist retailers, artists can more effectivelyreach and broaden their audiences. WarnerMusic, for example, sold a branded t-shirtfor Esser, an up and coming act, whichhad a code sewn into it that enabled fansto download a track at no extra charge.Sony Music Entertainment teamed with retailersand AC/DC’s merchandising partners to offerthe band’s new album Black Ice alongsideother related products. Wal-Mart, the exclusivedistributor for Black Ice in the US, positionedthe band’s album within an AC/DC Rock AgainStore, a mini-department that also featuredDVDs, merchandise and the video gameAC/DC Live: Rock Band Track Pack. Inaddition, fans were able to go to either theband’s website or walmart.com/acdc topreview tracks from the album, watch videosand pre-order the CD. Black Ice becameWal-Mart’s fastest selling album of the year.The campaign was aimed at reaching not onlythe band’s core fan base, but also connectingthem with a new, younger audience.“We did extensive research into AC/DC’scustomer base – not just their relationshipwith the band, but their jobs, their lifestyles,where they shop, what they read. Wediscovered that for the typical fan AC/DC’smusic provides escapism from their dailygrind. As a result, we came up with the‘release the rock n’ roll within’ campaignand produced our own TV advert focusedaround a day in the life of an AC/DC fan.”Mike Smith, Managing Director,Columbia RecordsAC/DC retail campaign in USOutside the US, Black Ice-brandedmerchandise was similarly presentedalongside the CD in many stores and online.In the UK, consumer insight was used toinform the marketing campaign messagesand tools. Sony Music looked at the lifestyleof AC/DC fans and what the band meanto them to shape their TV advertising. TheUK campaign also saw the world’s first evermusic video created as an Excel spreadsheet.Released virally, it received 1.1 million viewson YouTube and 650,000 direct downloads,penetrated company firewalls to reach AC/DCfans at work and was critically acclaimed bythe blogosphere receiving multiple awards.In the summer of 2008, Universal Musicacquired the global merchandising companyBravado, which develops and marketslicensed merchandise that is sold on livetours and through selected retail outletsand web-based stores. The company alsolicenses rights to an extensive network ofthird-party licensees around the world. Bravadoartists include Kanye West, Gwen Stefani,Metallica, Guns N’ Roses and Led Zeppelin.Kanye WestPicture credit: Willy Vanderperre13

IFPI DIGITAL MUSIC REPORT 2009Public performance:getting fair value for music.A huge economy of third-party businessesuse music to attract and retain customers,drive productivity and improve employeemorale. One such sector is restaurants andhotels, valued at US$2.3 trillion internationally(Datamonitor). Another is radio, a US$32.5billion global business (PWC) underpinnedby recorded music. Public performance andbroadcast income are important areas ofrevenue growth for the music industry, butartists and producers face hurdles in gettingfair payment for the use of their music.In August 2008, PriceWaterhouseCooperspublished a study on this issue finding thathistorical methods for setting royalties forperformance licenses were “inconsistentand lacked robustness”, resulting in thewidespread undervaluing of music (see box).Other independent research confirms theconsiderable value of music to commercialthird parties. In the UK, Entertainment MediaResearch found there is a direct link betweeneffective music policy, revenues and customerloyalty. As many as 79 per cent of consumerssaid that music encourages them to staylonger in stores and spend more. According toa report in the Financial Times in August 2008,“Retailers have long known that the right songon the overhead speakers can keep shoppersin a store. Such is the power of music overconsumer behaviour, claim the advertisingexecutives, academics, music consultantsand market researchers who are all part of acottage industry springing up around retailersusing music to attract and keep clientele.”Extraordinarily, it is in the US, the world’slargest music market, that has traditionallychampioned intellectual property rights, thatperformers and producers have no rights tobe paid when their music is broadcast overthe radio. Other countries without broadcastrights are Rwanda, China, Iran and NorthKorea. Japan has no public performanceright. Redressing these anomalies is amajor priority for the music sector.The corporate radio industry in the USgenerates US$17.6 billion in advertisingrevenue every year (PWC), yet terrestrialbroadcasters in America pay nothing toartists and producers for the music theyplay to attract the listeners that advertiserspay to reach. Artists, producers andothers have come together to form themusicFIRST (Fairness In Radio StartingToday) coalition, which is pressing theUS Congress to reform the law. Recently,legislation to end broadcast radio’s uniqueexemption from paying creators for useof their works was marked up in the U.S.House Judiciary Subcommittee on Courts,the Internet, and Intellectual Property, andthe legislation will once again be introducedearly on in the 111th Congress this year.New forms of digital and satellite radio areseeing spectacular growth in the US. Satelliteradio is the fastest growing subscriptionservice in the US, building up a subscriberbase of 20 million users in just seven years.John Simson, managing director ofSoundExchange, the performance rightsmusic licensing company in the US,says: “Radio is going through transitionaltimes. The radio experience will changeeven further as radio becomes moreinteractive. Artists and record producerswill have to constantly revisit the terms onwhich such radio stations are licensed. Itcould be that radio totally transitions toa personalised online environment.”“There is just no logical explanationwhy musicians can earn radioroyalties in virtually every marketof the world and yet not in thecountry with the world’s largestcommercial radio sector.”John Smith, President,International Federationof Musicians (FIM)14

New business models shaping for a new changing era environmentdigital musicHow music isdriving bigbusiness.PriceWaterhouseCoopers’ report(2008) outlines key examples of howmusic is driving businesses in sectorsranging from radio to nightclubs:n Canadian commercial radio’suse of music showed that itaccounted for 76 per cent of airtime between six in the morning andmidnight, excluding commercials.A conservative estimate of thecontribution of music to advertisingrevenue, compared to news andother elements, was 62 per cent.n Research in Australia foundmusic was being substantiallyundervalued in nightclubs. It lookedat the end consumers’ willingnessto pay for music and found that theaverage nightclub patron valuedits worth at A$6.97 as part of theirevening’s experience. The AustralianCopyright Tribunal determined thefair price of using protected soundrecordings at nightclubs shouldbe set at A$1.05 per person, anincrease of 1,400 per cent onwhat was previously being paid.“A whole range of businesses,from restaurants tobroadcasters, are playingrecorded music to attractcustomers, improveproductivity and drivecommercial growth.”Jeremy Thorpe,PWC PartnerUS$17 billionUS radio annualadvertising revenueUS$0Royalty paymentsby US radio to artists15

