Five Problems with the IFPI Digital Music Report And three suggestions to help save the major music industry

Last month, the International Federation of the Phonographic Industry (IFPI) released its annual Digital Music Report (PDF), looking back on the year 2009 in digital music. While it did divulge some information on the state of the industry, it read more like a standard press release than a thoroughly-researched report on how the digital medium and the internet has affected the industry. While it comments on small successes, the IFPI fails to acknowledge the various caveats to its successes, making its failures in containing the “piracy problem” all the more catastrophic. Further, in many places, a blatant pro-industry bias is painted for both obvious and non-obvious reasons, removing various facts to spruce up industry morale and to look cute in front of government agencies. In so doing, the IFPI disguises its utter ignorance and arrogance.

In short, every single page could be rebutted from this report, from IFPI CEO’s claim that Lily Allen was attacked by an “abusive mob” of file-sharers to the implicit claim that artists on independent labels (the likes of which now include the Dave Matthews Band and Radiohead) are the “coal miners” of the industry.

However, to rebut every point of the report would take about as many pages, and given the readership of this fine website, it would be a travesty to write up 30 pages of beating up the music industry. Instead, we at Tiny Mix Tapes will present five fundamental problems with the Digital Music Report, as well as three simple suggestions to help restore the industry.


1. Digital Distribution: No Real “Progress”

The IFPI marks significant “progress” in the development of digital distribution, with digital channels accounting for 27% of the industry’s revenues. This includes sales for not only simple downloads from music stores such as iTunes, but also downloads to mobile phones, ringtones, and ringback tones (the latter being what you hear while you are waiting for your friend to pick up the phone). This is indeed significant progress from when the IFPI first began the Digital Music Report in 2004.

Except that is not when digital music actually began to develop.

The first mainstream MP3 program, Nullsoft’s WinAmp, was made public in April 1997. The first significant online music service, the legal, was online November 1997, with the first online store (the lesser-known Cductive) appearing online in 1996. The first mass-produced MP3 players, the MPMan F10 and Diamond Rio PMP300, were released in Summer 1998. All of this happened before the legendary Napster went online in June 1999.

For the IFPI to claim this 27% stake to be “progress,” it would have to deny the existence and relevance of the internet prior to April 2003, which was when the industry-backed iTunes Music Store opened. This denial is made all the more traumatic by the fact that many of the early legal services such as repeatedly requested the industry’s backing by adding its libraries to its services. These honest requests were rebuffed by an industry whose own initial forays with the internet (Pressplay,, etc.) were utter failures. Further, the Recording Industry Association of America sued every service above (except WinAmp) on copyright grounds.

Yet, even with this denial in place, the IFPI fails to acknowledge that it is still lagging in investment in the medium seven years on, especially when compared to its primary source of revenue, the compact disc. The CD was introduced to the mass market in the 1983 holiday season. Seven years later, the CD supplied about 40% of the industry’s revenue, and would serve as the majority source of revenue two years later. This was in spite of the “threat” of home taping with cassettes. So, even if the IFPI’s version of reality is to be believed, their “progress” in digital distribution is still mediocre at best, an utter failure at worst.


2. The Big Four, Not Piracy, Are Killing Local Industries

One of the more disheartening pieces of information from the report is the decline of local artists in their home nations. However, the sad news is obfuscated by the IFPI’s cherry-picking of statistics. For example, while Spain’s local artist sales have dropped 65% over the past 6 years, France’s decline is not as steep, with actual increases among local artists (3%) in the past year, according to an annual report by SNEP (France’s IFPI equivalent).

While the IFPI lays the decline squarely on piracy, remarking piracy and P2P statistics in the same breath as these declines, the reason for these declines may be far more capitalistic. The SNEP charts for the year 2009 show that 59% of the top singles and 47% of the top albums come from foreign artists. The numbers are lower (52% and 36%, respectively) but still significant in Spain’s Promusicae charts. More importantly, though, is who distributes them: In both Spanish charts, all listed are published and distributed by labels under the auspices of the Big Four labels (Sony, EMI, Warner, and Universal). On the French charts, the numbers are only slightly lower (98% of all singles, 90% of all albums).

