Earlier this week the BBC reported the drop in file sharing following the court-ordered block of the Pirate Bay (TPB) was short-lived (link to article). The BBC said it had been shown data by an unnamed major UK ISP which confirmed that P2P activity on the ISP’s network had returned to just below normal one week after the block was put in place. Should we all be surprised by this? Of course not. Stopping Internet users in the UK from accessing TPB won’t stop them file sharing. What will stop them file sharing is if ISPs blocked access to all file sharing services. Interestingly enough, most ISPs’ customer-use policies make it clear that the Internet service provided should not be used to infringe copyright. In fact, the usage policy usually forms part of a contract, and therefore any breach of this contract should result in the customer’s account being terminated. Such a scenario never happens. Continue reading
An often repeated conclusion at this year’s MIDEM conference, as well as in subsequent news reports on the state of the music industry, was that digital music services have so far failed. Digital sales are still not offsetting the decline in physical sales, they have not managed to maintain the format replacement cycle and they are not competing with piracy.
It is certainly fair to say that the music industry is having a very rough time and digital is not proving to be the saviour that many thought it would be. But should we really expect any other conclusion? Have digital services failed or have we just set the bar way too high? Continue reading
Rock and TV star Gene Simmons told the TV industry that branding is everything and it needs to better embrace that. In a conference session at the MIPCOM TV market in Cannes hosted by Infoma Telecoms & Media’s Peter White, Simmons said the TV business needed ‘a kick in the pants’ and ‘needs to get sleeker and hipper.’ Informa is the publisher of Music & Copyright.
Simmons was in town to celebrate his A&E reality series Gene Simmons Family Jewels hitting the 100 episode mark and in a keynote address, he spoke to delegates about how he had built the brand of his rock ban KISS and built the TV show from a special to a long-running series.
“It’s your professional duty to make sure your brand spreads,” he told delegates. “I would rather be Disney than Sony, Lionsgate or Paramount – brands mean everything.”
A&E Network and BIO president and GM Bob DeBitetto explained how the Gene Simmons show had been used to build the A&E brand as it repositioned itself from ‘PBS with commercials’ to a more mainstream entertainment offering.
“We always look for shows that can help us differentiate ourselves,” he said. “When I saw the special with Gene it struck me how different it was – there was something unexpected about a rock star who is also a phenomenal family guy. At that time we were trying to reinvent A&E with programmes that surprised people. [KISS and Gene Simmons] were a bigger brand than we were and I thought why not try and get next to that.”
Simmons went on to say that KISS was the pioneering brand in exploiting the brand across all available platforms and that rights owners should heed the lessons of the music business and protect their intellectual property at every turn.
“Be litigious,” he advised delegates. “Sue everybody, take their houses, their cars. The music industry was asleep at the wheel and didn’t have the balls to sue every freckle-faced kid who downloaded tracks.”
If you want to hear what Simmons said then watch the interview in full.
France is one of a small number of countries that have recently experienced dramatic turnarounds in music sales after several years of sharp declines. According to trade association Syndicat National de l’Edition Phonographique (SNEP), the reversal in fortune began in the second half of last year and continued into the first six months of this year. Total trade revenue from recorded-music sales was up 4.1%, to €239.3 million (US$318.4 million), compared with €229.9 million in 1H09.
At this time last year, SNEP was reporting a different picture, with total trade revenues down a whopping 17.8% year-on-year in 1H09. The dramatic improvement is considered by many to have been the result of the publicity surrounding the passage of tougher legislation to control file sharing. The French body HADOPI, which is coordinating the three-strikes antipiracy measures, has undertaken a public-awareness campaign to explain how the process will work and is thought to have already started contacting ISPs to get hold of the identities of suspected file sharers.
But a comparison of the 1H10 figures with the 1Q10 figures SNEP published in May suggests that the turnaround might not be as pronounced as it seems. According to SNEP, trade revenues from physical-album sales were down 2% year-on-year in 1H10, to €169.8 million. But in 1Q10, physical-album sales were up 4% year-on-year. This suggests that in 2Q10, physical-album sales were down about 8% year-on-year.
