LONDON, UK (IFPI)
22 January 2005
Good Morning
This morning you find me in an ebullient mood. I have just learned that the Chinese New Year is only 18 days away and it is the year of the Rooster.
This is my first speech as Chairman/CEO of IFPI and, by fortunate coincidence for me, in the year of the Rooster apparently traditionally record sales explode, all teenagers start downloading legally, governments extend copyright periods and pirates say: you know what, the game is up - can we go legitimate!
Now that's what you call the luck of the Irish.
So here we are in 2005, in the online world. Well, one thing is for sure the world looks nothing like all those great forecasters were predicting that it would look like.
However it is positive. The legal digital market is alive and kicking. Really kicking. We have just left behind a Christmas where there would have been tears around the Christmas tree if a present was unwrapped and did not reveal an I-pod. The tears could have been from a 14 year old, a 40 year old or even a 60 year old.
I have said many times over the last few years that more music is being consumed than ever before but the desire for ownership of the I-pod shows just how central music consumption is to everyday life.
And, to go with the I-pod and similar devices, we now have a plethora of online legal music services.
There really is no doubt that it is as easy to buy music online as it is to steal it - subject, of course, to the important matter of payment. And for those who used an absence of great online music services as an excuse to steal, there is simply no excuse any more. There is no smoke any more. No longer can illegal file sharers claim they are Robin Hood sharing great music amongst those who otherwise could not get it online.
In 2004 the landscape changed and it will change further in 2005. "Free" is, and remains, an attractive marketing concept, but in the context of illegal file sharing it is simply illegal and wrong.
There are 230 online sites offering over a million songs and not just availability. Value for money.
Commentators have often claimed music is overpriced, but 99 US cents or euro cents, or 78p! For the price of a cup of coffee, a loaf of bread, a bus fare or a can of Coke, your own personal work of art for you to own for life. With an acknowledgement to the great English author J B Priestley, I say those who say music is expensive for what it is would describe a violin as wood and catgut, and Hamlet as paper and ink.
If you download music you will still be enjoying it in 5 years or 10 years or even 20 years. You will take it with you when you leave home, go to college, get married, move home again and when, more mundanely, you sit on the bus or plane or train. You will even play it to your kids to try and convert them to Hendrix or the Stones or Green Day or Britney or Busted. You may even play it to your grandchildren!
And, just as they should, a new generation has defined new ways of consuming music. To the horror of music aficionados, some kids prefer their music as a ringtone. In London in stores you can buy the ringtone for �2.99 or the physical CD with the full length track for �1.99.
Yes, 2004 was the year when international litigation against heavy uploaders on the internet commenced. Of course it was controversial. Not popular with everyone but necessary. It is not something that any of us relish, but it became unavoidable. Legal alternatives will always struggle to compete with free.
As I have said before, we must be the nicest litigators in the world. For years, we sat back while our music was wantonly stolen. Then we embarked on a campaign to make sure as many people as possible knew that it is illegal to make music available on the internet without permission, why it is wrong and how it affected the jobs and livelihoods of people working across the industry. We spoke frequently in the media about it, we took out adverts and we sent brochures to companies, colleges and to Government departments. We sent instant messages online to many who we knew were likely targets for proceedings. We held press conferences to say we were going to take proceedings, and many simply ignored us. We tried to educate, we tried to raise awareness and then, only as a last resort did we commence proceedings - and only then against the worst offenders.
Even then, we sent letters before taking action, trying to settle as soon as possible rather than go to the court. We never took people's computers, even though that was one suggestion.
None of this makes us feel wonderful. We would rather proceedings were not necessary, but we know only too well that the problem will not go away of its own accord.
Around the world, the people sued come from all walks of life. Yes, there was a twelve year old girl in America, there were teachers, there was a managing director, there was a nurse, an architecture student, a musicology student, a mechanical engineer, a chef, a computer specialist and many more. These are not just students. We didn't choose these people. They chose themselves, by the extent of their uploading.
And yes, eventually some people have had to pay substantial damages. It doesn't give me any pleasure to say that it was a painful experience emotionally and financially for those people. Money that they had saved for something else had to be paid in court costs and damages. They regretted ignoring all the warnings. I hope they will tell their friends of their experiences. Money they paid for court costs could have been used for a new computer, for an iPod, or for a car. It would be much nicer to never collect another penny in damages and court costs, but we are a long way from that scenario. For the moment, litigation is here to stay. If any individual wants to ensure that the money they have saved for a trip around the world, or for a new kitchen, or just for some new clothes, stays with them, then it is very simple. All they have to do is consume their music legally. Is that really too much to ask?