Why these two points matter is economics. In a recession economy, with the industry reeling from piracy, the Big Four’s core properties in non-Asian countries (more on that later) are their “local” artists, i.e. most of their American/British artists and any “international” artist that either breaks through in America/Britain or in a significant amount of other markets. The successes of these core properties are far more profitable than local artists from other nations, whose reach tend not to extend beyond their home nation or native language. In turn, the profits from these core properties fund not only the main corporation, but also the international branches. As such, the first to be hit in a downturn for the Big Four are their international branches, and the first division to be hit in those branches are the least profitable, i.e. the A&R and local marketing divisions. It is far more likely that cutbacks caused by American losses are primarily killing these local industries, and not local piracy.


3. Outdated Business Models Cause Stagnation

The big talking point from this report when it was released last month was the use of the term “climate change” to describe what is happening to the industry. We here at Tiny Mix Tapes, rather than debate the phrase alone, are going to give you the full context of two related paragraphs:

Stephen Garrett, executive chairman of television company Kudos, says mass downloading of his company’s shows… is threatening the future of TV and film companies. He calls this a moment of “climate change of the entertainment industries” across the creative sector. “We are nurturing a generation who are growing up to believe not only that everything is free but that everything should be free. And the problem with that is what we do – making music, television programmes and films - is incredibly expensive.”

Let us begin by saying that Mr. Garrett’s description of the situation is more an attempt at creating a catchphrase or cliché stemming from a completely unrelated controversial debate than an honest assessment of the industry. The proper term that Mr. Garrett should be looking for is “sea change,” a Shakespearean phrase that accurately reflects what the industry is seeing: A broad transformation. The essential problem is that the industry does not see a need to change with it, as noted in the rest of this quote:

We are in danger of creating a world where nothing appears to have any value at all, and the things that we make, which do have real value, will become scarce or disappearing commodities. And that’s also threatening hundreds of thousands of jobs – not the fabulously wealthy or the fat cats – these are drivers, electricians, carpenters, ordinary working people. The combination of piracy and recession is a pretty potent job killer.

Utter hysterics aside, Mr. Garrett clearly fails to recognize something that even a high school economics student could pick out after a kegger: The model that has sustained his business is no longer viable and has to change in order to keep earning money and keep jobs. The IFPI, which titled the quote’s section “‘Climate Change’ For All Creative Industries,” is intent on following Mr. Garrett’s example in maintaining old business models, again blaming any loss of profits and industry on piracy rather than stagnation. The only person in the report who acknowledges that this is a problem is Rio Caraeff, head of the industry-run music video website VEVO, saying that labels should “be more responsible for their own destiny… Doing things the old way is clearly not working.”


4. Whitewashing Only Changes Perception

The report dedicates some space to two “success stories,” one in South Korea and one in the irascible Sweden, of all places. These success stories, however, are whitewashes of reality.

In regards to how South Korea’s industry recovered from piracy, the IFPI fails to provide any statistics on how much damage was done by the likes of P2P services such as Soribada in the first place, only statistics after measures were implemented. It also tries to cover up the fact that the Korean music industry was much more accepting of digital music services than their American and European counterparts. Most importantly, though, it fails to acknowledge a core difference between the Korean and other Asian music industries and their non-Asian counterparts: Sociocultural and linguistic barriers prevent most artists outside of these nations from being successful in them. Thus, it is rare for an American pop star like Lady GaGa to even come close to the popularity in South Korea of K-pop idols such as Rain. This lack of “foreign invasion” in turn prevents profits by the local industry from leaving the country, thus sustaining and expanding local A&R.

Sweden’s story is even more whitewashed. For starters, the IFPI praises rulings made in regards to The Pirate Bay, but forgets that the legendary tracker is still running. The IPRED law that is constantly mentioned in the section was a source of mass protests in Sweden. Further, it refuses to acknowledge the rise of the Pirate Party, an IP-reformist party that had won seats in EU parliament last year and is likely to enter the Swedish parliament this fall as kingmakers to a coalition government. To make matters worse, it is the likes of IPRED and several other attacks by the IFPI that helped accelerate the party’s rise. The IFPI does take time to criticize the party indirectly, though, with statements aimed at criticizing recent EU movements toward judicial protections for file-sharers that have been spearheaded by the party.