New business models for a changing environmentBrazil – mobile today,Brazil online tomorrowBrazil exemplifies howinnovative business modelscan generate significantconsumer demand. TheBrazilian digital musicmarket, the largest in Latin America, nearlydoubled in value in 2008 and now accountsfor more than 10 per cent of recorded musicsales in the country, with nearly 80 per centof revenue coming from mobile channels.Brazilians spend more time on the internetthan any other nation and social networkssuch as YouTube, MySpace and Orkut havealready attracted big audiences. Yet the onlinemarket in Brazil is in its infancy. In the mobilesector, operators have launched 3G networksoffering fast download speeds, but there isstill enormous untapped potential for growth.Brazil’s mobile music business has grownrapidly, with the number of mobile usersup 60 per cent in the past three years.Leading operators such as Vivo, Tim andClaro have around 30 million subscriberseach and are increasingly looking todifferentiate their services. Handsets preloadedwith music are a growing business,with operators using them to aggressivelypromote their products and services.Music companies have been active in thepre-loaded mobile business. In a partnershipbetween Warner Music International andSony Ericsson, Madonna’s album Hard Candywas pre-loaded on Sony Ericsson phones.Two packages were made available withthe phone - one with five tracks from thealbum and another with the full album. Bothfeatured extra content such as wallpapers andringtones and were launched in the run-upto Madonna’s tour of Latin America – oneof the fastest selling tours of all time in theregion. “The campaign drove substantialre-orders following strong consumerdemand,” says Alfonso Pérez-Soto, headof business development and strategicpartnerships, Warner Music Latin America.Universal Music has carried out similarcampaigns with artists such as Sandy & Juniorand Ivete Sangalo. Universal partnered withMotorola to offer a pre-loaded song from localrock band NX Zero on Motorola’s phonesprior to the release of the band’s album. “It’sa good example of a developing act workingwith digital,” says John Echevarria, chiefoperating officer, Universal Latin America: “Thecoordination of traditional radio and digital prereleasepromotion led to the sale of a millionhandsets containing tracks from NX Zero.”Sony Music Entertainment and Sony-Ericsson, reached a similar deal with musicby established local act Jota Quest. In thefirst wave of the campaign at the end of2007, some 800,000 Sony Ericsson Walkmanhandsets were sold with the album Ate OndeVai plus video tracks, behind-the-scenesfootage and wallpapers. Many more weresold with the band’s new album La Plata.The package included behind-the-scenesfootage and an exclusive song for download.In total, more than one million handsetswere sold pre-loaded with Jota Quest’smusic. Sony Music is expanding its mobiledeals with artists. International deals includepartnerships with Justin Timberlake and P!nk.17

IFPI DIGITAL MUSIC REPORT 2009The core mission:investing in talent.The digital revolution has transformedthe way the music industry engageswith consumers and distributes itsproduct – but providing investment and,developing and marketing talent remaina core function of the record industry.“Fast food corporations, coffeeshop chains and radio stationsare among those who have triedto break acts by creating theirown labels. They have all failedand shut their labels down. Nosuccessful new artists have comethrough that route.”Ged Doherty, Chairman and ChiefExecutive, Sony Music UKMusic companies are overwhelminglythe largest investors in artists’ careers,ploughing back around 20 per cent of theirrevenues into the development of talent.Labels bring financial backing and a wealthof expertise that adds value to artists,helping them develop their art and bringit to a broad audience. The fragmentedworld of the digital environment, in whichmillions of bands are vying for the attentionof hundreds of millions of fans, makes thisrole as a partner, investor, promoter andadvisor for artists more important than ever.Cutting through the digital noiseWhile technology has made “do it yourself”releases possible, in reality these have, todate, been largely the preserve of a fewlong-established acts. Erik Nielsen, who runsMarillion’s Racket Records label, told theEconMusic conference in September 2008that while “do it yourself” works well for aband that has built a fan base since 1983, itis not a panacea for up and coming acts. Inthe UK in 2008, the band Hamfatter createda media splash when it was backed by themillionaire entrepreneur Peter Jones on theTV programme Dragon’s Den. Despite a waveof publicity, the band’s first single peaked atnumber 71 in the charts in its first week anddropped out of the Top 75 the following week.Music companies’ marketing role is all thegreater in the digital space because of thesheer volume of music available online.MySpace, for example, lists more than 2.5million hip hop acts and 1.8 million rockartists alone. Moreover, consumers’ tastesare fragmenting. Research by Bauer Mediain the UK found that even the least engagedmusic fans are open to about 15 differentgenres. Music companies work to marketand promote their artists’ music to ensurethat it catches the public’s attention.Number of acts on MySpace (2008)Musical genreHip HopRapRockR&BNumber of acts2.5 million2.4 million1.8 million1.6 millionPop 723,000Metal 611,000Punk 468,000Electronica 413,000Techno 335,000Reggae 314,000Source: MySpace website, December 2008Note: Some acts may be registered undermore than one category. Figures are rounded.“Breaking an act and sustainingtheir career requires more variedexpertise than ever before. We canprovide artists with the investment,resources, tools and collaboratorsto achieve their creative potential,attract an audience and developlong-term appeal.”John Reid, CEO, Warner MusicUK & Europe18

