DIGITAL MUSIC GOES GLOBAL IN 2011 WHILE ACTIONS ON PIRACY GAIN MOMENTUM

http://www.ifpi.org/content/library/DMR2012.pdf

• Major international music services now in 58 countries, up from 23 in January 2011
• Digital music revenues up 8 per cent to US$5.2 billion
• Anti-piracy action makes an impact in France, New Zealand. US to follow in 2012

With rapid expansion into new markets by services such as iTunes, Spotify and Deezer, the major international digital music services are now present in 58 countries, compared to only 23 at the start of 2011.

Consumers are benefitting from a widening choice of services for experiencing digital music. In 2011, subscription services expanded and linked with new partners to reach new audiences. Meanwhile cloud technology is helping transform the way fans manage and store their music.

Global revenues to record companies grew by an estimated 8 per cent to US$5.2 billion in 2011 - a faster rate than 2010 - with strong consumer demand for both single track downloads (up 11 per cent by volume), digital albums (up 24 per cent by volume) and fast-expanding subscription services. The number of users paying to subscribe to a music service leapt by 65 per cent in 2011 to 13.4 million worldwide according to IFPI estimates.

In the US, the world’s largest music market, digital channels have overtaken physical formats to become the primary source of revenues for record companies. Globally, 32 per cent of music industry revenues come from digital sources, far surpassing the film, newspaper and book sectors. New services launched across Latin America, while in China record companies are working in a landmark partnership with the largest internet company Baidu.

IFPI’s Digital Music Report 2012 is published today, providing a comprehensive overview and analysis of the global digital music business at the start of 2012.
Commenting on the Report, Frances Moore, CEO of IFPI, said: “As we enter 2012, there are good reasons for optimism in the world of digital music. Legal services with expanding audiences have reached across the globe and consumer choice has been revolutionised. Meanwhile momentum is building in the fight against piracy as governments and a growing circle of intermediaries engage with our industry.

“Any complacency now, however, would be a great mistake. Our digital business is progressing in spite of the environment in which it operates, not because of it. In 2012 the momentum needs to build further. We need legislation from governments with coordinated measures that deal with piracy effectively and in all its forms. We also need more cooperation from online intermediaries such as search engines and advertisers to support the legal digital music business.”

Positive momentum but legal environment remains a huge problem

Piracy remains an enormous barrier to sustainable growth in digital music. Globally, one in four internet users (28%) regularly access unlicensed services, according to IFPI/Nielsen. This is rigging the market for legitimate services, stunting growth and jeopardising investment in music. IFPI advocates an inclusive combination of graduated response, site-blocking and other measures to tackle the problem.

There has been positive momentum in the fight against piracy in 2011. In France, the introduction of the new Hadopi graduated response law has seen peer-to-peer (P2P) piracy levels decline by 26 per cent, with around two million P2P users stopping the activity since warning notices were first sent out in October 2010 according to IFPI/Nielsen.

A newly-published academic study finds evidence that Hadopi has had a positive impact on iTunes sales in France. The analysis, by Danaher et al, found that iTunes singles sales were 23 per cent higher than they would have been in the absence of Hadopi.

In the US, a groundbreaking ISP cooperation deal was signed in 2011 and a graduated response programme will be implemented in 2012, with most major ISPs signing up to a “copyright alert system”. The move follows the closure of the illegal service LimeWire in 2010, which has helped cause a dramatic drop in levels of P2P piracy in the US market.

There was important progress elsewhere too. In New Zealand, a new graduated response law took effect in September 2011, with early indications of impact. In Europe, a string of court judgments has helped reduce copyright infringing activity on major sites like The Pirate Bay. In Belgium and Italy visits to the infringing sites dropped by 70-80 per cent in each case. In Spain a new law came into force to allow the blocking of illegal websites – a positive step, though disappointingly limited in its scope.

Stepped-up cooperation with online intermediaries

The recorded music industry is now working directly with advertisers, payment providers, search engines and website hosts to tackle digital piracy. A partnership struck in 2011 between IFPI, the City of London Police and payment providers MasterCard, Visa and PayPal has prevented more than 60 illegal websites from abusing payment services since it began in March 2011.

