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IFPI Digital Music Report – Executive Summary

August 1, 2006

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MUSIC – A KEY DRIVER OF THE DIGITAL ECONOMY

Introduction by John Kennedy, Chairman & CEO of IFPI looking at the impact of music on a new wave of digital commerce. It includes a call to action to key partners to help address the key challenges confronting the digital music industry at the start of 2006.

THE DIGITAL MARKET TAKES SHAPE IN 2005

2005 was a landmark year for digital music. Digital sales in 2005 accounted for approximately 6% of global music sales based on the first half of the year.

The legitimate digital music business has caught the imagination of consumers, sales have increased steadily and new service launches have accelerated to give shape to an exciting new market for recorded music.

This sections highlights the key milestones in shaping the future of the digital market and looks at developments worldwide

Key highlights:

  • Digital is the fastest-growing delivery channel for music
  • Single track downloads in 2005 more than doubled
  • Online song catalogues doubled
  • Digital music expanded rapidly across the world
  • Apple iTunes extended its service to 21 countries worldwide
  • Portable video was launched
  • The mobile phone became a portable music device
  • The world’s first publicly available legal peer-to-peer (P2P) service iMesh launched in beta phase
  • James Blunt topped Europe’s first digital songs download chart in 2005

GETTING MUSIC TO CONSUMERS IN MORE WAYS

From a-la-carte and subscription to video and mobile, digital distribution formats have evolved and diversified in 2005, bringing music to consumers in more ways than ever before. This is set to continue in the coming year as business models continue to evolve.

Focus

  • Distribution channels diversify
  • Video boosts digital music services
  • The record company investment
  • The marketing opportunity
  • Digital-only labels emerge
  • The new digital intermediaries

MOBILE MUSIC SHOWS ITS POTENTIAL

Over the past decade mobile penetration has risen exponentially and, more recently, mobile handsets have evolved from a basic voice-based device to whole entertainment hubs, creating a new channel for music distribution. Mobile music is fast becoming an important revenue stream for record companies, already accounting for almost half of digital music revenues.

Focus

  • Mobile music spreads globally
  • From ringtones to ‘real music’
  • Music drives 3G
  • The handset market
  • The future of mobile music

IN THE PIPELINE: LEGITIMATE P2P, DIGITAL RADIO AND PODCASTING

A key focus for music industry today is to help make music available for the consumer in an array of innovative and flexible ways – just so long as it is properly licensed secure and paid for. As new technologies develop year on year, record companies have been working with entrepreneurs, technology providers and online services to help develop new opportunities, while making sure that right holders retain their right to determine the distribution of their creative works. 2005 has seen three exciting new developments progress: legitimate peer-to-peer (P2P), digital radio and podcasting.

Focus

  • Legitimate P2P
  • Digital radio
  • Podcasting

MUSIC CONSUMPTION IS CHANGING

Consumer demand is the key to the successful evolution of the digital music market. This section looks at new IFPI research into consumer awareness and uptake of digital services in the past year across Europe. Key to the research findings is the fact that legal downloading is now on a par with illegal file-sharing in two of the largest digital markets, but attracting file-sharers to legal sites is a long-term challenge.Focus

  • New IFPI research spotlights the consumer
  • Digital music versus the CD
  • The power of portability

CONFRONTING THE CHALLENGES

In early 2006 a number of significant obstacles hamper the progress of the digital music market. These include the still very large problem of internet piracy and the need for more effective cooperation from Internet Service Providers (ISPs) in containing copyright infringement; the continuing lack of interoperability between formats and devices; and the emerging threat from unlicensed digital stream ripping.

Focus

  • Internet piracy: the biggest obstacle
  • Digital stream ripping: the next big challenge
  • The call to ISPs

COURTS IMPROVE THE LANDSCAPE

For the recording industry, the business environment in which legitimate digital music has had to compete with mass-scale unauthorised free music is improving rapidly. The message sent by the courts has been clear. Operators of unauthorised P2P networks and websites searching for ‘piracy havens’ can be held liable for music piracy.

Focus

  • Courts rule against illegal P2P
  • Shutting down ‘piracy havens’

CONTAINING ILLEGAL FILE-SHARING

A thriving digital music business means containing piracy. In 2005 the music industry widened its campaign of deterrence against illegal file-sharing, nearly tripling the number of legal actions to a total of some 20,000 cases in 17 countries. Targeted education campaigns also played a critical role in raising awareness and changing consumer perceptions. This section asks whether the industry’s efforts are yielding results by looking at the latest file-sharing figures in the context of the rise in broadband penetration.

Focus

  • Deterrence: legal actions against individual file-sharers
  • Education
  • Is the fight against piracy working?
  • Changing attitudes

DRM & INTEROPERABILITY: THE KEYS TO FUTURE GROWTH

Digital Rights Management is an essential tool, helping to increase consumer choice while protecting the works of music creators from unauthorised distribution and unfair use. They are digital enablers, not merely locks and keys. The biggest challenge with DRM technologies is to make them operate smoothly enough so that they are largely invisible to consumers – and this remains a very significant problem in the current digital music market. Meanwhile the incompatibility of DRM systems has created a situation where digital services and devices do not inter-operate, hindering the future development of the digital music business.

Focus

  • The challenge for DRM
  • Interoperability: a key priority

WHAT DIGITAL MUSIC OFFERS THE CONSUMER

What online and digital music offers the consumer at a glance.

Source: www.ifpi.org

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