For hard-format music videos, much of the 53.2% growth seen in 1H10 came in the second quarter. Music & Copyright has calculated that music-video sales were up about 150% year-on-year in 2Q10. SNEP said that the high growth was largely due to strong sales of U2’s U2 360° At the Rose Bowl DVD and music-DVD releases by French-Canadian artist Mylene Farmer and local artist Johnny Hallyday. Overall physical-trade revenues were up 2.5% year-on-year in 1H10, and 1Q10 revenues alone were up 4.3%. This suggests that in 2Q10, overall physical trade revenues were flat year-on-year.
Breaking down the half-year figures by quarter raises serious questions about the digital sector. According to SNEP, Internet download sales were up 30.3% year-on-year in 1H10, and online singles accounted for the largest share of overall digital sales. But in the first quarter, year-on-year growth of online sales was much higher, at 50.5%. This means growth slowed considerably in the second quarter, to just 14%. Most concerning, however, is the overall digital figure. SNEP said that total digital sales were up 12% year-on-year in 1H10, to €42.9 million. But for the first quarter, year-on-year growth was 28.7%, to €23.1 million. This means that digital sales in the second quarter totaled €19.8 million, equivalent to a year-on-year fall of almost 3% and a quarter-on-quarter drop of 14%.
It is still too early to assess how tough legal action is affecting file-sharing, but the French music industry must be concerned that the quick turnaround in recorded-music sales could be coming to an equally abrupt end. French music-sales figures for 3Q10 might be buoyed by the action by HADOPI . But if further evidence emerges that the French music market is weakening, the link between tougher legislation and rising music sales might seem much less strong.
If ever there was a perfect example of a new business model failing to achieve in the real world what looked so good on paper it is the subscription model of music consumption. Gaining access to all of the world’s music for the price of an album (plus a few extra bells and whistles) is a business model that has all the credentials to succeed but has so far failed to deliver.
To begin with, subscription download services attempted to promote their worth on the premise that they could provide access to millions of music tracks instantly. Consumers could download an unlimited number of tracks for a fixed fee. But the services failed to deal with consumer concerns that access to their downloads would be lost once their subscription lapsed. Subscriber numbers to such services, such as Rhapsody and Napster remain low. This is despite the fact that their service offering compares very favorably with other digital music services. Napster, for example, has now evolved from a subscription download service to one that offers a range of options. For example, in the UK it now offers three tiers that allow for unlimited streaming of approximately 10 million tracks but also includes a number of track downloads to keep depending on the subscription tier taken.
But it remains in the shadows of Spotify, which continues to attract significant media attention in the countries it operates. Spotify recently introduced a new lower-priced tier in all its seven European markets. For £4.99/€4.99, subscribers are provided with streamed music with no advertising but at a lower bit rate than the most expensive tier. Mobile access is also not offered and there is no offline facility. However, the new price brings Spotify into line with its main UK competitors. We7 added a £4.99 option to its advertising-supported service at the beginning of this year and Sky Songs, the subscription service from UK broadcaster BSkyB, quietly lowered its pricing to £4.99 in March.
The premium price point in the UK for PC-only streaming is clearly settling at around £5 per month with PC and mobile access at around £10. While the rollout and level of consumer interest in streaming in the UK is certainly not a blueprint for the rest of Europe, the popularity of music shown through high per capita spending in the country suggests that the UK is a market which will provide a good indication of the likely future success of music subscriptions.
At the moment, UK consumers favor the music-to-own model. According to “Evolution of Digital Media”, a survey conducted by OpinionMatters for the technology manufacturer Hewlett Packard (HP), 73.3% of those surveyed (respondents were aged 16 years and over) said they could not envisage a time when they would shift their consumption of music totally to a subscription model. However, 14.8% of respondents said they could envisage making a full switch to subscriptions within five years. If that actually happened, that would mean close to six million people in the UK would be using a subscription music service. If they were paying £5 per month, total annual retail revenues would be around £350 million. Compare this with subscription trade revenues in the UK last year, which totaled about £12 million, with advertising supported service revenues contributing a further £8 million.
Precise interpretations of these findings are, of course, very speculative at best, particularly as they are based on a very small sample of the UK population. Moreover, the survey contained no details on how much respondents would be prepared to pay for a subscription service and why the majority of respondents would not entertain using subscription services at all. The findings of a separate report, published by the law firm Wiggin and Entertainment Media Research, suggested a significant number of consumers would be willing to sign up to a subscription service if it was priced between £3.00 and £3.50. However, even at this lower rate, subscription revenues would generate in the region of £210 million to £250 million a year.
