MT Survey of Surveys: Music Biz

The end of the record industry may have been long predicted, but the online world is now seen as an opportunity rather than a threat, says Dave Waller.

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Last Updated: 31 Aug 2010

The death knell sounds regularly in the record business these days.

Every few years, another development has arrived to herald terminal decline in the recorded music industry, from the rise of home taping and the demise of vinyl to the march of home computer CD burners and bootleg MP3 downloading.

All of them, we were told, would bring the major labels to their knees.

With the double whammy of CD piracy and peer-to-peer file-sharing via the internet, the vultures are circling again.

Latest figures released by trade body the International Federation of the Phonographic Industry (IFPI) show that illegal file-sharing has made a significant dent. World music sales have dropped by $6 billion in five years to stand at $13.9 billion at the close of the second quarter of 2004. The European record industry is worth $4.8 billion, down 7.7% on last year, and figures for the UK show sales dropping by £55 million - 4.5% - between 2001 and 2003.

Label activity in recent years suggests that the majors fear the worst and have been gearing up to resist the onslaught. The contro- versial merger between giants Sony and BMG and attempts by EMI to buy Warner Music have been seen as moves to temper the consequences of falling sales: consolidation can re- duce overheads and maximise market muscle.

There are other clouds on the music horizon, too. CDs now have to battle with newer kids on the block, such as video games and DVDs, for their share of our disposable income, and the days when bootleg recordings were of such poor quality as to appeal only to the most impoverished fans are over. Modern bootlegs can sound as good as the real thing, and CD piracy is a $4.5 billion business. The ratio of illegal to legal CDs sold is rising all the time, from one in five worldwide in 2000 to one in three in 2003, a total of 1.1 billion disks.

But the role of illicit online activity is crucial. Conservative estimates put the numbers of illegal downloaders in the UK at 7.4 million, and levels are rising as broadband penetration increases (if you've ever tried to download music on a dial-up line, you will know where the net gets its 'world wide wait' nickname from). This now stands at 14% of UK households, but Jupiter Research expects the figure to double by the end of 2006.

Traditionalists argue that for many people, nothing can replace the experience of flipping through the racks in Tower Records, hunting down a bargain or a rare CD, and that logging on and ripping off a few tracks to play on your i-Pod is no substitute for having the genuine article. Maybe so, but according to market analyst TNS, the overall spend of UK downloaders on music in 2003 declined by 30%, and almost 50% for heavy users. The resulting loss of revenue is estimated at £274 million a year, proof that file-swapping is not simply a case of 'try before you buy', and that industry bosses are right to be worried.

However, there is a B-side to this scenario, predicated on the fact that people are prepared to pay for the music they get online. According to Jupiter, the UK's level of willingness to pay for downloads stands at 22%, one of Europe's highest - music to the ears of beleaguered record execs. And 2004 was a huge year for online music sales. With the high-profile launch of Apple's iTunes website in the UK in June - along with those of other legitimate providers such as Mycokemusic and Napster - this has been a bumper year for download sales.

UK downloaders are now served by 29 legitimate sites, providing a library of more than a million tracks, all licensed and generating income for the labels. Legitimate music downloads - costing about 75p a track - had hit two million in the UK by September and had grown to 300,000 sales a week compared with a mere 15,000 in January. Critics might say that if they'd moved faster, the big record companies would be running these sites them- selves, but the income is welcome nonetheless.

Apple also reported the astonishing fact that it sold more than two million iPod MP3 players worldwide in September, up from 850,000 in each of the previous three months. Now Microsoft is collaborating with Napster to launch a rival player, and Sony is getting into the fray with its own device (complete with unique-to-Sony file format rather than the standard MP3 or WMA formats).

People have proved that they will pay for digital supply and are now clamouring for the hardware. Suddenly, for the record labels, downloads are no longer the enemy. When the Official UK Charts Company launched its downloads chart in August, it reflected the acceptance, by both public and industry, of music downloads as a viable and exciting medium.

So the labels are safe once again, but perhaps it is time to be reading the CD its last rites and sending it the way of 8-track? Not quite. Says Mark Mulligan at Jupiter. 'Even with the success of the new services, digital music spending will make up less than 0.5% of Europe's total music market at the end of 2004. Digital music is not about to replace the CD.'

TOP 5 RECORD LABELS, WORLD

(MARKET SHARE %)

1 Universal 23.5

2 EMI 13.4

3 Sony 13.2

4 Warner 12.7

5 BMG 11.9

SOURCE: IFPI

ISPs are now obliged to release names of file-sharers in the UK: 459

people now face legal action. In the US, record companies have issued

over 5,700 lawsuits SOURCE: BPI

TOP 10 RECORDED MUSIC MARKETS '03/04

Sales (dollars m) +/- '02/03

US 5,049.0 3.9%

Japan 2,433.5 -0.3%

UK 1,255.5 -0.2%

Germany 892.7 -5.2%

France 838.9 -21.9%

Italy 300.3 -7.1%

Australia 282.1 -9.0%

Spain 260.3 -10.6%

Canada 253.7 -0.4%

Netherlands 224.8 -8.4%

WHO BUYS MOST ALBUMS?

(% OF ALL ALBUM SALES)

Male Female

12-19 yrs 15.2 15.3

20-29 yrs 17.2 20.6

30-39 yrs 22.4 21.4

40-49 yrs 19.8 19.2

50-59 yrs 15.9 12.5

60+ 9.6 10.9

SOURCE: BPI

UK MUSIC SALES ALBUMS

Year LPs Cassettes CDs Total Value

(m units) (m units) (m units) (m units) (pounds m)

'78 86.1 20.6 - 107.3 207.1

'88 50.2 80.9 29.2 160.3 536.8

'98 2.2 32.2 175.7 210.3 997.2

'02 2.2 1.9 221.6 225.7 1,089

'03 2.0 0.9 234.0 236.9 1,112

SOURCE: BPI

UK MUSIC SALES SINGLES

Year Units Sales

(m) (pounds m)

'78 88.8 42.9

'88 60.1 75.5

'98 79.4 123.7

'02 52.5 97.2

'03 36.4 64.5

SOURCE: BPI

AVERAGE RETAIL PRICES 2003-04

2003 2004 % change

All CD albums £10.56 £10.15 -3.9

Single CDs £9.74 £9.44 -3.1

Double CDs £13.36 £12.69 -5.0

All singles £3.39 £3.19 -5.9

CD singles £3.47 £3.19 -8.1

DO DOWNLOADERS STILL BUY CDs?

BUY LESS 36%

BUY MORE 10%

NO CHANGE 54%

SOURCE: FORRESTER RESEARCH

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