5. Graduated Response = Legal Nightmare

The graduated response system, the industry’s supposed savior, is covered in great detail towards the end of the report. It marks progress by a few nations passing graduated response legislation. It praises, in particular, the HADOPI law passed in October of last year in France. However, the same HADOPI law has been constitutionally questioned, and the initial law passed in May was struck down by the constitutional courts in France due to the fact that it gave the IFPI and SNEP control over user disconnects without any government oversight, judicial or otherwise.

More importantly, though, the IFPI shows its failure to comprehend the fact that the nature of the graduated response system (as it intends it) requires somehow bypassing constitutional and human rights law in regards to both privacy and the right to stand trial before it can be implemented. The ridiculous amount of legal maneuvering needed to even implement such measures on a political level would in the end only mean that file-sharers are still being sued by the industry like they were before, with internet disconnections replacing settlement money as punishment. But the effects of a disconnection in current society are extremely significant and detrimental, given the penetration over the last 15 years of the internet in society. As a result, the IFPI-“advised” ACTA negotiations have been pushing away from making such practices legally mandatory (though it is still encouraged). However, this means relying on ISPs, and many are still hesitant on selling out its users en masse.


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Three Changes the Industry Should Believe In

The IFPI’s report only exacerbates the fact the revenue model of selling records is no longer a viable and profitable business. As it stands, EMI, the remaining member of the Big 4 that is not tied to a media conglomerate, is facing an ever-growing mountain of debt and may not survive the year. Warner Music is also suffering significant losses, while Universal and Sony are only making small profits in comparison to their 1990s peaks. While we here at Tiny Mix Tapes, a lowly website, cannot influence the decisions of the major music industry, we can always offer suggestions. Here are three that can do much to change the way business is done and still yield some profit for the majors:

1. Stop selling records, start selling artists. The most powerful thing a label has is its repertoire, but even now the products it sells are simply the repertoire’s output. A much more effective way of earning money is simply turning its artists into products, into potent brand names themselves (at least on a major level). The profits Disney earns from kids-pop musicians Hannah Montana and the Jonas Brothers are not from record sales and ticket stubs alone, but from the large amount of fan products sold under those brand names as well. The industry’s implementation of “360 deals,” which give labels a stake in every aspect of an artist’s business in return for managing and marketing those aspects, is a promising start, but more needs to be done in exchange for increased profitability.

2. Let the customers decide how they want to pay their artists. Just as much as the internet has exploited the inherent flaws of a rigid business model, it has also shown incredibly flexible ways of earning money. Radiohead’s “pay what you want” system for the 2007 album In Rainbows was successful enough to spur countless other artists (chiefly, Girl Talk and Nine Inch Nails) to follow in the same path. At this year’s MacWorld Expo, electronic artist and composer BT praised how a grassroots charity network developed in his fanbase, in which more fortunate fans would buy multiple copies of his new album These Hopeful Machines and then give them away to less fortunate fans. Further, in March, one of the The Pirate Bay’s founding members Peter Sunde intends to launch flattr, a micropayments-based social networking site that has subscribers set their monthly fee, and then distribute that fee to sites they favor, something that can specifically cater to artists and their new releases.

3. Release material digitally when it’s done. A section of the report is dedicated to “pre-released albums,” i.e. leaks. While money is definitely lost because of this matter, the cause of this problem has less to do with hacks and careless news agencies and more to do with the fact that albums are completed well before release. They are given a long waiting period partly to account for CD pressing and packaging, partly to allow the hype machine to build up. The immediacy of the internet not only rendered such hype machines obsolete, but also increased demand for new material as soon as possible, thus making album leaks a black market quasi-commodity. Radiohead’s success with In Rainbows has much to do with the fact that they released the album digitally 10 days after its completion. Conversely, bands such as Broken Social Scene and The Dodos have seen their album releases pushed earlier digitally after news spread of their album leaking to the public. It is probably best now that the old adage of letting such albums “speak for themselves” return by releasing albums in a digital format as soon as the album is done, even if it means forcing journalists and marketers alike into a tizzy. Sales are more important than hype now.


All of these changes can cater to the continued survival of the major music industry, and possibly its recovery from this mess, all without the need for government intervention and invasive monitoring for suspected file-sharers. The compelling need for innovation and acceptance rather than condemnation and stagnation is important here. Yet if its Digital Music Report is meant to be guidance for the industry, the IFPI shows it has no clue how to do it.

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