Is this going to happen? Probably not. Opinions given in surveys may provide an interesting and sometimes illuminating snapshot of consumer behavior at any one time, but, like subscription services, their findings look good only on paper. However, there is one factor that could affect the subscription success. Apple is rumored to be launching a subscription service and will make an announcement to that effect at its World Wide Developer Conference later this month. Prior to Apple’s launch of iTunes, a-la-carte downloading was almost as unpopular as subscription services are today (anyone remember MyCokeMusic?). Apple has subsequently become dominant in digital music retailing and its entry into music subscriptions could have the same effect. Watch this space.
There is little correlation between the level of development of an online music market and the number and type of services available. For example, Hungary, which has a weak online music market, has only a few services, but two of them are subscription services, which are considered a newer business model. The number of services in a country also reveals little about the maturity or value of a market. Brazil has over 20 music services but is still a small online music market.
The three most developed online music markets – those in the UK, the US and Japan – all look very different regarding the availability of services. In Japan, over 90% of music services are a la carte, with few subscription services. In the US, two-thirds of services are a la carte and one-third are subscription. Many of the subscription services launched in 2009, but some, such as Rhapsody and Pandora, have been established for several years. The UK has the most diverse music market of the three, with a la carte, ad-funded streaming, bundled and subscription services available. However, the majority of all services are still a la carte.
There is no clear development path whereby as a market matures new services of one type are launched. This is probably because of the national differences in royalties and the strategies of the four major music labels, which do not have a blanket digital policy. Europe is likely to see some homogeneity in the near future as the European Union attempts to make it easier for providers to get Pan-European licenses.
A la carte services dominate
Globally, a la carte is the dominant business model for music services. For Japan and Belgium, over 90% of music services are a la carte. The countries with the lowest proportion of a la carte services are Spain, Poland and Hungary. Single tracks cost close to US$0.99 for most services. In several European countries, this is the lowest price that can be paid for a single track. In the UK, where several new entrants are large companies from other industries, some tracks cost only US$0.46.
South Korea and Russia are the countries in which single track cost the least: between US$0.11 and US$0.52 in South Korea and between US$0.28 and US$0.79 in Russia.
Album prices range between just over US$6 in Russia and more than US$30 in the Netherlands. The most common low price for albums is between US$7 and US$8. There is no single price point for which the majority of albums can be bought for globally.
No homogenous price for subscription services
Subscription services are the second-most-popular service type in many countries. France has the largest number of subscription services relative to total available services, while the US has the largest number of subscription services overall.
In contrast to Japan, where a la carte is the prevalent business model, over half of South Korean online music services are subscription-based. These services offer prices between US$2.18 for 40 songs to just under US$27 for unlimited downloading.
With the publicity that has surrounded it, it is often assumed that Spotify has set the de facto price for music-subscription services, at €9.99 (US$13.50). And although it might be true that some new entrants have copied that price, there is still a real divergence in pricing across this market segment (see fig. 4). Cost of a subscription to streaming services in the US varies from US$3 for ad-free use of Grooveshark and US$5 for unlimited streaming from Napster to US$15 for MOG’s premium service, which includes streaming to the mobile phone.
In the countries where it is available, eMusic’s premium service, US$29.79 in Europe and US$24.99 in the US, is the most expensive. In countries where both are present, eMusic’s €11.99-a-month basic package is more expensive than Spotify’s Premium service.
Bundles and ad-funded streaming yet to make an impact
With services including TDC Play and Touchdiva, Denmark has the highest percentage of bundled music services in countries tracked. With only two services, it is far from being the dominant business model, and few are likely to want to compete with the established TDC service.
Despite TDC Play’s success, bundling a music service with a broadband service is something only a few other operators have done. Part of the reason for this is music labels’ reluctance to allow operators in larger markets to provide a similar service. In the UK, Virgin announced it would offer an unlimited service, but it has failed to bring the service to market a year after the announcement. Telefonica is among the few other incumbents to offer a music service that is bundled with its broadband service, though it also offers the service to nonsubscribers.
Nokia’s Comes With Music service is the only bundled service from a mobile phone vendor. Despite the service’s mixed success, Nokia continues to introduce it in new countries. Other handset vendors are unlikely to follow, but some PC vendors, through partnerships, are launching similar services in 2010.