We owe it to producers, artists, composers, retailers and to those employed by the music industry to do what we can to combat online piracy. Of course there were many that criticised the litigation, and some were even music producers and artists. Far from being disappointed by that, I see it as a positive development. It has always taken all sorts to make up the world, and it certainly takes all sorts to make up the music industry. The key to this whole issue is choice. If certain copyright owners are happy to leave their works unprotected, then if they are the sole owners I think that is their prerogative, which gives choice and diversity in the online world.
However, some artists have spoken out clearly. Last month Mars Volta appealed to their fans to ignore pre-release copies of their album and asked fans to remove them from the internet if they could.
It appears there wasn't complete unanimity in the band, as the press release was from their label and "certain members of the band" who said "we think what you are doing is fucked. You should honour the bands wishes and take the songs down. Leaks suck and are an unfortunate evil of the internet. It sucks even more when it's such a bad quality".
If anything, the fact that some choose to protect their copyrights and some do not should strengthen the right of those who choose the route of protection. Legal alternatives are not enough without a deterrent against downloading illegally.
Today's legitimate digital music market is evolving in an extraordinarily adverse climate. It is almost a miracle that it has been able to grow at all. What other business had to break into, and try and sell, its product in a 100% pirate market? So far there have been 7,000 cases around the world. There will be more in 2005, and we look forward to the day when they won't be necessary.
Others could help us make the litigation unnecessary. Who knows, perhaps in the year of the Rooster, internet service providers will do more to address the problem of piracy. Is it really too much to expect that major companies should take steps to prevent their distribution channels from being used for illegal activity? Most service providers say in their terms and conditions that they reserve the right to terminate the service they provide if the account is used for another's copyrighted information ("AOL" couldn't be more specific). If they did, litigation wouldn't be necessary.
Next month we can look forward to the USA Supreme Court considering who bears what responsibility for file sharing. Of course all litigation has risks but at one time it looked like we would not get an opportunity to put our case for the law to be updated. I am optimistic that the Supreme Court will see that many of these networks are not simply used occasionally for illegal purposes. Their predominant purpose is infringing use.
In 2005 I believe a lot of attention will be given to filtering. It is apparently possible to filter out unauthorised tracks. As 2005 unfolds again is it too much to expect that service providers will use this technology to help stop illegal activity?
For years the music business has been accused of standing in the way of technological progress. Of course, I say that's not fair but now all those advocates of technological progress have a tool that could be used for the greater good of a creative industry. And let me be really ambitious. Given that filtering is possible, how about legislation like the planned but not implemented Induce Act in the USA to encourage the use of filtering?
Choice
Amongst such an impressive group of people as this audience I shouldn't have to speak up in favour of copyright but, just in case, I will. Over the last five years, for some, copyright protection has become a dirty, alien or Jurassic kind of concept, and even an inhibitor of technological progress. In particular the Creative Commons Movement has strong views on copyright.
I can well understand that when the concept of copyright was first introduced it may have been a difficult concept for many. An intangible non-visible piece of property is quite something to get your head around, but our ancestors fortunately showed vision. They understood that the concept of copyright and its protection create the right environment for creativity and the investment of time and money in innovation. It's always good to invent things, and there is certainly an altruistic reward in doing so, but such is human nature that innovation is fostered even more by an opportunity to own the results of such innovation - and to benefit financially from the fruits of the labour.
Our ancestors showed a vision, but nowadays, as Tom Giovanetti reminded us in the Washington Times, "An increasing number of workers and investors are finding a home in the innovative and creative professions. It's called the Information Economy"
More and more of the traditional manufacturing jobs are being sourced outside the USA and Europe, and so these economies are relying on the Information Economy, or the knowledge economy, for employment, prosperity and economic growth. When you look around the world and find places where there is no reward for innovation because of unfettered piracy you find that innovation fades very quickly. Copyright industries now represent 5.3% of Europe's GDP and this is growing each year. The percentages for the USA and Australia are similar. Governments realise how important those industries are and are reminded that, without proper IP protection, no creative business can exist, let alone prosper.
Of course there are movements that are opposed to that protection, and you know to an extent, that is OK. But there is no need for these people to take a totalitarian approach. These people, that movement, their supporters, are completely free to waive the protection that they are entitled to for their innovation. I take my hat off to them. I try to give to charity. They give to society and their innovation is for the public good. Full credit to them, but why do they have to be evangelical in attacking those who want to benefit from their innovation? It takes all sorts to make the world go round. LET IT BE that way. For those who want protection for what they create, it must be there. For those who don't unless they have a partner, they can forgo their protection. What could be simpler than that?