the music company mission: nurturing & investing in talentDuffyAdding value to artistsMusic companies are working to cut throughthe “noise” from myriad digital channels togenerate commercial value for the worksof their artists. EMI Music’s chief executiveElio Leoni Sceti says the work of a musiccompany today is “managing multiplicityand complexity” and that its role is to helpartists reach consumers wherever they arewith great music in a marketplace that isincreasingly complex, with partners rangingfrom games companies to mobile phoneoperators. In order to better understandconsumers, EMI plans to rollout its emi.comsite. Its main purpose is to be a “learninglaboratory” where the company can developa deeper knowledge of how consumersexperience, interact with and purchase music.Simon Wheeler, director of strategy atBeggar’s Group, which includes brands likeXL Recordings, Rough Trade and BeggarsBanquet, says music companies’ skills areessential in connecting artists to consumersin the complex digital world: “For the artistto connect with the consumer through allof these new channels needs a big team ofpeople – without that it’s just not realistic,even for the biggest management company.”Helping build an artist’s career does notmean just telling them what they want tohear. Ged Doherty, chairman and chiefexecutive of Sony Music UK, says that hetwice had to tell one well-known act that theirnew album was not up to the standard thatthey could achieve. Because of their goodrelationship, that act reworked the albumwhich has now proved very successful.“Sometimes you have to be brave enoughto say the baby is ugly,” says Doherty.Labels open other doors for artists too.Nick Gatfield, president of A&R Labels,North America and UK, EMI, recallssigning Amy Winehouse when he workedat Island Records: “She had real, rawtalent, but she was just 17 and it took timeto develop her vocal skills and her songwriting. We experimented with differentstyles and rehearsed and improved her liveperformances. The pay off came when shereleased Back to Black as we harnessed hernatural talent to produce a coherent album.”Music companies are also able to matchartists with other talent, such as world classsongwriters and producers. Duffy wasintroduced to songwriters David McAlmontand Bernard Butler and producers SteveBrooker, Jimmy Hogarth and Eg White for theproduction of her debut album Rockferry. Theresult was the UK’s most successful releaseof 2008, with more than 1.6 million in sales.Broadening servicesMusic companies are broadening thework they undertake for artists. Thisincludes managing direct-to-consumerchannels such as websites and socialnetwork pages on artists’ behalf. Theseoften include merchandising, DRM-freedownloads, streams, premium content,links to other fans, updates on touring andticket sales. Universal Music now runswebsites for artists such as Snow Patroland Keane. Warner Music works with artistsas diverse as Pendulum and Alesha Dixonto create comprehensive artist sites.In a new approach to marketing, labelsalso bundle sales of recorded music withother products, such as merchandise or livetickets to create an “unpiratable” product.In 2008 Sony Music ran campaigns thatbundled products, such as the Funhousealbum campaign for P!nk, which enabledher fans to buy first preference ticketsfor her 2009 UK tour dates when theypre-ordered the album on iTunes.Meanwhile, new broader rights deals areemerging. These provide artists with additionalsupport for touring, further opportunitiesin brand and synchronisation deals, widermarketing campaigns including the sale ofmerchandise and extra strategic marketingmuscle. In exchange, music companiesrecoup their investment in an act through avariety of revenue streams including recordsales, live tickets, sponsorship, merchandisesales and publishing rights. In July 2008,Edgar Bronfman, Jr., chairman and chiefexecutive, Warner Music Group said hiscompany has expanded rights relationshipswith more than a third of its current roster.19

IFPI DIGITAL MUSIC REPORT 2009Marketing an album in the digital world.Once marketing an album wascomparatively simple. You hired a venue,threw a lavish launch party and pluggedthe album to your trusted contacts inradio stations and reviewers working forspecialist press or national newspapers.Things are very different now. A goodillustration of a modern launch campaignwas Coldplay’s fourth studio album VivaLa Vida or Death and All His Friends.The track listing and release date wereannounced in April 2008 on the band’swebsite Coldplay.com. The title trackViva la Vida was used in partnership withApple, forming the soundtrack for thecompany’s new iPod TV ad campaign.The track Violet Hill was offered as a freedownload for one week from 29th April onColdplay’s website and the band announcedfree concerts for fans would be held inLondon, New York and Barcelona in June,in addition to the band’s regular tour dates.In early June the album leaked onto theinternet and the band responded bymaking it available as a stream on theirMySpace profile. The band also undertooka series of high-profile media appearancesin the US to promote the album.By the end of June, the album had sold moredownloads than any other in digital historyand debuted at number one in 36 countries.The album was also released on vinyl, anenduringly popular format with audiophiles,a week after the CD was made available.Viva La Vida became the top selling albumof 2008 on iTunes, selling two million copiesthrough the service. In November 2008, theband released a deluxe album, Viva La Vida– Prospekt’s March, which contained extramaterial from Coldplay’s recording sessions.20

the music company mission: nurturing & investing in talentA team sharing the same vision: The manager’s viewDiane Wagg works with numerous artistsincluding UK rock band Scouting for Girls.“Technology has opened up all kinds of newopportunities for artists and labels. A numberof artists release music on their own labels –or rely on other channels to get their musicheard. YouTube and MySpace are great waysfor bands and labels to communicate withpotential fans and an excellent way for newartists to start reaching music lovers. Butsigning a record deal remains a solid optionprovided the people at the label believein the band and the deal makes sense.Music labels provide access to creativeprofessionals that an artist may not be able toreach themselves, such as first-class recordproducers, video directors, artwork designersand photographers. While some producerswork with acts on the basis of royalties andadvances tied to when the artist starts togenerate income, there are only so many ofthese deals professionals can take on. Havinga record deal also offers confidence to suchthird-parties that an act has a potentiallysecure future and is an ongoing project.Ultimately though, it boils down to people.Scouting For Girls signed to Epic becauseNick Raphael and Jo Charrington immediatelyconnected with the band and their music.They shared the same vision as the band,respecting their values, creativity and identity,whilst working with them to develop theirmusic and their growing following. Theband had a team working with them withthe manpower, contacts, expertise andfinance to reach further and possibly bemore creative than they could have beenalone struggling with funding and trying todo everything themselves. And it meantthat they were able to devote all their timeto music, rather than fitting it in around theirday jobs working in Threshers, the CarphoneWarehouse and as a builder, worrying aboutwhere their next meal was coming from.The partnership between Epic and ScoutingFor Girls proved to be a perfect exampleof how both parties can achieve hugesuccess whilst enjoying a friendly andproductive relationship along the way.”Scouting For GirlsColdplay21

