The Promise of Digital Music: The IFPI Report 2009

The International Federation of the Phonographic Industry, which represents record labels worldwide, just released its Digital Music Report 2009. It is available for free at
The Music Business Journal has reported on earlier annual versions of this document, which is the standard reference for an international perspective of the recorded music business and an account unlike any other of new developments in this promising arena of recorded music sales.
According to the IFPI, Digital music revenue saw continued growth in 2008, increasing by more than 25% to $3.7 billion globally. Digital platforms now account for 20% of total recorded music sales, up from 15% percent in 2007. This is good news for the music industry, as physical album sales continue to experience double-digit declines. In the U.S. alone, sales of compact discs fell 20% from 450.5 million to 362.6 million. Though some believe that the CD market will eventually stabilize, the attention is currently directed towards monetizing digital music, in which there are several key areas in focus for 2009.
The digital download market is expected to see continued growth. Industry executives are hoping that a DRM-free iTunes will drive even more fans to the already largest digital music retailer. Labels have grown increasingly savvy in their sales strategies with iTunes, employing features such as “complete-my-album,” and offering value-added content such as music videos within the price of an album. Some labels are experimenting with “windowing strategies,” otherwise known as releasing specific content prior to an album’s release in order to generate hype and capitalize on single-song downloads. Other digital retailers expected to see growth include Amazon and Wal-Mart, though iTunes still holds a dominant market share.
Another area in which the music industry is hoping for significant growth is in the ad-supported services and social network realm. Sites like Myspace Music and Imeem allow users to stream songs for free, while compensating rightsholders through licensing deals and advertising revenue, with some labels reportedly requiring 1 cent per stream on their catalogs. Labels are also hoping for increased ad-revenue surrounding music videos from sites such as YouTube. In fact, half of the ‘most streamed videos’ on the site are music videos. Though most of these sites are still considered to be in their infancy, optimizing advertising revenue could become easier as their user interfaces are enhanced.
The explosion of music-themed video games has been exceptionally rewarding for those lucky enough to have their songs placed. According to the NPD Group, music-themed games represented 15% of all game sales during the first half of 2008, and 32% of the sector’s year-on year revenue growth. Copies of the Guitar Hero series have sold over 23 million copies and grossed over $1 billion in North America alone. The creators of Rock Band are expected to release a videogame themed around The Beatles later this year, with some speculating that The Beatles will also finally release their catalog simultaneously online.
The shift to “music access,” which some consider to be the future of the music business, first made its way onto the playing field in 2008, with Nokia’s Come With Music and Sony Ericsson’s PlayNow. In the case of Comes With Music, purchasers of certain Nokia phones are given unlimited access to music for a full year, and may download songs at no additional charge. PlayNow offers a similar deal to its customers, though users may only keep up to 300 songs after their subscription ends. Proponents of services such as Comes With Music and PlayNow believe that music access models can heed a competitive advantage to those who adopt them, which would likely compel others to bundle music with their product or service.
Despite the many positive strides in the digital economy, there is still the ever-rampant problem of digital piracy threatening music’s vitality. According to the IFPI, 95% of the music downloaded online is obtained illegally. The RIAA appears to be wrapping up its litigation campaign, with little to show after five years of suing the likes of college kids, single parents, and even a dead person. So you may ask, what’s next? The hope is that governments will take a more active approach in helping the music industry work towards solutions. In France, lawmakers have drafted a bill, “Creation and Internet Law,” which would require Internet Service Providers (ISPs) to set up a system of graduated response, by which copyright abusers would receive warnings. If the abuse persisted, offending users would have their access terminated for a period of one to twelve months. A survey by the IPSOS in France showed that 90% of consumers would stop illegally sharing files after two warnings from their ISP.
In the UK, the government brokered a joint ‘Memorandum of Understanding’ between the recording and film industries and the country’s six largest ISPs, binding them to work together towards reducing copyright infringement. In October 2008, as part of a three- month trial period, ISPs began sending out letters to users warning them of illegal file sharing and promoting the use of legal music avenues. Talks of similar initiatives are emerging in the U.S., as New York Attorney General Andrew Cuomo has been urging greater cooperation between the recording industry and ISPs, and has been working to institute graduated response approaches similar to those in Europe. The RIAA has said it has made agreements in principle with several ISPs.

Kyle Shoemaker



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