IFPI Digital Music Report: Digital Revenues Up, But Piracy Still a Problem

by Kyle Mammarella

Digital music revenues grew by 8 percent globally in 2011 to $5.2 billion, according to the International Federation of the Phonographic Industry’s (IFPI) annual digital music report.  This marks the first time the annual growth rate has increased since they began measuring digital revenues in 2004.

The IFPI, the recording industry’s main lobby group, touts the expansion of the “access” subscription model and increases in “ownership” digital downloads model as the driving forces behind this growth.  Digital music subscriptions increased 65 percent, from 8.2 million in 2010 to over 13.4 million in 2011, and digital downloads increased 17 percent, with 3.6 billion downloads (both albums and singles) purchased globally in 2011.

“The fact that these two models of consumption can co-exist speaks volumes about the future,” said Rob Wells, Universal Music Group’s president, global digital business.  “In fact, we have really only scratched the surface of digital music in the last decade – now we are starting the real mining, and on a global scale.” Wells recently came out in defense of streaming services, calling the opposing opinion that they “cannibalize” sales “bogus.”

Digital music services are now present in 58 countries, more than double the 23 markets at the start of 2011.  This was driven, in part, by iTunes’ expansion in 28 new markets in 2011, including all members of the European Union and 16 countries in Latin America.  There are now around 500 legitimate music services worldwide offering up to 20 million tracks.

Still, piracy remains an ongoing problem for the industry.  It is reported that more than a quarter (28 percent) of global Internet users access unauthorized services on a monthly basis, with half of them using peer-to-peer (P2P) networks.  “The truth is that record companies are building a successful digital music business in spite of the environment in which they operate, not because of it,” said Frances Moore, IFPI’s chief executive.  “The 8 percent figure should be much higher.  That’s part of our task in 2012.”

Despite the challenges, there are glimmers of hope on the horizon.  The IFPI congratulated several countries on their efforts to crack down on illegal file sharing.  France’s Hadopi “laws” were noted as having a significant impact on piracy.  There seems to be good indication that this graduated response law, whereby a criminal court has the power to suspend an internet account for up to a month and impose a fine of €1,500 (about $1,930) if an individual is found guilty of repeat copyright infringement, has had an impact on piracy in its first year of operation.  More than 700,000 Hadopi notices have been sent since October 2010.  In that same period, P2P piracy levels in France fell by 26 percent, with approximately 2 million P2P users stopping their use of unlicensed services.  Moreover, single-track sales have increased by 48 percent and album sales have increased by 67 percent.

In the United States, the group said most major American Internet service providers had signed up to a “copyright alert system” aimed at issuing similar warnings to suspected file sharers.  Since the file-sharing service LimeWire was shutdown, the number of Internet users using P2P services has fallen from 16 percent to 9 percent.

The fight against copyright infringement has seen some high-profile reverses, as well.  In particular, last week’s shelving of the Stop Internet Piracy Act (SOPA) in the U.S., which was originally intended to block access to pirate websites, dealt a major blow to the music industry.   Both SOPA and the Protect Intellectual Property Act (PIPA) were met with a wave of opposition from top websites, including Google and Wikipedia, as well as the Internet community at large.

Moore described the demise of SOPA and PIPA as a setback, saying that the technology community “has come out a bit hysterical against this.”  Still, she said the IFPI would continue its international lobbying efforts for website-blocking, maintaining that the measure was “efficient, effective, and proportionate.”  She also called for search engines, such as Google, to do more in the fight against piracy, such as removing restrictions on the number of takedown notices for non-legal content that rights holders can notify and favoring legal music sites over P2P links in their search listings.

Despite the concerns over piracy, the digital music report found that 32 percent of the record labels’ global revenue now comes from digital sales, an all-time high for the music industry.

Download the entire IFPI report here.

Kyle Mammarella is a New York based artist manager and music enthusiast.