High-tech

The music industry

- a revolution that will not be televised

By Bipin Parmar

Introduction

The music industry is of great strategic importance to the European economy as well as numerous technology startups, investors, artists, record companies, media operators, content service providers, site owners, marketing and advertising companies. In the UK alone, the music industry employs over 130,000 people in these various sectors, exports £1.3 billion and contributes £5 billion to the economy.

In this first part of a series looking at new opportunities for both existing and new startups, their investors and partners, we examine the current state of the music industry; in the second part we will look at some of the underlying causes and highlight future trends, challenges and some possible solutions.

Not in good shape

When we examine the current shape of the industry, the picture is not that that pretty. Here's why.

The industry has been polarizing at two ends. At one end we have the large multinationals with their huge buying and negotiating power, distribution and promotion machines. At the other end, there is a plethora of small independent record companies. The five leading recording companies hold a colossal 75 percent market share, while hundreds of independent record companies hold the other 25 percent. The recent merger between Vivendi's music division (previously Seagram) and Universal Music now controls 26 percent of market share, followed by Sony at 14 percent, EMI at 12 percent, Warner at 11 percent and BMG at 11.1 percent.

Clearly, such immense market share by a handful of companies would normally get a lot of attention from the leading authorities, if these companies were located in one particular region. But due to their transnational nature, governments give these companies a wide berth, especially when each of them potentially represents the nation's new flag carriers. This concept is similar to the outdated national flag carriers of the airline industry - so in the music industry we now have a combined French, Canadian, US carrier; a Japanese carrier; a British carrier; an American carrier, and a German carrier.

The picture would not be so bad if these companies were growing and making use of lots of new talents and technology and served a wider marketplace. Unfortunately, the industry has been in terminal decline - well before the arrival of music downloads and online piracy. Online piracy and music downloads have provided a good smokescreen for this industry: it hides some of the basic failures of their current business model, business practice and failure to adapt new market realities.

So here are the basic facts from the industry mouthpiece, the IFPI (International Federation of the Phonographic Industry). Worldwide sales of recorded music declined for yet another year, and fell by 7.6 percent in 2003, according to IFPI . They attribute this decline to file sharing online and physical piracy and free online music downloads.

Sales in Germany fell by 19 percent, while in value terms the decline was a whopping 30 percent since 1999. The story is similar elsewhere in Europe - Denmark, France, Belgium, Greece, Ireland, Portugal, Switzerland, all had double digit declines. Globally, the industry has suffered a 20 percent decline since the year 2000.

Total music sales worldwide were US$32 billion, with unit sales of 2.7 billion. Sales of albums fell by 9.1 percent, sales of singles fell by 18.7 percent; in the UK, the sales of singles declined by a massive 31 percent. The only silver lining behind these figures were sales of music video sales, which increased by 46.6 percent. The US is still the largest market with 37 percent of worldwide share. The UK is number three, and Germany dropped from fourth to fifth position.

In part two, we will examine the underlying issues behind this decline, future trends, and possible solutions.

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© Chilli Publishing Ltd 2004

19APR2004