A Broken Record: Global Music Biz Losing War on Piracy

The global music industry is winning some sales battles, but online piracy continues to pummel it in a larger war.

As a result, the industry’s worldwide trade group is calling on Internet regulators to assist in bringing an end to illegal downloads.

Some political heavyweights are joining the fight.

Digital music sales increased 40 percent in 2007, to US$2.9 billion from $2.1 billion, the International Federation of the Phonographic Industry (IFPI) reported Thursday.

However, illegal downloads, which outpaced legal sales by a 20-to-1 margin last year, cost the industry much more than the reported gains, the group said.

Sarkozy’s Call to Action

Political leaders such as France’s president, Nicholas Sarkozy, have joined the fray. He is pushing measures to punish illegal downloaders.

“The Internet must not become a high-tech Wild West, a lawless zone where outlaws can pillage works with abandon or, worse, trade in them in total impunity,” Sarkozy said.

In November, Sarkozy called on France’s Internet service providers to automatically cut off customers found to have pirated music.

EU Trade Commissioner Peter Mandelson added his support.

“Piracy has been able to flourish in an unregulated environment, with unauthorized content circulating abundantly on networks,” Mandelson said. “Governments now need to wake up, follow the leadership of the French president, properly protect the creative work of artists, and address copyright infringement.”

Guardians of the Internet have to play a major role in defending against copyright violators, he added.

“[Internet service providers] have a unique role to play in the fight against intellectual property theft,” Mandelson noted. “Working in partnership with creators, government and consumers, ISPs can help provide valuable solutions to piracy, while at the same time spurring the digital future. The future of the creative industries depends on it.”

The leaders’ statements drew immediate skepticism from Alan Chapell, president of Chapell and Associates.

“The way to get rid of piracy is to set up economic incentives; it’s not arresting people and getting ISPs involved,” he told the E-Commerce Times. “I can’t imagine ISPs wanting to get involved in this. They have their own issues to deal with.”

CD Sales Continue to Plummet

IFPI reported an 11 percent decrease in CD sales in 2005-’06. Meanwhile, revenue from digital music tripled from $380 million in 2004 to $2.9 billion today, the group said. It also reported that the number of legal download Web sites has grown from fewer than 50 in 2003 to more than 500, offering more than 6 million tracks, today.

Single track downloads, the most popular digital music format, grew by 53 percent to 1.7 billion, according to the report.

Digital sales now account for an estimated 15 percent of the global music market, up from 11 percent in 2006 and zero in 2003, IFPI also said. In the U.S., which is the world’s biggest digital music market, online and mobile sales now account for 30 percent of all revenues. Japan continues to drive the digital market, with consumers using cell phones to download music.

Yet tens of billions of illegal files were swapped last year alone, the group pointed out.

DRM an Obstacle

There are technological issues that block some potential digital sales — not the least of which is the use of digital rights management, the report acknowledged.

Moving away from DRM is one positive step, said Phil Leigh, senior analyst with Inside Digital Media.

“Legitimate digital sales will accelerate, because the removal of DRM takes away a major impediment to the mass-market adoption of digital tracks,” Leigh told the E-Commerce Times. “That will remove a big incentive for using pirated tracks.”

DRM creates a plethora of problems for mass-market consumers, he observed. “It creates a lot of friction, moving from one computer to another. What labels have learned after eight years is that the consumer is just not going to pay them to further complicate their lives.”

Long-term, the music industry will adapt, Leigh predicted, because it has to respond to consumer preferences. “I think the long-term impact is now that the labels are showing they’re willing to abandon DRM, they’ll start turning their focus toward generating revenues on the Internet in alternative ways.”