Analysis of 2008 IFPI Digital Music Report
Is it now a truism to say that the future of the music business lies in the digital realm? Computers and the internet have so permeated our world that it basically goes without saying that almost any given business must either adapt to the reality of the internet age or be left behind. As any passive observer knows, the recorded music business, especially the major labels, are at a low point by many measures. Music sales, the value of music, and public opinion about the labels have all declined. All of that is directly related to the digital music technology introduced over the last decade.
The 2008 Digital Music report, issued by the International Federation of the Phonographic Industry (IFPI), confirms this. But the report also points to a number of positive developments in the industry that might justify a modicum of optimism. The most striking aspect of the report is its emphasis on the continuing evolution and growing diversity of music products.
According to the report, the number of available formats has exploded from ten to more than 110 in just 5 years. Justin Timberlake’s album Future Sex/Love Sounds was sold as 115 distinct products that sold a total of 19 million units. Less than 20% of that figure was sold in CD format.1 Clearly; the digital age is also the age of diversity in the music industry.
This development was not clear, even a few years ago. When legitimate digital music sources like iTunes and Rhapsody first hit the scene and entered the popular consciousness, they were hailed as ‘the next big thing.’ By offering convenience, consistent quality, variety, and low prices, some believed online stores would largely replace both physical products and illegal downloads.
Surely, the online music sector has exploded. There are now more than 500 music stores and subscription services offering well over 6 million unique tracks. The value of digital sales has exploded from $20 million in 2001 to nearly $3 billion in 2007, now representing 15% of all music sales. However, this explosion has not brought any stability to the marketplace. Unlike previous eras, music companies and fans have failed to coalesce around a single product.
CDs have, of course, not yet disappeared from the scene. Online, music can be purchased by the single, the album, or as unlimited access to the catalogs of subscription services. Mobile phones can download full tracks, ringtones, ringbacks, and more. The report points out that mobile downloads now equal online downloads across the globe(1).
Even vinyl records stubbornly refuse to disappear. In fact, sales of LPs have been on the rise in recent years(2). By including free digital downloads with the record, audiophile-approved sound fidelity, and a unique listening experience, vinyl has remained relevant in the digital age.
There are also many ways for fans to experience music free-of-charge, allowing customers to thoroughly sample music before purchasing it. Websites MySpace and PureVolume both offer forums to sample music, while Last.fm offers advertising based revenues to labels and artists at no cost to the viewer. Music podcasts bring new and obscure artists to listeners around the world while hyping the best upcoming releases. On the horizon are services like Total Music that will offer unlimited access to music included in the price of a portable music player or cellular telephone.
Some of these products are also now being packaged in different ways. For example, digital and physical editions of CDs are now being offered bundled with and alongside concert tickets. Rock band The Enemy offered their single alongside tickets for their spring tour for just a nominal fee. By making it extremely easy for their fans to purchase their song alongside their tickets, the band made a wise strategic choice. Tickets sales are by definition immune to Internet piracy, so attaching a single to tickets could help encourage fans that have not purchased music online before to do so.
While this news is heartening, it does not tell the whole story. Digital sales have not come close to compensating for the steep drop in CD sales. And as anyone can tell you, piracy is nowhere near under control. Organizations representing media companies have staged multiple lawsuits to shut down major P2P services, with some success. But when one service or website is forced to shut down or clamp down on unlicensed file-sharing, at least one more pops up to take its place. BitTorrent and small invite-only websites have largely supplanted high-profile services like Morpheus and Kazaa.
Litigation against individuals has likewise failed to stem the problem. Not only have pirates not been deterred by these lawsuits, but also many see them as a justification for continued copyright theft. The MPAA and RIAA are often demonized, cast as greedy organizations slapping people with exorbitant damages for simply leaving music files in a shared folder. It is said that the industry makes these individuals scapegoats for their failure to adapt(3). Whether or not any of that is true is irrelevant. The negative perception of the RIAA, IFPI, BPI, and other organizations is real and widespread and has hurt the industry.
The media industry has not given up on legal measures to help combat piracy, though there has been a shift in strategy in the industry and in government. Piracy services, such as the British site OiNK, have been targeted in criminal, not just civil, cases. In addition, the French and British governments are working with Internet service providers to clamp down on pirates. These measures have some promise and are less likely to cause a public relations backlash.
In addition, the report highlights the many problems with online music services. To begin with, the perception that illegal services offer a better selection of music is often not true. In one test, the IFPI found that searches for 95% of artists returned more tracks than illegal service Limewire. In addition, the risk of viruses and security breaches through P2P networks are very real. Employees using work computers for filesharing open their employers to those risks, as well as possible legal repressions.1 While sophisticated pirates are able to largely avoid these problems, the average computer user may not be able to. Music fans fed up with these problems are a real opportunity to legal services offering consumer-friendly music sales.
Today’s music fan has more access to music, more choices of how to obtain that music, and more ways to listen to that music than ever before. Because of this, demand is at an all-time high. By continuing to enrich the consumer experience and fighting piracy in a responsible manner, the recorded music industry has a good chance of thriving once again. That, ultimately, is good for music fans and tycoons alike.
By Mark Schafer
Footnotes:
1. http://www.ifpi.org/content/section_resources/dmr2008.html
2. http://www.npr.org/templates/story/story.php?storyId=9598796
3. http://www.demonbaby.com/blog/2007/10/when-pigs-fly-death-of-oink-birth-of.html
