Combating Music Piracy

Combating Music Piracy

Revenue losses due to digital piracy continue to be a major concern for the music industry. However, this is not the only “free” music related issue affecting the market. Free to consumer, ad-supported services are also disrupting the conventional digital music monetization model. While these services do generate some revenue, in contrast to piracy which does not provide any remuneration to industry players, these revenues are not sufficient to replace those lost to decreasing track and album sales.

Online music piracy is going off-network. Over the past few years, an increasing number of consumers have opted for non-network alternatives to P2P file sharing, such as instant messaging (IM), email, music blogs, forums, file storage sites, and binary groups. Part of their motivation may be to evade industry policing of P2P networks, it is much more problematic to monitor personal communication channels such as IM and email. Remote storage services like RapidShare and Megaupload also gained traction before its demise. While none of these alternatives are as convenient as P2P networks for sharing large numbers of files, they illustrate the consumption led era of the music business.

Piracy continues to have a sizable impact on the digital music industry. According to IFPI estimates, as of 2008 more than 40 billion music files had been downloaded without the consent of the copyrights holder. This is up from 20 billion just two years earlier. Online piracy currently accounts for almost 24% of global Internet traffic. Although piracy is not the sole factor leading to the stagnation of digital music sales, illegal downloads are a major contributing factor in the fall from 91% annual growth in digital revenues in 2006 to the comparatively sluggish 6% growth over 2010

Combating music piracy requires a multilayered approach. File sharing can’t be defeated through enforcement alone. Enforcement and legislation are necessary cogs in the wheel, consumers need to know the rules and that there are consequences for breaking them, but the stick will only work with a big fat carrot and with cooperation across the value chain. ISPs clearly have a major role to play; in the UK, the labels and ISPs are working more closely together than elsewhere. The ISP’s role should be that of business partner, not just enforcer. Just 38% of the digital music executives we interviewed for this report believe that ISPs should be responsible for the traffic on their networks.

Piracy is a worldwide problem, affecting some markets more than others. Brazil and Spain are among the worst national markets with regard to the unauthorized distribution and exchange of digital media. It is estimated that in 2010, 45% of Brazilian Internet users and 44% of Internet users in Spain accessed unlicensed services. Collectively, in the five largest European markets, i.e., France, Germany, Italy, Spain and the U.K., 23% of active internet users accessed an unlicensed site in 2010. Piracy affects everyone in the music ecosystem from the major labels and small Independent music producers to the artists and songwriters themselves. Among those most affected are new artists who are finding it increasingly difficult to convince labels, leery of rampant piracy and low on cash investments for new talent, to sign and promote them. This is especially true in markets like Spain where the introduction or promotion of new native artists has either slowed to a trickle or abated completely. Debut album sales overall have declined markedly over the past several years, falling 77% from 2003 to 2010.

File Sharing Will Not Be Eradicated The impact of illegal file sharing is pervasive: research suggests that 41 percent of Web-based audio listeners file share, as do 35 percent of digital music buyers. Continued industry-led legal action against file sharers will not stem the problem on a pan-European basis, and peer-to-peer (P2P) usage will only modestly decline over the next few years.

Our research and conversations suggest that the expectations of music industry executives are realistic: Just 17 percent believe file sharing can be eradicated. P2P networks have successfully engaged digital music fans, particularly young ones, in a way in which paid digital services have not.

Next week we discuss how the industry has changed and needs to change and how Nowtrax are helping you solve these problems.

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