IFPI DIGITAL MUSIC REPORT 2009Monetising music in an era of free -the role of ISPs and Governments.The music industry is evolving new businessmodels, offering consumers access to musicin many new ways. The industry’s greatestchallenge remains generating commercialvalue in an environment dominated by freeunauthorised music. Estimates on the impactof internet piracy vary but are consistentlyhuge in scale. IFPI, collating separate studiesin 16 countries over a four-year period,estimated unauthorised file-sharing at over 40billion files in 2008. This means that globallyaround 95 per cent of music tracks aredownloaded without payment to the artist orthe music company that produced them.The cost of ‘free’ musicEstimates on the economic and employmentdamage caused by piracy vary. In theUK, Jupiter Research valued the loss at£180 million in 2008, with a cumulativeloss to the industry of £1.1 billion by2012 if nothing is done to address theproblem. Europe Economics estimatedthe potential employment losses frompiracy to the music, film and TV sectors at30,000 jobs in the UK (December 2008).Few dispute that the vast scale ofunauthorised music consumption ismassively damaging investment in musicand the careers of artists. One British MPraised the issue in Parliament, citing the“There is a growing understandingthat everything on the internet isn’tfree. As people are getting olderand more used to the internet theyare starting to understand that it’snot quite the free model that theythought it was at the start.”Stephen Conroy, Minister forBroadband, Communications andthe Digital Economy, Australiaexample of Pendragon, a progressive rockband from his constituency, who had sold50 copies of their new music DVD in itsfirst week of sale, but saw 3,000 copiesillegally downloaded in the same period.Unlawful distribution of music on peer-topeer(P2P) networks remains by a largemargin the music sector’s chief piracyproblem. Overall 16 per cent of internetusers in Europe regularly swap music on P2Pnetworks, according to Jupiter Research.Those networks in turn account for up to80 per cent of all internet traffic (ipoque)and file-swapping of copyrighted musicand movies is widely-acknowledged toaccount for a large part of P2P activity.A future for local music and film?France and Spain in focusThe French and Spanish musicindustries illustrate the impact of onlinepiracy on the health of local repertoire.Figures released by French musicindustry association SNEP and Spanishassociation Promusicae highlight:n The declining sales of local artists.In France, the number of album releasesby new artists fell 16 per cent in thefirst half of 2008. The French share ofnewly released albums domestically fellto 10 per cent in the first half of 2008,compared to 15 per cent in the first halfof 2005. In Spain, just one new localartist featured in the Top 50 albums fromJanuary to November 2008 (Pitingoat number 20) and just two in the Top50 digital songs (Pitingo at number 43and Despistaos at number 44). Backin 2003 there were 10 new Spanishartists in the Top 50 album chart.n Scale of piracy. There were anestimated 1.6 billion songs downloadedillegally in Spain in 2008 (Promusicae/Gfk), compared to two million legalà-la-carte downloads. This means just0.1 per cent of total tracks downloadedin Spain were legal. Digital sales areflat at 10 per cent of the market,around half the global average.n The impact beyond music.13.7 million films were distributedon P2P networks in France in May2008, compared to 12.2 millioncinema tickets sold (Equancy andCo and Tera Consultants).“ He loves the album - he wants to know where he can download it for free”22

MONETISING MUSIC IN AN ERA OF FREE - THE ROLE OF ISPs AND GOVERNMENTSThe case for ISPcooperation: key factsn Internet Service Providers (ISPs)would be enforcing their owncontracted terms and conditionsand applying the same approachtowards illegal behaviour as theywould with non-paying subscribers.n It can solve the problem.Seven out of 10 music consumersdownload music illegally becauseit’s available free (EntertainmentMedia Research, UK 2008).n P2P file-sharing, a large part ofwhich is unauthorised copyrightedmusic and film, accounts for up to 80per cent of all internet traffic (ipoque).“We were one of the first contentbusinesses to have to grapple witha business model that suddenlywasn’t a business model at all.Suddenly it became common forconsumers – and businesses – to useour music without paying for it.“Elio Leoni Sceti, Chief Executive,EMI MusicInternationally, demographic analysispoints to future trends and suggests theproblem, in the absence of a solution, willrapidly get worse. In the US, Europe andAustralia, independent research confirmsthat teenagers and young adults – thegeneration of future music consumers –acquire the most unlicensed music. JupiterResearch found in 2008 that one in three15-24 years olds in Europe uses copyrightinfringingP2P networks – three times theproportion that consumes music legally.Further research points to a key trend:unlawful downloading is driven by freeavailability - not by greater choice ofrepertoire. It is the lack of a requirementto pay that is the single biggest attractionfor consumers who illegally file-share.Entertainment Media Research in the UKfound that 71 per cent of people who saidthey file-shared more heavily in 2008 citedthe fact that they could obtain music withoutpayment as the number one reason fortheir activity. It is the avoidance of paymentrather than a superior service that promptsinternet users to illegally swap copyrightedmusic. Reinforcing this finding, researchfrom NPD in the US in 2008 found thatusers were describing their experience ofunauthorised P2P networks as getting worse.There is clear evidence that consumers,though often unlikely to pay voluntarily,nonetheless want artists and copyrightholders to be paid and their intellectualproperty to be respected. Researchcommissioned by the Canadian governmentfound that nine in ten consumers backedstrong copyright laws to protect creators.IPSOS in France found that 84 per centof people who had downloaded musicillegally thought artists and authors shouldbe paid for their work. These figures pointto a central principle in the music industry’scurrent priorities for improving the digitalenvironment: namely that while consumers’instincts are to acquire music legitimately,the widespread availability of unlicensedfree music acts as a disincentive.n ISPs have an extensive technicalability to control traffic on theirnetworks. AT&T, the largest AmericanISP, is testing a system to limitmonthly uploads and downloads ofits subscribers in order to contain“bandwidth hogs” who use adisproportionate share of networkcapacity. Comcast, the secondlargest American ISP, has imposednationwide download capacitylimits on subscribers and will cancelsubscriptions of repeat infringers.“The victim of online musicpiracy is the freedom ofartistic expression.”Yves Riesel, President,Abeille Musique France,independent label23

