Music Sales Resumed Decline in 2005

Global music retail revenues fell about 2 percent last year, said John Kennedy, chairman and CEO of the International Federation of the Phonographic Industry. In 2004 they remained flat at $33.6 billion, punctuating a four-year slide.

The new downturn, based on data from three-quarters of the global market, underlined major challenges facing record companies as executives assembled for the music industry's largest European gathering, Midem, which is taking place this week in the French Riviera town of Cannes.

The drop in overall sales came despite a threefold increase in digital music revenue to $1.1 billion from $380 million, while illegal file-sharing volumes changed little, according to a separate IFPI market report published Thursday. The federation sees total sales broadly unchanged in 2006.

Record bosses are now having to look beyond piracy to explain the latest decline in revenues, which have fallen about 20 percent globally since 1999.

"Piracy in all its forms has been the major factor in this reversal but not the only factor," said Eric Nicoli, chairman of EMI Group PLC, the world's No. 3 record company.

Speaking at the MidemNet music technology forum, which preceded the main event, Nicoli also cited tougher competition from other categories of consumer goods.

"Twenty years ago there were no mobile phones, no DVDs, no computer games to speak of," he said. "In categories that did exist, like magazines, cosmetics and designer clothes, we've seen a massive explosion of choice and accessibility to consumers. So no surprise, then, that music sales have come under pressure."

EMI and other record companies are also pressing Apple Computer Inc. to allow more pricing flexibility on its iTunes Music Store, which charges the same rate for any song downloaded 99 cents for U.S. customers. They have argued so far without success that they should be able to charge more for the most sought-after hits.

Apple's iTunes accounts for about 70 percent of U.S. and British online music sales and has significant shares of its 19 other markets. Its popularity is widely credited with halting the growth of piracy, but record companies complain that this has come at the price of a loss of control over their own pricing and marketing.

"One of the biggest mistakes we've made is to hand a monopoly to the retailer," said Alison Wenham, chairman and chief executive of the Association of Independent Music, which represents 800 indie labels.

Some analysts see other reasons for the industry's current woes. "Executives have focused so much of their attention on piracy that they've diverted their efforts from developing new talent," said Phil Leigh of Inside Digital Media, a U.S. market research firm.

Entertainment companies won a series of major court rulings against music piracy in 2005, including a June U.S. Supreme Court decision allowing them sue the file-sharing site Grokster for encouraging copyright infringement. Grokster paid $50 million to settle out of court and closed down the site pending a planned switch to licensed sales.

But anti-piracy laws and their enforcement remain patchy in some parts of the world. Record companies, copyright holders' groups and artists are planning protests during Midem against a French move last month to legalize online file sharing.

In a rebellion by lawmakers from the conservative ruling party, the French parliament approved amendments introducing a so-called "global license" allowing Internet subscribers who pay an extra monthly fee to copy as much music as they like online. The government is seeking the amendments' withdrawal and is expected to announce compromise proposals in coming days.