Better cooperation is being sought with search engines, which are a major channel for consumers to access music. Research in several countries indicates that between a quarter and a half of people illegally downloading access infringing music via search engines. However, many of the top results provided by search engines are linked to unauthorised content or sites which regularly infringe copyright.

IFPI DIGITAL MUSIC REPORT 2012: KEY FACTS AND FIGURES

Headline figures

• Digital music revenues to record companies grew by 8 per cent globally in 2011 to an estimated US$5.2 billion. This compares to growth of 5 per cent in 2010 and represents the first time the year-on-year growth rate has increased since IFPI started measuring digital revenues in 2004
• IFPI estimates that 3.6 billion downloads were purchased globally in 2011, an increase of 17 percent (combining singles and albums downloads)
• Some markets now see more than half of their revenues derive from digital channels, notably the US (52%) and South Korea (53%)
• Digital channels now account for an estimated 32 per cent of record company revenues globally, up from 29 per cent in 2010. This compares with 5 per cent for newspapers, 4 per cent for books and 1 per cent for films1
• Just The Way You Are by Bruno Mars was the top-selling single of 2011, selling more than 12.5 million copies
• Many major markets are seeing healthy growth in single track download sales: the US up 8 per cent in volume; the UK up 10 per cent; France up 23 per cent
• Consumer demand for an artist’s body of work remains strong in the digital world.
Digital album volume sales grew by an estimated 24 per cent globally in 2011, with the US and UK up by 19 and 27 per cent respectively and France up 71 per cent
• The global number of paying subscribers for music services has grown by 65 per cent, from an estimated 8.2 million in 2010 to over 13.4 million in 2011
• Subscription has caught on exceptionally well in some markets, particularly in Scandinavia. In Sweden, for example, subscription accounted for 84 per cent of digital revenues in the first ten months of 2011, boosted by its national champion Spotify. Other markets saw sharp growth in subscription revenues, such as France with growth of more than 90 per cent in the first 11 months of 2011

Digital music goes global

• At the start of 2011 the biggest digital music services were present in 23 markets. Now they are present in 58 markets
• iTunes opened for business in 28 new markets in 2011, including all members of the EU and 16 countries in Latin America
• Spotify launched in the US and four European countries so is now in 12 countries
• Deezer has launched in 25 countries in Europe and expects to be in 80 countries internationally by the end of February
• Sony’s Music Unlimited is now in 13 countries
• rara.com announced a new streaming service in 20 countries in December 2011
• Other services are developing and expanding: such as JUKE, Rdio, WiMP and Vevo
• Google Music launched in the US in November 2011 – further expansion expected in 2012
• In Asia, South Korea remains the most successful digital music market, with an estimated three million music subscribers. In China a landmark partnership was announced in June 2011 between three major record companies – Sony, Universal and Warner - and internet search giant Baidu

Piracy rigs the market

• 28 per cent of internet users globally access unauthorised services on a monthly basis, according to IFPI. Around half of these are using peer-to-peer (P2P) networks. The other half are using other non-P2P unauthorised channels which are a fast-growing problem
• Illegal “free” has a negative impact on sales. Research by The NPD Group in the US in 2010 found that just 35 per cent of P2P users also pay for music downloads. P2P users spent US$42 per year on music on average, compared with US$76 among those that pay to download and US$126 among those that pay to subscribe to a music service
• 60 per cent of e-book downloads in Germany are illegal, according to Börsenverein des Deutschen Buchhandels, the organisation representing German publishers and booksellers

ISP cooperation: the needle is moving

• In France, the Hadopi law has been successfully implemented and research shows it is having an impact on consumer behaviour and on digital sales
• New Zealand passed a new graduated response law in 2011 and surveys show it is already affecting consumer behaviour positively
• In the US, music and film companies have agreed with ISPs a new copyright alert system, while new draft legislation aimed at tackling “rogue” sites is before Congress
• South Korea, a pioneer of anti-piracy legislation which has required an effective role from ISPs in stopping infringement, is seeing continued market health
• In Europe, a series of successful court actions required ISPs to block access to The Pirate Bay, prompting substantial reductions in users of that service

