January 23, 2012 7:45 pm

Digital revenues set to offset CDs’ fall

The global music industry says it is close to a turning point where growth from digital revenues offsets declining sales of CDs, thanks to a combination of subscription services and tougher action on piracy.

The IFPI, the music industry’s international trade organisation says global revenues from digital music grew by 8 per cent in 2011 to $5.2bn, an acceleration on the previous year’s growth.

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A slower rate of decline in sales of physical formats meant that the overall market’s drop slowed to 3 per cent, at about $16.2bn.

Rob Wells, president of global digital business at Universal Music, the largest record label by revenues, said he believed the “inflection point”, when digital revenues overtook physical globally, would happen in 2013, after the number of downloads overtook CD sales volumes in the US last year.

The growth in digital revenues lags behind the rate of volume growth in the industry, suggesting pricing pressure as the market reaches that transition. Downloads of single digital tracks rose 11 per cent in volume, with digital albums up 24 per cent, according to the IFPI.

However, Mr Wells and others insist that subscription music services, such as Spotify and Rhapsody, are providing incremental revenues, rather than cannibalising “à la carte” download services, of which Apple’s iTunes remains the largest.

The number of people subscribing to “all you can eat” music streaming leapt 64 per cent to 13.4m globally in 2011, the IFPI estimates.

Mr Wells said: “We haven’t seen a decay or decline in other methods of consumption.

“Some of those big global subscription players are only playing on a small playing field. Those services will expand over the next 12 months.

“As they mature, they are more likely to be bundled with internet service provider or operator subscriptions which is where we start to see real scale. The future is looking extremely bright.”

Universal, along with the other leading labels, owns a stake in Spotify but as its rivals Rhapsody and Deezer expand internationally, labels and artists stand to benefit because they are paid every time a track is listened to.

Edgar Berger, chief executive at Sony Music International said “We are going from headwind to tailwind.

“There is no question the music industry is going to be in great shape shortly, it will become a growing business again. The internet is a blessing for the music industry.”

After last week’s shutdown of Megaupload, the file sharing site which the US justice department alleges cost the entertainment industry hundreds of millions of dollars in sales lost to illegal downloading, music company executives hope that other websites – including Google – will do more to prevent piracy on their networks.

Frances Moore, chief executive of IFPI, criticised last week’s protests by Google, Wikipedia and other technology companies against two proposed US laws to stem file-sharing, the Stop Online Piracy Act and Protect Intellectual Property Act.

She said: “I often wish instead of hysterical resisting, our opponents would come forward with some constructive suggestions. It’s always ‘no, no, no’.”

Ms Moore said that in spite of the suspension of congressional debates about SOPA and PIPA last week, she was confident that US lawmakers would come back with “a different angle” to prevent piracy. “It shows me there is a commitment from Congress to come forward with legislation that tackles some of these problems,” she said.

The IFPI says that there has been a 26 per cent reduction in use of “peer-to-peer” file-sharing since the introduction of France’s “Hadopi” law to suspend persistent pirates’ internet connections.

Internet service providers have also been ordered to block piracy sites in New Zealand, Italy, Belgium, Austria, Finland, Malaysia and India.

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