Ahead Of World Music Day, IBISWorld Reports On Downloads, Digital Music And The Changing Face Of The Music Industry LOS ANGELES, June 19
LOS ANGELES, June 19 /PRNewswire/ -- According to IBISWorld, Inc.,
(http://www.ibisworld.com), one of the nation's most respected independent
publishers of business intelligence research, while many recording artists are
embracing the digital revolution that is sweeping the music industry, their
record labels are looking at tough times ahead with poor profits and no sure
strategy to counter the rising popularity of downloads and ring-tones over the
humble CD.
"While consumers are slowly shifting from piracy to making legitimate
music purchases online," IBISWorld Senior Analyst Mr. George Van Horn
maintains "digital downloads are still robbing the music industry of valuable
revenue.
"The tables, or should I say 'turn-tables' have changed, on a global
scale, with digital music sales now generating around $2 billion in revenue,
with tracks available through 500 online services located in 40 countries,
representing around 10 percent of the total global music market," said Mr. Van
Horn. "And we expect that will rise to 25 percent market share within three
years."
One of the major trends in the industry over the next five years will be
growth in legitimate downloads outpacing growth of the illegal variety.
"We expect illegal downloads will reach a tipping point, beyond which,
further growth will be difficult. Around the world in 2006, an estimated five
billion songs, equating to 38,000 years in music were swapped on peer-to-peer
websites, while 509 million were purchased online," said Mr. Van Horn. "And
while the piracy numbers are overwhelming, it points to the fact that some
users are gorging on illegal music rather than listening to it. As online
music becomes more readily available, and more affordable, we'll see an
increasing number of music fans indulging in legitimate downloading, attracted
by a legal, quality, guaranteed product.
"There is always a price people will be willing to pay to access something
legally, even when a free illegal option is available. In addition, ongoing
prosecution of illegal sites is slowly turning the tide and driving more
listeners towards legal downloads," said Mr. Van Horn. "As the industry
evolves, it is record labels that are out of step with the latest technology
trends, and it's hurting their bottom line in a major way.
"Having initially fought downloading, rather than looking at ways of
legally exploiting and profiting from it, record labels are now finding
themselves playing catch up," said Mr. Van Horn.
Digital Technology Helped Artist Go Straight To Market With Their Music
"Many artists however, have embraced the new digital environment and are
successfully promoting their work online, reaching new and potentially
lucrative audiences," he said. "Digital technology makes it easier for
artists to dispense with record labels and publishers, to retain the rights to
their own music, and distribute it themselves, and this is particularly true
for unsigned and alternative acts -- the very acts that come out of nowhere,"
added Mr. Van Horn. "The fact that performers make most of their money from
merchandise sales and touring, rather than solely CD sales, also helps protect
them somewhat, compared to the record companies which are suffering some
serious losses.
"America's music industry is entering a particularly challenging phase,
with revenue contracting by 4.6 percent this year to $3.67 billion as the
sector struggles to adapt to the new digital marketplace," said Mr. Van Horn.
IBISWorld believes digitally transferring music online presents both
positive and negative possibilities for the industry. One the one hand,
despite falling revenue from CD and online sales in recent years, overall
demand for music may actually increase as more fans access music by artists
they were previously unaware of -- creating opportunities and possibly
increasing the value of assets held by the industry.
But Mr. Van Horn warned that as more bands and singers attempt to operate
independently of record companies, performance royalties would increasingly
find their way directly to the artists, rather than their publishers.
"The larger players are suffering, as new artists are less inclined to
seek a recording deal, but merely a distribution deal, by which the label will
assist in getting the music to be heard," said Mr. Van Horn. "And since
illegal downloads are not publicized, a new challenge for record companies
lies in identifying which music is popular, discouraging companies from
investing too heavily in music as a promotional tool."
While revenues have been negatively affected by the loss of royalties from
physical recordings, such as CDs and DVDs, and as a result of CD piracy,
digital downloads and file sharing; major players are benefiting from
additional sources of income via the digital exploitation of music in the form
or mobile phone ring-tones.
The American mobile ring-tone market has grown to around 30 percent of the
total of U.S.'s digital music sales. Currently digital sales represent around
18 percent of the U.S. market (10 percent worldwide), with IBISWorld
predicting this to grow beyond 30 percent within five years.
"In fact, by 2013, ring-tone licensing could be one of the industry's
largest revenue streams, as CD sales plummet and downloading revenue remains
below that which CDs once achieved," said Mr. Van Horn. "We expect music
publishers will gain an increasing proportion of their revenue from new
opportunities, many of which will be linked to mobile phones."
But still, the industry's financial future looks bleak. "Potential growth
markets are continually usurped by free services, diminishing the industry's
means of generating future income.
"One notable example is the industry's earlier expectation of deriving
royalty income from streaming music online, however, websites such as MySpace
allow bands to maintain their own sites and stream a selection of music with
no need to pay royalties to anyone," explained Mr. Van Horn.
Though the record industry is working around the clock to devise
strategies to claw back some of its lost revenue, IBISWorld believes many of
its plans to counter the digital format are destined to fail.
"Ideas either mooted or trialed by the industry have included attaching
ring-tones to CDs, and offering ad-based services, where songs are downloaded
from official label sites with pre or post-track advertising and other online
marketing tools," said Mr. Van Horn. "Attaching ring-tones hasn't halted the
decline in CD sales and ad-based services will struggle to succeed since
people will still be able to download music illegally, and without charge,
without ads."
Mobility is another challenge for record companies, as concepts such as
streaming songs from websites, with ads on the page, ignore the fact that
today's consumers want their music to be portable -- they want it on their
iPod.
Social networking sites such as Facebook may offer an opportunity for
record labels, although they will struggle to provide substantial revenue.
So-called '360 deals', such as Madonna's groundbreaking arrangement with
LiveNation -- enabling labels to take a cut of revenue from all activities,
including performance and merchandise in return for greater support and
development -- may become more common, but will only really succeed for
partnerships with really big-name stars.
About IBISWorld
Founded in 1972, IBISWorld provides a unique and extensive online
portfolio of business research and analysis products designed to serve a range
of business, professional service and government organizations. Delivered
through enterprise subscriptions, the company publishes in-depth reports on
more than 700 industries and offers profiles on more than 8,000 U.S.
companies. In addition, the company provides databases of economic analysis,
demographic data, and risk assessment reports relevant to virtually every
business sector. IBISWorld's materials are valued for the breadth and depth of
the research and analysis covering the entire U.S. economy, incorporating both
financial and non-financial information impacting tracked industries and
companies. IBISWorld Business Information is well known for its accuracy,
consistency and timeliness. This is why almost all online information
aggregators seek us out to include our reports as part of their global
databases. Current IBISWorld partners include Hoovers, Valuation Resources,
Superfactory and American Small Business Development Centers. With U.S.
headquarters located in Los Angeles, IBISWorld has offices in New York,
Melbourne, and Sydney. For more information, visit http://www.ibisworld.com
or call 1-800-330-3772.
SOURCE IBISWorld, Inc.