As 2004 ended, we saw the welcome news that Sean Fanning was back with a new legitimate business model. He with Snocap and Wayne Rosso with Mashboxx believe they can deliver utopia ie, the monetisation of peer to peer file sharing. If they are right then it is time to buy record company stock in large quantities.
So if I was an investor in music company shares, would I currently be a buyer or a seller?
Well let's look where we are three weeks into 2005.
My predecessor said that the music business had run into the Perfect Storm. Well, we may not yet have found a safe haven, and after 26 years in the music business I know that there will always be new problems around the corner. But I do know that we will make it to the shore and in good shape. In particular we are ready, willing and able to maximise the opportunities presented by digital exploitation.
Some spoke in 2004 about the industry having turned the corner. Maybe they were a bit too optimistic. USA physical sales were up but we don't yet have the full international picture - but it certainly will be much less gloomy than in recent years. My guess is that there will be no fall in sales in 2004 if you take digital revenues into account.
However, while it seems likely that physical sales have bottomed out, I don't know whether there is much hope for real growth in the short term in the physical world. But those academics among you should go and look at the predictions that were made in the late 90's about where the physical market would be now. A part of history, was the prediction. CD factories would only be museums, and so called bricks and mortar music retailers would no longer exist!
Well, the physical market has proved more resilient than was expected.
Until now the digital non-physical market had not fulfilled expectations. But under any analysis it exploded into life in 2004. Let's consider some facts:
10 million iPods in the market
A $99 iPod to be launched in 2005
230 million tracks sold with iTunes
$330 million of global digital revenues, according to Jupiter
One billion dollars of digital revenue in Japan
In 2004 download single track sales in the USA exceeded 135 million tracks. We have to go back 8 years in the USA market to find a year when single sales exceeded 100 million units
Sean Fanning's attempt with Snocap to monetise P to P file sharing
In 2004 Napster, once the scourge of the music industry, achieved more than $35 million in digital revenues
iTunes recently announced it was globally selling 1.25 million recordings a day suggesting an annualised revenue of half a billion dollars and that's before the $99 shuffle iPod.
One of the biggest problems with teenage (and younger) consumption on line was the obvious absence of credit cards but Apple last week said the success of the pre paid download cards was exceeding their expectations. And gift certificates have played their part as well.
Last, but by no means least, many predict that 50% of mobile content premium revenues will be from music.
It's only fair to say I don't think all of this success is just because I have taken over at IFPI - Steve Jobs should get some of the credit as well.
But that's a pretty good end of term report for the industry.
There is no doubt that the future growth for the industry is coming in the non-physical world.
Revenues from public performance and broadcasting income grow incrementally every year.
Increasingly, on a more general basis, record companies will become major licensors as well as manufacturers.
I really don't know whether the non-physical market is a new market or simply another means of distribution in the old market. I don't think it matters much.
Interoperability has to be addressed and we are playing our role in that.
And looking ahead, 2006 will be the year of the Dog. Traditionally it is a year for crusading against tyranny and oppression. What greater cause could there be to champion than music, the only true universal language?
My dear friend the music industry has suffered enough over the last few years. If 2006 is to be the year that suffering ends, then governments and ISP's must start their work now.
And what might the next couple of years hold?
Perhaps by 2006 Sean Fanning's Snocap will be a real force to reckon with. The volume of business referred to by Snocap in their press release would ALONE restore the music industry's fortunes to former glory and some more.
Perhaps in 2006 we will see a billion dollars of digital revenues in China - a bit far fetched? Well China has 290 million mobile phones compared to Japan's 85 million - and Japan already has that billion dollars. Will Chinese consumers be so different from the Japanese? But perhaps 2006 is too soon.
If you looked at the value of the Japanese market in relation to the global market, and extrapolated their digital revenues around the world, then you could add $5 billion to the industry's global revenues. Then you could add that $1 billion in China - but that one should really on a proper extrapolation have been $3 billion - and even then there are many more people among that one billion population who are aspiring to own mobile phones. Certainly it is unlikely that the CD will be the bedrock of the Chinese industry - to all intents and purposes the Chinese industry may skip the CD
And what of the USA - that small country has a mere 128 million cellphone users, but as it has a healthy online download market perhaps their $1 billion of annual digital music revenues will be achieved in 2007 - the year of the Boar.
So yes, the threat really is now the opportunity.
The prosperity of the music industry lies in ubiquity of music.
Any music, anywhere, on any device, on any format, for any consumer at any time - just as long as it is properly paid for.
Yes - again - the threat really is now the opportunity.
Thank you for listening.