In the countries tracked, there are only seven pure ad-funded streaming services. Weakened ad spending and the inclusion by established providers are the two key factors. Spain and France have the highest prevalence of ad-funded-only streaming services. But one of Spain’s largest players, Yes.fm, had to close its service because it found that ad revenues could not cover royalty payments. It has since re-launched as an ad-funded service with a subscription tier available.
The world is just emerging from one of the worst recessions in history and many countries around the world are only just starting to record economic growth. Despite this, 2009 may be the year recorded music sales started to turn a corner. The question many are asking is, what part has tougher legal played in the turnaround?
The global trade association the IFPI has published figures on the global music industry. Unsurprisingly, physical sales were down and digital sales were up. Digital is not yet compensating for the physical decline so the overall recorded music sales figure was down, by just over 7%. But this year’s report included details of quite a few countries that registered growth in 2009 compared with 2008, 13 to be precise. In six of these, growth in digital sales more than offset the fall in physical sales. In Brazil and Sweden, the sales improvement has been achieved by a rise in physical as well as digital sales.
The Swedish effect
Much has been written of the return to growth by Sweden. Earlier this year the local Swedish IFPI association said that the trade value of recorded-music sales increased 10.2% year-on-year in 2009, to SEK861.4 million, marking the first rise in the trade value of sales since 2000. Although the trade value of digital sales almost doubled, physical-album shipments rose by 7.6%. Extensive media coverage of the implementation of the IPRED law at the beginning of April, which allows rights holders to gain access to an infringing subscriber’s identity details, as well as coverage of legal action against the creators of The Pirate Bay torrent tracker site earlier in the year are thought to have been the main reasons for music sales growth. A GfK study in June last year found that 60% of file sharers had stopped using peer-to-peer networks.
Similar evidence of legal action changing file sharers’ attitudes is evident in France. The publicity surrounding the HADOPI legislation, which allows for the sending of warning letters to Internet users that infringe copyrights, was fairly intense in the second half of last year, a period that also saw a rise in the trade value of music sales. Although the trade value for the full year fell by 3.2% compared with 2008, for the final six months of the year the trade value actually increased by 9.3% compared with the same period in 2008. A similar pattern of growth continued in the first three months of this year with the local trade association SNEP reporting a rise in both physical and digital sales compared with the same period of 2009.
Some doubt over the effectiveness of HADOPI was cast by a study conducted by researchers at the University of Rennes which found that illegal downloading has grown by 3%. The study also found that of the 2,000 Internet users surveyed in Brittany, 5% had stopped file sharing, but 10% had switched from P2P to alternative methods of illegal downloading. The IFPI dismissed the study this as “nonsense” as it was conducted before any warning letters had been sent out.
The evidence grows
In the cases of France and Sweden, most would agree that it is too early to hail tougher legislation as the music industry’s panacea and 2010 results will probably present more compelling evidence. But there are several more countries that have also seen improvements in sales following a move to more rigorous intellectual property enforcement. IFPI sales figures for South Korea in 2009 and 2008 show large sales increases coinciding with the introduction of tough new laws. While South Korea still has some way to go before it reaches the peak year of 1996, when retail sales totaled Won415.6 billion, last year’s sales figure of Won364.3 billion is a significant move closer.
Some countries have experienced a slowing in the levels of falling sales with no new national legislation. For example, Germany has consistently stated that it would not impose any graduated response system to combat file sharing. But German rights holders do have some recourse to protect their intellectual property. To begin with a warning letter is sent to an Internet user identified as infringing copyright. The offender is invited to sign a cease & desist letter and to pay compensation. If there is no agreement on a settlement, the issue is then taken to court. Is it a coincidence that the decline in the trade value of recorded music sales in Germany has slowed at the same time local rights holders have been sending out warning letters? It would appear not. The German trade association the BVMI has recently presented details of a study on the level of file sharing in Germany, which shows it declined last year.
Unpopular in some circles as this may be, there is growing evidence that legislation is having an effect on the attitudes of file sharers. New examples are emerging that illustrate an improvement in music sales following the introduction of tougher measures to control copyright infringement. Although some countries are closing in on the point where sales can’t fall anymore and growing investment in new digital services is leading to increased user interest, it would appear that legislation is the answer, in the short term at least. Do you agree?