Digital music fuels industry revival

27-02-2013

Legal downloads and subscriptions are fuelling a financial recovery in the music industry, which on Tuesday reported its first year of growth since 1999.

The International Federation of the Phonographic Industry (IFPI), a global trade body, published a report showing that the recording industry grew by 0.3 percent last year, earning $16.5 billion in revenue.

This first growth spurt in nearly 15 years was aided by a nine percent rise in digital revenue, which is estimated to be $5.6 billion and accounts for 34 percent of total industry income.

“For the global music business, it is hard to remember a year that has begun with such a palpable buzz in the air,” said IFPI chief executive Frances Moore. “They [revenue increases] show the music industry has adapted to the internet world, learned how to meet the needs of consumers and monetised the digital marketplace.”

Twenty million people are now subscribing to legal services, representing a leap of 44 percent from 2011. Subscriptions account for the fastest growing digital revenue stream, with the report noting the success of Spotify, which has more than 5 million subscribers.

The IFPI says the income from download sales, streaming and digital radio is also increasing. Download stores represent about 70 percent of the digital revenue and download sales rose to 4.3 billion, up 12 percent from 2011.

Digital retailers’ rapid global expansion is opening up the potential for markets such as Brazil and India to become major sources of future industry growth. At the start of 2011, the main international services were present in 23 countries. Two years later, they are in more than 100 countries.

The IFPI singled out the success of cloud-based services, particularly those offered by Amazon, Apple, Microsoft and Google, as key innovations that have boosted digital revenues.

Income from physical sales fell from 61 percent to 58 percent in 2011 but still represents the majority of overall revenue.

To maintain a strong digital business, the music industry must effectively cooperate with intermediaries – such as advertisers, Internet Service Providers, search engines and payment providers – the report said.

Copyright owners have pursued illegal file-sharing sites persistently, arguing that the operations eat into their revenue streams. The latest research will come as welcome news that the music industry is adapting to the online piracy threat and offering consumers attractive legal alternatives.

Tony Ballard, partner at Harbottle & Lewis in London, said Internet piracy is difficult to control but the solution is to develop effective legal procedures. 

“Three and six-strike procedures are being experimented with in France and the US, but in the UK the courts have found what looks like a good solution: granting injunctions to block pirate sites.  I think these figures show that the tide is turning, in much the same way as for video years ago, when piracy was brought under control.”

According to the report, around a third of all Internet users still regularly access unlicensed music sites. 

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