More than US$2 billion of music was sold online or through mobile phones in 2006 which was almost double that of 2005. Unfortunately, this did not come anywhere close to compensating for the decline in CD sales, according to the 2007 Digital Music Report published by the IFPI (an international body that represents the recording industry worldwide).

Difficult times ahead for the music industry

The report spells out the problem for the music industry: while the future of the music industry may lie on the Internet, digital piracy and the devaluation of music content are a real threat to the emerging digital music business.

However, the music industry is not resting on its laurels. It has launched legal actions against approximately 10,000 large-scale P2P uploaders, and according to research, this has helped contain piracy, reducing the proportion of internet users frequently file-sharing in key European markets.

The IFPI says that action against individual uploaders are only the second best way of dealing with the problem, and the IFPI is stepping up its campaign for action from ISPs and will take whatever legal steps are necessary.

According to the report, digital sales now account for around 10% of the music market as record companies experiment and innovate with an array of business models and digital music products, involving hundreds of licensing partners.

“The chief winners in the rise of digital music are consumers. They have effectively been given access to 24-hour music stores with unlimited shelf space,” said IFPI Chairman and CEO John Kennedy.

“They can consume music in new ways and formats – an iTunes download, a video on YouTube, a ringtone or a subscription library.”

Among new developments in 2006, the number of songs available online doubled to four million, thousands of albums were released across many digital formats and platforms, classical music saw a “digital dividend” and advertising-funded services became a revenue stream for record companies.

Portable players are one of the major drivers of growth in the digital music sector. New figures show that the proportion of portable player owners who source mainly from paid downloads is roughly the same as the proportion who source mainly from unauthorized P2P and free websites (14%).

Mobile music accounted for about half of global digital revenues in 2006, but the split between mobile and online varies sharply by country. In Japan around 90% of digital music sales are accounted for by mobile purchases.

The IFPI predicts that 2007 could prove to be a landmark year in the mobile music market, as handset makers such as Nokia and Sony Ericsson develop their music phone series.

New technology often shakes up businesses with established business models – just think about what the television did to radio, for example, or what video did to television and the cinema. The music industry is going through a similar shake up at the moment. The question is whether the present players in the music industry can adapt to the new market conditions  quickly enough, or whether they will be swept away by new competitors with new business models that better fit this new era.

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Entry was posted on Sunday, January 28th, 2007 at 11:00 am under Piracy, Technology.

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