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Music industry looks to new horizons

Record firms shift to new business models as rampant piracy causes sales to plummet

A visitor listens to music at a stand of the 41st International Record Music Publishing and Video Music Market in Cannes, southern France, in this pho...

A visitor listens to music at a stand of the 41st International Record Music Publishing and Video Music Market in Cannes, southern France, in this pho...

Rampant online music piracy and plummeting CD sales over the past five years have rocked the global music industry to its core.
And with the new digital revenue streams from online music stores and mobile phones still way too low to fill the gap, the industry is looking to new horizons.
Between 2000 and 2005, the record industry worldwide shrank by 34 percent in value terms, a trend that continued last year.
Internet piracy remains a massive problem for the music industry, particularly in eastern Europe, India and China, though the large number of actions taken against illegal file-sharers globally has achieved some success, according to the global recording industry body, the International Federation of Phonographic Industries.
In France, for example, the percentage of Internet users illegally downloading tracks fell from 24 percent to 14 percent in 2004 after the government announced it would take them to court. But by 2006 it had crept back up again to 21 percent.
But the even more worrying news is that while digital music sales to PCs, portable devices and mobile phones nearly doubled to US$2 billion in 2006, they still accounted for just 11 percent of global music sales, failing to achieve the "holy grail" of offsetting the fall in CD sales, the IFPI emphasized.
As a result, the music industry is becoming increasingly desperate to find new ways to turn music content into cash and unlock the promised riches that the new digital world of online stores, music-enabled mobile phones and mobile players has been promising to deliver for the past few years.
Urgent concerns
The growing trend to give music content away for free, particularly on the Internet, has also raised the temperature.
This sense of urgency dominated the industry's premier MIDEM trade show that closed its doors here Thursday, where it looked that the way forward will be through a lots of different revenue channels rather than one big pipe.
"We will not have one business model but several that will drive the business," Dominique Leguern, director of the trade fair's organizer Reed MIDEM, told a press conference here at the close of the show last week.
"But I can't predict which business models and I don't think that anyone can, we are in too complicated a technological world and the developments are going too fast," she added, summing up the view expressed time and again through the week by many of the best and brightest executives in the digital and music worlds.
Complex marketing
"We now know that the economic model is changing from one with a more or less unique revenue stream to one with multiple streams including sales of recordings, subscriptions, downloads, touring, neighboring rights, merchandising and many more," Stephan Bourdoiseau who heads up the French independent record industry association, UPFI, told MIDEM News.
"Currently we are not at all sure of just how big each of these markets will be. I tend to think that ultimately their sum-total will be greater than merely selling a recording," Bourdoiseau emphasized.
The newest opportunities attracting keen interest and much debate here included how to make money by working with brands, advertising, film, TV, video game and Internet worlds as well as by releasing the record companies' huge back catalogue.
The relationship between advertising brands and music has become a lot closer over the last five years and will deepen further in the future, industry experts here underlined.
The recent link-up between cell phone maker Motorola and animation leader Gorillaz was a recent example that helped Gorillaz penetrate the Chinese market.
Internet advertising and ad-funded digital services also look likely to become important new ways to make money.
"There is certainly a space for ad-supported music," Sony BMG Music Entertainment's Thomas Gewecke told a MidemNet conference. He pointed out that while music purchasing is at an all-time low, "music consumption is at an all-time high."
Some companies, like Intent Mediaworks, said it has been licensing ad-supported content and putting it on peer-to-peer (p2p) networks, and making money.
2007 will probably also see record companies, particularly the independent ones, moving into the increasingly popular social networking web sites such as MySpace and YouTube, industry experts predicted.
Better access for indies
The deal announced here between Merlin, the new one-stop licensing agency set-up to represent the world's huge independent music sector, and innovative San Francisco-based digital music firm SNOCA, is aimed at giving the indies better access for selling digital downloads on MySpace and netting more money for them.
The big four record labels - Warner, Universal, EMI and Sony BMG - are also making moves into the online space that has been taking over their role as main music distributors.
EMI Music announced last November that it had formed a strategic alliance with Shanghai Media Group to offer content for mobile, online and TV distribution and others might follow as China makes moves to tackle piracy and attract foreign businesses.
Mobile phones were also center stage although ringtones are still the only big revenue source for the music business.
The hot new music enabled phones being launched by top cellphone makers are expected to go head-on with the stand-alone MP3 players that are now a way of life for millions and may even outstrip them in the United States within two years, predicted key entertainment industry player Brad Duea, who heads up the now legal Napster U.S. subscriber-based online music service.
It still remains unclear though just how big a slice of the mobile pie the music industries will get.
Two other major factors are also stopping the industry from really entering the digital era.
The lack of interoperability between the hugely popular but rival digital devices of Apple Computer's iPod and the universally compatible MP3 players is one.
The other is the on-going battle throughout the digital, consumer electronics and music worlds about whether music should be made available without any DRM coding that prevents illegal copying but stops consumers from running downloaded music on rival technologies.
No progress was made at MIDEM towards solving these two stumbling blocks. So where the music industry is going remains anyone's guess.