IFPI DIGITAL MUSIC REPORT 2009From concept to reality:governments start to move on ISP cooperation.The principle that Internet Service Providers(ISPs) should play a greater role in protectingcontent online is moving from concept toimplementation. The music industry firstproposed a solution to the online piracyproblem – extending responsibility forcopyright protection across the value chainto include ISPs – in 2005. Three yearslater, government-backed systems of ISPcooperation are being advanced or consideredin many countries. In 2008 a tipping pointwas reached, with governments inFrance and the UK leadingthe way in requiring ISPs tohelp bring piracy on theirnetworks under control.There is growingacceptance thatgovernment pressureis crucial to producingcollective action byall ISPs. A FrenchEU Presidencycommuniqué to theEuropean Commissionin September 2008confirmed: “Experiencehas shown that some level ofgovernment involvement is essentialto achieve rapid and meaningful progress.”In France the government continues to setthe pace in introducing legislation to requireconcrete steps by ISPs to encourage legalmusic consumption and deter piracy. A newdraft “Creation and Internet Law” sets up asystem of graduated response by which ISPswill educate and warn persistent copyrightabusers and, as a last resort, sanction themwith loss of internet access for betweenone and 12 months. The system targetspersistent offenders who have ignored twowarnings and will be overseenby an independentauthority. Researchsuggests it will havereal impact and thatthe number of actualsuspensions will be low.The law was adoptedby the government inthe summer of 2008 andapproved by theSenate in November. It will be voted onby the French National Assembly in early2009. The French music sector stronglysupports the draft law, arguing that it is vitalto secure the future of French repertoire.While the record industry hopes ISPs willvoluntarily adopt reasonable policies toprevent their networks being used to transmitinfringing material, experience suggestsa robust and complete response requiresa level of goverment intervention, even ifjust to prevent unfair competition in theprovision of internet connectivity by lessscrupulous actors. In July 2008 the UKgovernment brokered a joint ‘Memorandumof Understanding’ between the recordingand film industries and the UK’s six largestISPs, binding the parties to work to achieve asignificant reduction in unauthorised file-sharing.As part of the MOU, a working group wasestablished to identify solutions for repeatinfringement, to form the basis of a governmentsponsoredcode of conduct. At thesame time, the governmentinitiated a consultationon legislative options todeal with internet piracy. Theconsultation is based on threeprinciples: new business models,public education and enforcementagainst copyright infringement.During a three month trial period, which startedin October 2008, ISPs sent out thousandsof letters warning users about the illegalacquisition of music and promoting legitimateconsumption. The UK and French plans arebeing watched closely in Europe: in December2008 the Italian Parliament adopted a resolutionto follow other initiatives in Europe to stepup cooperation by ISPs in curbing piracy.“Music has been hit hard over thelast ten years and if we don’t dosomething there is a real dangerthat parts of the music industry willbe washed away.”Andy Burnham,UK Secretary ofState for CultureThe evidence that graduated response will workn Seven out of ten (72%) UK music consumers would stop illegallydownloading if told to do so by their ISP (Entertainment Media Research, 2008)n Seven out of ten (74%) French consumers agree internet account disconnectionis a better approach than fines and criminal sanctions (IPSOS, France, May 2008)n Eight out of ten (82%) American teenagers familiar with the law thinksanctions for illegal downloading are appropriate; 57 per cent ofthose unfamiliar with the law agree (KRC US, January 2008)n 90 per cent of consumers would stop illegally file-sharing aftertwo warnings from their ISP (IPSOS, France, May 2008)24

