IFPI: Music CD sales continued sharp decline in 2007

In what could be perceived as a signal of a thaw in relations between the recording industry and digital music technology, this morning's annual report from its chief international representative points to a turnaround in the piracy problem.

In its annual report on the state of the global music industry released this morning, IFPI, the trade representative for the recording industry worldwide, appeared to embrace digital music as the future backbone of the music trade, rather than as a problem that needed to be combated and overcome.

Digital music sales now account for 15% of the worldwide recording industry's revenues, IFPI reported, and 30% of revenues in the US market. Those numbers are climbing at a faster rate than before. US record companies netted $3 billion in revenue last year from digital sales alone, representing 40% growth over the previous year.

Still, that three billion is not a colossal number when you divide it amongst four major players and a handful of smaller ones, each of which continue to perceive digital music as a side market and illegal file trafficking as the dominant player there.

But IFPI is characterizing the digital music revolution as a positive force this time, not a negative one. It is even going so far as to use it as a means of masking or counter-balancing the effect of a 9% slowdown in global CD sales recorded over the first half of 2007, with the second half probably plunging into the cold, cold realm of the double-digits.

And for perhaps the first time, IFPI is seeing the rationale behind a legitimate business model built around digital music, which record companies unto themselves have not yet been able to adequately monetize. Its 2008 report cited Japan as a positive example of one country whose record industry has coalesced with mobile phone service providers to create what IFPI describes as Japan's leading source for personal music entertainment, apparently surpassing radio.

The report describes how the Label Mobile coalition in Japan helped vault to popularity there a local quartet of med students who call themselves GReeeeN. Through promotion by non-traditional means only, GReeeeN was responsible for selling 4 million legal tracks since the release of its first album in May. Then people actually started buying the physical CD -- up to 300,000 copies sold.

While non-traditional promotion is nice to an extent, the report concedes, it may also be part of the problem long-term. In a section devoted to what the industry calls "A&R" (artists and repertoire, with respect to marketing an artist or group and building a library of known songs around it), IFPI cites the fact that the record labels have yet to come up with a way of promoting artists online. In a sense, it goes on to blame that lack of a promotion for the apparent fact that perhaps the labels can't seem to control -- at least for the time being -- which bands are popular and which ones aren't.

"There are more than 1.2 million rock acts and 1.7 million R&B acts alone clamoring for attention on MySpace," states the report. "This overwhelming number of new bands and music available to consumers also highlights one of the key roles for record companies in the digital space. The need for filtering, selection, marketing and recommendation is greater than ever... If artists were to pitch themselves on the Internet without creating an impression elsewhere, they would be highly unlikely to catch the attention of a label A&R expert to give them their break."

So the challenge going forward remains for the record labels to get a handle on the business end of digital music. But this year, IFPI appears to be lifting its "axis of evil"-style metaphor around piracy, no longer pointing to it as the single cause for both the plunge in CD sales and the catalyst of the digital revolution.

Instead, it's pointing to a turnaround in the fight against piracy, and crediting a two-pronged strategy built around takedown notices and choking off P2P sites' access to desired artists. Illegal downloads still increased in the US by 14% last year, according to IFPI, while at the same time its broadband penetration rate increased by 56%.

IFPI cited an NPD survey last November where 39% of those polled stated they couldn't find the songs they were looking for on P2P networks, and 32% felt that search tools for P2P were inadequate. And IFPI's own numbers say that a greater variety of artists could be found through iTunes than through Limewire.

The report quotes the managing director of UK independent record label Pure Mint Recordings as saying, "Copyright law protects all copyright holders, big or small. It's a corner stone of modern civilized society. People should stop attacking it - it's there for the protection of all of us, writers, producers, musicians, playwrights etc., big and small."