France: Hadopi law makes an impact

• To date there have been more than 700,000 notices sent, which IFPI estimates to have reached around 10 per cent of P2P users in France. There are good indications of the impact Hadopi has had on piracy in its first year of operation.
• The use of unauthorised P2P networks has sharply declined, with overall P2P use down by 26 per cent since notices started being sent in October 2010 (IFPI/Nielsen) – the equivalent to a loss of around two million P2P users.
• A study by Ipsos MediaCT, conducted in November 2011, found 90 per cent of P2P users in France were aware of the law and 71 per cent would stop infringing if they received a notification as part of the graduated response programme
• A new by Professor Brett Danaher and others found that French iTunes sales were 23 per cent higher for singles and 25 per cent higher for digital albums that they would have been in the absence of Hadopi

New Zealand consumers heed graduated response

• Ipsos MediaCT research from August 2011, on the eve of the law coming into force, found that seven in 10 P2P users said they would stop infringing on receipt of a notice backed by sanctions as part of the country’s graduated response programme. According to IFPI, usage of P2P networks fell 16 per cent in the first three months of the law being in force, accompanied by increasing online sales

Other evidence of the impact of graduated response

• In Germany, 81 per cent of consumers that download media content illegally believe that warnings with the prospect of consequences would make people stop their illegal activity (GfK, February 2011)
• In South Korea, government officials report that 70 per cent of infringing users stop their activity on receipt of a first notice. A similar pattern is found on receipt of the second notice, with 70 per cent of users ceasing to use their account to infringe

Groundbreaking US ISP agreement

• In July, an agreement was struck between rights holders and ISPs, establishing a system of “copyright alerts” that will notify internet subscribers when their accounts are being misused to infringe copyright law. A system of “mitigation measures” aims to deter repeat infringements by those who ignore repeated alerts

Site-blocking has impact internationally

• In Belgium, a court order requiring two ISPs to block access to The Pirate Bay reduced visits to the site by 80 per cent from September to November 2011 (comScore)
• In Italy, an order requiring ISPs to block access to major BitTorrent site BTJunkie, reduced usage of the service by 70-80 per cent (Nielsen)

Reducing piracy helps the legitimate market

• The most heavily-used illegal music service in North America, LimeWire, was closed in October 2010 when a federal court in New York issued a permanent injunction against the company. The percentage of the US internet population using a P2P file-sharing service fell from 16 per cent in the fourth quarter of 2007 to 9 per cent in the fourth quarter of 2010, when Limewire ceased its file-sharing operations (The NPD Group)
• South Korea illustrates how good legal services, combined with strong repertoire and a healthy legal environment can lead to significant market growth. In July 2009, graduated response measures were introduced and in April 2011 a new law required cyberlockers and P2P services to register with the government and implement filtering measures. The recorded music market in South Korea grew by 6 per cent in value in the first half of 2011, following a 12 per cent increase in 2010. In 2005 it was ranked as the 33rd music market in the world. Today, it ranks as the 11th largest market

More cooperation needed from search engines

• In the UK, 23 per cent of consumers regularly download music illegally using Google as their means to find the content (Harris Interactive, September 2010)
• Around half of users of unauthorised downloads said they found the music through a search engine, according to research in 2011 in New Zealand (Ipsos MediaCT, October 2011)
• Searches for the name of the top five artists in the Billboard Top 100 chart on 1st November 2011 plus the term “mp3” (the dominant legal and illegal file format for digital music) found the majority of search results – on average over 70 per cent - were infringing

Payment providers act on illegal sites

• A partnership between IFPI, the City of London Police and payment providers has prevented 62 illegal websites based in Russia and Ukraine from abusing payment services since it began in March 2011. It is estimated that, to date, the programme has stopped some £180 million of illegal trade, based on the revenues generated by the sites over the previous year
• Anti-piracy investigators use the latest automated technology to identify and remove infringing links worldwide. In 2011, it removed more than 15 million tracks, up from seven million in 2010, an increase of 115 per cent