MONETISING MUSIC IN AN ERA OF FREE - THE ROLE OF ISPs AND GOVERNMENTSSimilar initiatives are being taken elsewhere.In December 2008 the US recordingindustry announced it is working with theAttorney General of New York and leadingISPs on a series of voluntary online antipiracyinitiatives, with Attorney GeneralAndrew Cuomo urging a deal involvinga graduated response approach. In aseparate but parallel move, the RIAA andseveral leading ISPs agreed on principlesunder which ISPs will take responsibility tosend notices and institute a programmeof escalating sanctions for subscriberswho are repeat copyright infringers.In February 2009 New Zealand will startoperating a graduated response systemfollowing enactment of a law in April 2008requiring ISPs to adopt and reasonablyimplement a policy of terminating theaccounts of repeat infringers.In Australia the Minister for Broadband,communications and the digital economy,Stephen Conroy, interviewed on nationaltelevision, said illegal file-sharing has“decimated the music industry” and woulddo the same to film and other sectors unlessthere are “significant changes”. He added:“The so-called three strikes legislation hasbeen talked about in Australia and we’rewatching closely what’s happening inFrance and the UK and we’re consideringwhat we can do to support intellectualproperty rights. People will change theirbehaviour if there’s an economic cost.”“When I exceed the speed limit on theroads too many times, I know I will losemy licence for six months and I accept thatas normal. There’s no reason for a changeof attitude when it comes to the internet.As human beings we don’t like rules andregulations, but we don’t live in an idealworld and a free-for-all benefits nobody.”Chris Ancliff,General Counsel, EMIThe momentum in favour of ISP cooperationhas reached Asia as well. In April 2008 inJapan, a consortium of ISP, music andfilm trade associations was established toagree measures against copyright abuse onJapan’s chief ISP network. The national policeand senior government representatives areobservers on the consortium. ISP actions tonotify infringers and terminate the accounts ofrepeat offenders are on the agenda. The HongKong government launched a discussionforum between content industries and ISPs in2008 and has said it is prepared to legislateif necessary. In South Korea the governmenthas issued for consultation a draft lawintroducing a system of graduated sanctionsagainst online infringement, includingterminating the accounts of repeat offenders.Meanwhile, courts in different countries havehelped clarify the existing legal obligationsfor ISPs to help fight piracy. In a landmarkjudgment in 2007, a court in Belgium orderedthe ISP Scarlet (formerly Tiscali) to make itimpossible for its users to infringe copyrightusing peer-to-peer protocols on its networks.The court found filtering to be a feasible andappropriate means to distinguish betweenlegitimate and unauthorised files. In October2008, a further court ruling rejected the ISP’sclaims that filtering was impossible. The courtsaid it was “not unreasonable to require of SAScarlet that it make greater efforts than thosewhich it had shown thus far” to stop copyrightinfringement. The ISP has been liable forfines of €2,500 every day from 1st November2008 until it takes effective steps to curb itsusers’ infringement of Belgian copyright law.Courts have also confirmed the need forISPs to block access to copyright-infringingwebsites. In November 2008, an appeal courtin Denmark upheld a decision requiring an ISPto block access to The Pirate Bay website.Courts have also ruled that the suspensionof internet accounts being used illegally isacceptable under EU law. In Finland, a courtordered TeliaSonera, a leading ISP, to suspendthe internet connection of a customerwhose connection was used to upload aconsiderable number of infringing music files.New law ‘will sustainFrench creative industry’.PresidentSarkozy’s groundbreakingproposalfor legislationin France owesmuch to theleading economistOlivier Bomsel, who says its keyobjective is “to sustain a contentindustry in France in the future.”Bomsel sees the graduated responseas important to the next developmentphase of the creative internet economy.In phase one, during the rapid expansionof broadband networks, ISPs used freecontent to boost the roll-out of theirfast-growing new businesses. In this firstphase “content” took second place tothe perceived benefits of the broadbandrevolution. “The consequences werea free ride for distributors, while the ITindustry successfully argued that theadvantages of network rollout offset thelosses to the content industry,” saysBomsel. As a result, consumers wereprepared to pay for new equipmentand network access while contentwas made available largely via massiveintellectual property infringement.The new French law, says Bomsel,aims at a fair solution for the nextphase of the internet revolution.In phase two, once the rollout ofbroadband is over, the ISPs have tobecome fair distributors. A graduatedresponse system will be introduced bywhich the repeat infringer would facesuspension of internet access after twowarnings. A government-appointedindependent watchdog supervisesthe system and relays the warningsvia the ISP. Bomsel says the elementof sanction in this system is essential:“The system depends on the reliabilityand deterrence of the sanction.”25

IFPI DIGITAL MUSIC REPORT 2009Education: the campaign for hearts and minds.New business models and rightsenforcement are two key elements ofthe transforming music industry. A thirdcritical component is public education.In 2008, the recording industry launched or wasactive in more than 70 campaigns worldwide,including television advertising, documentaryproductions, letter-writing in partnership withISPs, live debates at universities, schoolband tours, education packs for teachers,digital music web portals and the publicationof information to support parents.Parents and teachers are a particularly receptiveaudience. A Canadian report shows that 93per cent of Canadians think parents shouldteach their children how to use the internetin a responsible way (Environics’ annualSocial Values Monitor, 2008). Yet parents andacademics realise how difficult it is to keeptabs on children’s online activity, let alonecontrol it. The Byron Review, conducted onbehalf of the UK government, concludedthere is a growing adult insecurity whenit comes to teaching young people aboutthe benefits and risks of an environmentthey do not understand themselves.Young People, Music and the Internet.2008 saw the launch of a global informationcampaign to explain the world of musicdownloading to teachers and parentsworldwide. The simple guide, Young People,Music and the Internet was published bychildren’s internet charity Childnet Internationaland supported by Pro-music (www.promusic.org),the international alliance of musicsector groups. It is being distributed throughschools and colleges, libraries, record stores,teaching portals and websites in Argentina,Australia, China, Mexico, Singapore,Spain, the UK and the US, with a further12 countries set to publish it in 2009.Endorsed by the European Commission, it aimsto help close the “knowledge gap” betweenyoung people and their parents and teachers,in order to promote the safe and legal use ofthe internet and mobile phones to downloadmusic. Hundreds of thousands of copies wererequested by teachers, libraries, local authorities,parents and even computer repair stores.Ronan Keating“The new guide...should help tospark off those vital conversationsbetween parents, teachers andyoung people that are so essentialfor promoting responsible behaviouron the Internet..”Viviane Reding, EU Commissioner forInformation Society and Media“I am a father of three young kidswho are all very interested in musicand computers. They are foreverasking to use the computer todownload their favourite songs.There is a constant worry about thesecurity of the internet with children.This new guide helps adults and childrento use the internet safely and securely.”Ronan Keating, Singer-songwriterCommissioner Reding26

Education: the campaign for hearts and minds.Pro-Music.orgA key challenge is to raise awareness oflegitimate sources of music. In 2008 IFPIand an alliance of international right holdergroups relaunched the pro-music.orgportal “for all you need to know about musiconline”. The site offers the largest listing oflegal online music stores, monthly digitalcharts from around the world and informationfor those wanting to succeed in the musicbusiness. It also lists the best educationtools and resources from around the worldto inform all audiences about the rightsand wrongs of obtaining music online.National campaignsBelow are examples of some of theprojects run by music industry associationsand partner organisations in 2008:n Documentaries.In 2008 In Tune wasdistributed as part ofthe Music for Free?campaign in Australia.In Tune featuresinterviews with Australianartists who speak on issues from what it’slike to be part of a band to how the digitalrevolution has affected their livelihoods.n School tours. TheRock the SchoolsTour in Australiashowcased six bandsin secondary schoolsaround the countryalongside workshopsabout creating and protecting content.n School resourcesand educationpacks. Governmentsincreasingly recognisethe importance ofeducation programmes.In the UK, Irelandand Australia the core curriculum is beingchanged in order to promote a betterunderstanding of the value and importanceof intellectual property. In the US, the RIAAworks in partnership with education expertsto develop curriculum materials, includingDVDs, assemblies, and online curriculum, forstudents at every level from grades 3-12.IFPI Finland produced an education packcalled Copyright Protects Creative Workfor 10-12 year old students. It features astorybook written by a well-known children’sauthor and illustrator and is accompanied bya teachers’ guide, exercise booklet, lessonplans on each theme, a poster and a boardgame, all of which can be downloaded fromwww.tekijanoikeus.fi for home or school use.n Online public debate.The French music industryassociation launcheddemainlamusique.com,where the hot issues ofthe day are commentedon by SNEP and peopleare invited to participate ina discussion thread.n Competitions.The Frank Hardcasecompetition issupported by ananimation and websiteasking students toprepare an anti-musicpiracy campaign for fellow students fora A$1,000 prize. It was spearheaded byCrimeStoppers Australia with the participationof the recording industry and formed part ofthe government’s Music for Free? campaign.“ I swear I wasn’t looking at smut – I was just stealing music”© The New Yorker Collection 2002 Alex Gregoryfrom cartoonbank.com. All Rights Reserved.27

