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There were mixed tidings from the entertainments industry this week as the extent of music piracy was revealed while a report predicted a sharp rise in revenues from digital distribution.

The International Federation for the Music Industry, a body representing 1,400 music labels, claimed more than third of all music CDs sold last year were pirate copies - generating $4.6bn for organised criminal gangs and bootleggers.

The IFPI also blasted several countries for failing to crackdown on the trade for illegal music sales, which music companies claim are eating into legitimate sales and partly to blame for a 30 per cent decline in industry revenues over the past four years.

While citing some success in closing down illegal CD plants, the music industry is targeting 10 countries where the situation is particularly bad such as Brazil, Mexico and China.

But while Asia is cited as being one of the worst offending areas, it is also leading a buoyant trade in paying for legal downloads of music, video and games.

Helped by the popularity of digital music players, mobile phone ringtones and online video gaming, revenues from digitally distributed entertainment are expected to reach $73bn in five years compared with $11bn last year and almost nothing five years ago - according to a report by PwC.

The report, which only covers legitimate sales, says downloading was driving growth across the globe - enhancing the music industry’s position following its first year of growth for five years when revenues were up 5.7 per cent to $38bn.

Over the five year period Asia is expected to continue to lead the digital revolution - with China the biggest market despite one of the worst offending countries in piracy terms. The US, the world’s largest buyer of entertainment, will remain the slowest growing region.

Pricing pains

Microsoft are never far away from controversy these days and this week was no exception after tech companies complained the world’s biggest software group was demanding excessive licensing fees.

The fees concerned are those charged by Microsoft to companies who need access to some of its sensative communication protocols so that they can design products which work smoothly with the computers and servers driven by windows.

Microsoft was forced to allow access to the information by rivals after a ruling by the European Union. But companies such as IBM, Nokia and Oracle are complaining the fees - up to 8.5 per cent of the revenues earned by the products they develop - is too high and doesn’t represent the innovative value of the protocols but rather Microsoft’s ability to control access to them.

They also argue that Microsoft’s move is destroying the desired effect of the EU directive and could breach antitrust law.

Microsoft retaliated by saying that the price fell to 7.5 per cent and 4.5 per cent of product revenues if a company only licensed some of the protocols - with a ceiling of £950 of royalties for an individual server. It also said that customers had recourse to an independent monitor if they were unsatisfied.

Microsoft’s pricing plan is currently undergoing market testing after which the EU’s competition commissioner will rule on the issue.

The hacker within

Banks are being advised to keep a closer eye on IT outsourcing and suspicious behaviour after a new study by Deloittes suggested that hacker attacks on financial services institutions are increasingly coming from within.

The survey of the world’s 100 top financial institutions found that less than a third had seen attacks from external hackers - a dramatic fall from the previous year’s figure of 83 per cent.

However 35 per cent had suffered internal breaches, more than doubling the 2004 figure of 14 per cent.

While protecting sensitive information from the stereotypical malicious hacker has become a priority, the UK’s Financial Services Authority warned last year of signs that criminals were attempting to place staff inside banks.

Deloittes partner Simon Owen said that the increased focus on corporate governance, particularly in the US, might have distracted management from keeping tabs on staff, particularly third-party contractors who are sometimes given high-level access.

Less than two-thirds of the banks had trained their staff to spot suspicious activity, he said.

UK telecoms deal

There was relief all around as the UK’s largest telecommunications company, BT, escaped a regulatory review without being referred to the Competition Commission.

Ofcom, the British telecommunications watchdog, investigated the way BT allows competitors to access its infrastructure. Of particular interest was the “unbundled local loop”, which allows competitors to use the last mile of copper phone line to provide ADSL broadband and local calls.

There were fears from the BT camp that the review could result in a referral to the Competition Commission, which could have led to an order to break the company up.

Details of the review won’t be released until July, but the main outcome is that BT will create a new unit provisionally called Access Services which will be responsible for managing competitors’ access to the “last mile”. Commitments made by BT to the regulator will be legally binding.

The news thrilled BT’s arch-rival Cable & Wireless, which promised last month its broadband subsidiary, Bulldog, would ramp up the roll-out of its own broadband equipment into telephone exchanges around the country.

BT investors were happy too, as the review ends years of regulatory uncertainty over the company.

Copyright The Financial Times Limited 2017. All rights reserved.
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