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Short-sightedness in face of digital revolution will cost music industry

LONDON - That is the stark conclusion facing the recorded music industry as research published today predicts a 0.6% slump in all global music sales 2008-2012.

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Timing, they say, is everything. It may have been luck or great planning when management consultant PricewaterhouseCoopers decided to publish its global view of the entertainment and media industry. Just before, a new study in the UK revealed that the average teenager's iPod contains 800 illegally downloaded music tracks. The confluence of these two pieces of research isn't without its significance.

In one of the most extensive reviews of the global entertainment and media market for 2008-2012, PWC predicts that spending on all forms of recorded music -- from physical formats through to digital distribution on mobile phones -- will continue to fall from $33.4bn in 2007 to $32.5bn in 2012, representing a 0.6% compound annual decline over the next four years.

The greatest falls will be felt in the US where it will decline by 5.3%, followed by EMEA where it will drop by 1.5%, although there will be slight increase in sales in Latin America and Asia Pacific where broadband penetration per household still has to pick up pace and where mobile downloading (known in the industry as "side loading") is still in its infancy.

With the exception of recorded music, PWC's research indicates that all other categories of the entertainment and media marketplace -- internet, TV, radio, movies, publishing, theme parks, gambling and sports -- will continue to expand over the next five years. Across virtually every sector, the authors claim, growth is driven by the rising value of online and mobile opportunities, with a cumulative effect of increasing the size of the entertainment and media market by 6.6%, worth an estimated $2.2 trillion in 2012, up from $1.59 trillion in 2007.

Nick George, director of strategy at PWC and one of the report's authors, said: "Global record labels now face their toughest challenge yet as the pressure builds on them over the next four years to diversify into new revenue streams and away from traditional recorded music sales."

A combination of factors has conspired to bring about this slump -- discounting of CDs through supermarkets, slicing and dicing of the market through selected download purchases of single tracks rather than entire albums and the relative short sightedness of the music industry to embrace the digital revolution as well as effectively combating digital piracy.

In the UK, illegal copying in some form is undertaken by a staggering 96% of 18- to 24-year-olds, falling to 89% of 14- to 17-year-olds, according to researchers at the University of Hertfordshire. Nearly 75% of youngsters copy CDs from their friends and similar proportions share songs by email and copy all the music held on another person's hard drive, acquiring 100,00 tracks in one go.

Some in the music industry, such as British Music Rights, argue for tougher legal sanctions as a deterrent. But it's unlikely the government will want to clog up the over-stretched court system with youngsters simply wanting to have a good time by listening and sharing music with their mates.

Instead, the music industry has to make their new download services attractive to consumers so that they feel uninhibited to pay a modest subscription fee in order to keep the right side of the law.

But this is the least of the recorded music industry's woes.

The crunch now is whether those labels, such as EMI, have the right vision and people in place to take advantage of emerging opportunities presented by the networked generation.

George warned: "Although recorded music represents just 2% of the global entertainment and media market, it's an important bellwether for changes that are very likely to be felt in other industry segments, such as movies and electronic games."

Paradoxically, according to the report's authors, the consumption of music and our exposure to it will increase over the next four years and beyond -- so record labels must diversify away from the old business model of recorded music sales or face the prospect of almost certain extinction.

George said: "I would expect digital sales, synch licensing, brand partnerships and other more vibrant and innovative forms of music exploitation, such as tours and events, to overtake physical record sales as revenue streams for rights holders in the future."

The full report, Global Entertainment and Media Outlook: 2008-2012 forecasts and economic analyses of 15 industry segments is available from www.pwc.com/outlook

Ardi Kolah is a global marketing and brand partnership consultant and author of Sponsorship Works: A Brand Marketer's Casebook, published by SportBusiness (www.sportbusiness.com). He can be contacted on +44 (0)207 323 1587 ardi@kolah.com

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