IFPI DIGITAL MUSIC REPORT 2009When did intellectual property becomefree? – music managers speak out.Music managers, the voices closestto the artist community, are becomingincreasingly vocal in supporting thecase for Internet Service Provider (ISP)cooperation in protecting music online.Arthur Spivak, the US manager behind a raftof top-selling acts from Tori Amos to We AreScientists, says the idea that future talent will besupported solely from live music, sponsorshipand merchandising is an illusion: “I work witha band that performed 300 shows on a twoyearcycle to support their last album. Theywent around the world three times and yetonly sold around 400,000 copies. They madeabout US $30,000 each before taxes. Theycould have made more money on welfare.”Bertis Downs, manager of REM, believesthe key question for new bands is how tomake a living and build a long-term careerin an environment where new technology ischallenging the very right for creators to bepaid: “For REM it wasn’t an overnight launchto fame and fortune. It was a slow grind tosuccess that took place over many years. I’mnot saying you can put the technological genieback in the bottle – that would be absurd.But I am saying that if we don’t take bettersteps to protect the value of music, then youhave to ask where the next REM is going tocome from? That’s why the whole idea ofwidening responsibility for copyright protectionacross the value chain is so important.”U2 manager Paul McGuinness says ISPcooperation has moved firmly on to theagenda of governments, led by France andthe UK, within just two years: “There is ahuge amount of work to do to press the case,but in many parts of many governmentspeople are seeing the statistics, realising thecultural catastrophe that we are facing andunderstanding the inherent benefits of a systemwhich addresses piracy near its source. Forthe first time, there is now the prospect thatif ISPs do not cooperate with steps to helptackle copyright theft, then legislation mayrequire them to do so. This is real progress.”Technology, says McGuinness, should pose noobstacle for ISPs. The “deep packet inspection”techniques routinely engaged in now by all ISPscould be used in future to identify and interdictillegal P2P files of film and music content.”David Holmes, manager of Coldplay, alsofavours a change of approach from ISPs. “Weneed to think differently about how to ensuremusic gets properly protected on the internet.We will all lose out if we let the idea take holdthat the creators of recorded music don’tneed rewarding for their work. I support thecampaign for ISPs to be involved in this. I wouldlike them to do more to protect artist rights.”Spivak believes the artist community has tospeak out more if real change is going tohappen: “The artists and music companiesshould work together, not separately. Theymust speak out and lobby their governmentsto force the ISPs to combat internet musicpiracy. Educate and legislate. Why andwhen did intellectual property becomefree? If we do not speak up and fightback, the music business will be the nextvaudeville - a thriving industry and culturethat disappeared in a few short years”.Paul McGuinessBertis DownsArthur Spivak“Artists and music companies should work together.”Arthur Spivak, Manager28

CREATIVE VOICES SPEAK OUT.Commerce in the era of ‘free’ –a common challenge for creative industries.For many years, the music industry hasbeen dubbed the “canary in the coalmine”for other creative sectors entering the digitalenvironment. Today, for the film, book,newspaper, television and other sectors,the digital future has now either arrived or isapproaching fast. A common theme confrontsall these sectors - how to “monetise” theirbusiness in an era of widespread free content.For the film business, physical piracy hastraditionally been the greatest threat, butthe figures from IPSOS (November 2007)reflect how rapidly consumers are becomingcomfortable with accessing illegal sites. Somethree million people in the UK downloadunauthorised films online, with a dramaticfall in the previous year from 30 per cent to11 per cent in the number of consumerswho think the practice is “too much effort”.In December 2008 the issue was highlightedby leading names from the UK’s film andtelevision industry, including Kenneth Branagh,Richard Curtis, Terry Jones, Mike Leigh andSir Alan Parker in a letter the The Times. Theynoted that ISPs “have the ability to changethe behaviour of those customers who illegallydistribute content online” and calling on them to“act responsibly” or “be compelled to do so”.The film and television industry is fast adaptingits business model with the aim of migratingmillions of consumers from illegal to legitimatesources of content. “There is a tsunami ofdigital theft on the internet that extends acrossmultiple content sectors, most notoriouslyaffecting music but also spreading across TV,movies, games, software and books,” saysRick Cotton, general counsel of the US TV andfilm company NBC Universal: “The challengeis to stop this undermining the evolutionof very exciting and enormously positivelegitimate digital distribution capabilities.”In order to limit piracy, migrate consumersand drive revenues, NBC has been pursuinga two-pronged strategy of making contenteasily accessible to internet consumers,while at the same time advocating theimplementation of technology-based antipiracymeasures across the internet.Both elements played a key role in thecompany’s anti-piracy efforts during their17-day coverage of the Beijing Olympics.The network made massive amounts ofOlympic material available to consumers onnbcolympics.com, while at the same timeworking with user-generated content sites suchas YouTube to filter and take down illegitimatematerial, a task that was made easier becausethe organisers embedded a watermark on allthe pictures being broadcast from the games.As a result of their efforts, 99 per cent of allonline streamed views in the US took place onNBC’s platform. “This was the most viewedTV production in American history, and theoverwhelming access point for online viewerswas at nbcolympics.com - and the thingthat essentially eliminated pirated Olympiccontent from video sharing sites was contentrecognition technology and filtering,” saysCotton. The case highlights the commonpiracy threats facing music and TV, but alsothe greater ease with which technology can beused to protect time-sensitive media contentsuch as news and sport, compared to music.“There is a tsunami ofdigital theft on theinternet that extendsacross multiplecontent sectors.”Rick CottonNBC UniversalNBC Universal believes that responsibilityfor copyright protection needs to be spreadacross the value chain. “The infrastructureindustries need to come to the table to helpreduce the flow of stolen content. We arenow seeing many forms of dialogue, andthose are absolutely critical to reducing bothphysical and digital piracy,” says Cotton.The book publishing world is grappling witha similar challenge. Tracy Chevalier, untilrecently chair of the UK Society of Authorsand author of Girl with a Pearl Earring, saysbook publishers need to take a hard look atnew revenue models. She warns that authorscould even eventually be forced out of theirtrade by piracy: “The question for the bookindustry, watching the music industry, is thatif the whole idea of people buying individualworks is going to disappear, then how arewriters going to make a living in the future?”Chevalier is interested in the kind of newbusiness models being experimentedwith in the music business. Some similarnew solutions in publishing might includesponsorship or ad-supported books. Shesays: “The alarm bells start ringing when youhear from the music business that for some95 per cent of all the tracks downloaded,there is no payment going to the artist.”Electronic commerce came much closer to thebook industry in 2008 with the announcement,of competing forms of e-Book by Sony,Amazon and Waterstones. However, digitalsales in the sector are still miniscule.Chevalier says change is coming for the bookworld, though not with the suddenness withwhich it hit the music business. She believesraising public awareness about the real valueof creative works has a very important roleto play: “It’s a complicated task you havebecause as well as changing legislation andshutting down illegal sites, there needs tobe a broader education effort to get peopleto appreciate that getting content for freemeans the creator doesn’t get paid.”Tracy Chevalier, author of Girl With APearl Earring, warns on book piracyTracy Chevalier29

IFPI DIGITAL MUSIC REPORT 2009Pre-release piracy:industry steps-up action.Pre-release piracy is probably the mostdamaging form of copyright infringementas it impacts on sales of the originaltracks or album at what should be thehigh point of consumer interest.Pre-release copies are leaked days or weeksbefore the official release date and then thenumber of files online containing the musicquickly proliferates. There are special networksand ripping groups that work to maximise thedistribution of pre-release infringing music.The damage this and subsequent file-sharingcauses can mean the difference between analbum charting in the Top 10 or missing out –something that can have a huge impact on anartist’s career. Illegal services are able to offermusic before legitimate sites can – a majoradvantage for them in terms of securing users.Music companies are increasingly usingthe services of IFPI’s internet anti-piracyteam to fight pre-release piracy. Searchingthe internet for infringing uploaders andthe operators of servers and indexing andtracking sites, the team sends noticesand warnings which may, if necessary, befollowed up with legal steps, either criminalor civil. The results of this work are visible.In 2008, IFPI removed three millioninfringing web links, up from 500,000in 2007, stopping potentially hundredsof millions of unlicensed downloads.Containing pre-release piracy,boosting salesStopping an album leak prior to releaseaims to help boost its legitimate sales.Zomba Records called in IFPI’s antipiracyteam after Usher’s latest album,Here I Stand, leaked weeks before itsMay 2008 official release date.Investigators tracked down the originalsource of the leaks and issued morethan 4,000 ‘notice and takedown’ ordersto remove links from blogs and forumsto the copyright-infringing music.For Zomba, as for other record companies,this kind of action supports the marketingstrategy, allows anticipation to buildup ahead of release day and containsthe damage caused by the leak. HereI Stand went on to be a big success,topping the Billboard Hot 100 chart.A similar exercise by the IFPI team stoppedall online pre-release leaks of Enya’sNovember 2008 album And Winter Came....Investigators ensured that sufficient securitymeasures were in place on all aspects ofthe manufacturing process and artworkproduction and also ensured that allunauthorised content was taken down fromthe internet as soon as it was discovered.The album subsequently became a top tenhit in the US and many European countries.500,000 infringinglinks removed byIFPI 20073 million infringinglinks removed byIFPI 2008Action on campus in the USThe US music industry is focusing itseducation and deterrence programmesdirectly on the issue of music theft on collegecampuses. Illegal file-sharing by collegestudents is disproportionately high. A surveyby Student Monitor in spring 2006 foundthat more than half of students downloadedmusic and movies illegally and according toNPD, students accounted for more than 1.3billion illegal music downloads in 2006. Thisis despite the fact that every student in thecountry has access to affordable (even free),legal music through innovative music industrysupported models like those offered byRuckus, AmazonMP3, and MySpace Music.Many universities have successfullyimplemented anti-piracy technology tools andreport receiving fewer copyright infringement(DMCA) notices. Several university officials havetestified about the efficacy and cost benefitsof adopting an anti-piracy technology. Whileeach university has its own policies and tools,technology has clearly been part of the answer.Kaiser Chiefs“About three weeks prior to its release,our album got leaked. A gloom cameover me when I saw it availableon blogs all across the globe. It hasnothing to do with money, that doesn’tcome into it, but it felt like someonehad come into my house and nickedstuff, then put it on the internetfor everyone to have a look at.”Kaiser Chiefs’ Nick Hodgsonspeaking to Drownedinsound.com30

www.pro-music.org tells ‘allyou need to know aboutmusic online’. Users canfind out where to get musiclegally online and discovermore about the musicindustry. The website isbacked by a cross-industrygroup of rights holders.Recording Industry In Numbersis the definitive source of globalmusic market information;an annual report containingglobal sales figures, countryspecific data and insight intokey consumer trends. To findout more or to purchase acopy go to www.ifpi.orgPublished by IFPI. January 2009. Copyright © IFPI.All data, copy and images are subject to copyright and may not bereproduced, transmitted or made available without permission from IFPI.Designed by Band London www.bandlondon.co.uk