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7.4.2004 Global music sales fall

April 7, 2004 – World sales of recorded music fell by 7.6% in value in 2003, the year-on-year decline slowed by a stronger second half in the US market, combined with resilient sales in the UK.

The fourth consecutive year of falling music sales is attributed to the combined effects of digital and physical piracy and competition from other entertainment products.

The decline affected virtually all major markets, with Western Europe showing particularly sharp falls compared to recent years. Sales in Germany were down 19% in 2003 and down by more than 30% in value since 1999. Denmark, France, Sweden, Belgium, Greece, Ireland, Portugal and Switzerland also experienced double digit declines. Year on year, the industry has suffered global losses of 20% over the three years since 2000.

Internet piracy remains a very significant factor in the decline in world music sales. Research by IFPI and numerous independent third parties overwhelmingly proves that unauthorised file-sharing translates directly into lost legitimate music retail sales. (For a summary of the evidence, see notes to editors below)

Positive signs include more robust album sales in the US - thanks partly to a strong end-of-year release schedule - and a global rise in music DVD sales. DVD music video now accounts for 5.7% of global retail revenue compared to 3.1% in 2002. These factors helped restrict a global downturn in CD sales, which at the six-month point had been down 10.9% in value.

The recording industry is meanwhile making significant progress in creating an online music business. US-based services achieved downloads of 19.2 million in the second half of 2003. In Europe, around 30 legitimate services offered upwards of 300,000 tracks for download in 2003. Legitimate online music services also operate in Canada, Australia, Latin America and Asia Pacific.

Online sales of physical CDs also continued an upward trend, with an increase in the US from 3.4% to 5% in volume and in the UK up from 5.6% to 6.6% of total units.

Jay Berman, Chairman of IFPI, representing the international recording industry said: “Global music sales had another difficult year in 2003, under the combined effects of digital and physical piracy and competition from other entertainment products. However there are some encouraging signs, particularly in the US market where the increase in album sales of late 2003 has continued into this year, and in the UK and Australia. Meanwhile, music video sales are rapidly becoming an important revenue stream for the industry.

“Looking to the future, the recording industry is responding on several fronts. Record companies are making available a large volume of music catalogue for consumers to access online. At the same time they are stepping up the fight decisively against online piracy, starting legal actions against illegal file-sharing that will be extended in the coming months.”

The global music market was worth $US32 billion* (28.5 billion Euros) with total unit sales (including music video) of 2.7 billion. Music on audio formats fell 9.9% in value. A small portion of this loss was compensated by an encouraging increase of 46.6% in music video sales. Sales of CD albums around the world dropped by 9.1% in value, while sales of singles fell by 18.7%.

US and the UK feature at number one and number three in the world’s top 10 major music markets, accounting for 37% and 10% of world sales. Germany has dropped from fourth largest market and now ranks fifth in the global music rankings. For the first time there is no Latin American market among the top 10, with sales in both Mexico and Brazil sharply hit by economic downturn and rampant CD piracy in recent years.

Of the world’s top ten markets, only two saw growth – Australia was up 5.9% in value with the UK up marginally by 0.1%.

Formats: Growth of Music Video

Music video sales, reported for the third year by IFPI, continued to rise, helping offset sales drops in audio formats. Overall music video sales in 2003 were worth US billion, with DVD music video valued at US.8 billion. The music video sector, as a whole, rose by 46.6% and DVD sales were particularly strong, seeing a global 67% increase. Spurred by DVD’s popularity, the music video share of overall music sales has doubled over three years, now representing 6.3% of the total. DVD music sales represent a small though growing fraction of the overall DVD market – 7.1% up from 6.3% in 2002.

In the top ten markets for DVD, growth increases ranged from 39% in Japan (the world’s biggest DVD market) to 294% in Italy (No.10) with Germany, France, Netherlands, Australia, Canada and UK all seeing around or over 100% growth.

The top selling DVD music videos from the major companies were: Coldplay, Live 2003 (EMI), U2 Go Home/Live From Slane Castle (Universal), Michael Jackson, Number Ones (Sony), Avril Lavigne, My World (BMG) and Led Zeppelin, Led Zeppelin (Warner).


Online Sales and Indicators

This report on world music sales does not include sales in digital formats, but IFPI’s market research department is collating information on these purchases across major markets and intends to include information on online sales for the first time in 2005.

Apple’s iTunes announced it had reached the 50 million downloads mark in March 2004. Puretracks in Canada reached 1 million downloads in February, and in Europe OD2 – powering many of the now 50 plus European portals for music downloads – announced in April it had sold more than 1 million downloads through its retail partners during the first quarter of 2004.

*As IFPI publishes value growths in fixed dollar terms, $US values in each historical year (i.e. 2002) are re-stated rather than actual. With $US depreciation against other currencies, the re-stated 2002 figures are inflated at $US 34.6. Actual $US value was $32.3 billion.

NB Sales are record company sales (shipments, less returns) at estimated retail values.

For further information or to request a copy of World Sales 2003 please contact Adrian Strain, Fiona Harley or Julie Harari at IFPI Communications
tel: +44 (0)7878 7900

Notes to Editors

Breakdown by region

North America

The USA, which saw a 12% fall in the first half of the year, saw a sales increase in the second half, particularly in the fourth quarter, bringing the full year sales drop back to 6%. Best-selling CD album releases by artists including OutKast, Alicia Keys and Ludacris drove the recovery.

Canada, the world’s sixth largest market was down 2.9% in value, 4.2% in units.

Europe

In the UK, overall sales were virtually flat with 0.1% growth in 2003. There was continuing market strength in CD albums, bolstered by a strong release schedule, bonus packages and a vibrant retail environment. CD album growth was however offset by intense downward price pressure and fall in singles sales of 31% in units.

Around the rest of Europe sales continued a downward trend, with the major markets of Western Europe seeing very sharp falls. Germany, heavily affected by CD-R burning and illegal file-sharing, saw a 19% drop – the sixth consecutive year sales have fallen. France fell into line with other European countries in 2003, with a 14.4% drop. The market has now fallen back to year 2000 levels following two years of growth driven largely by local repertoire. In Scandinavia, despite strong local repertoire, Sweden and Denmark saw steep declines of 14.7% and 12.5% respectively. Belgium, Greece, Ireland, Portugal and Switzerland also saw double digit percentage declines.

Asia

Across Asia sales were down by 7.5% in units and 9.8% in value. This trend was led by a fifth consecutive year of shrinking sales in Japan, the world’s second largest market, which fell by 5.2% in units, 9.2% in value.

Some Asian markets did show positive growth. Malaysia and the Philippines saw increases after a tough 2002. China, despite endemic physical piracy, was also an exception, showing a third consecutive year of growth. Sales value was up by 21.7% fuelled by the country’s large young population with increased disposable income and continued market development.

Australasia

Australasia was the only region to show growth in 2003, with local stars such as Delta Goodrem, Powderfinger and Guy Sebastian generating significant sales, along with a 100% increase in the value of DVD music video purchases – a small market but one that is showing robust signs of growth.

Latin America

Latin America continued to suffer from piracy in both physical and online forms as well as difficult economic conditions. Sales are down across the region for the third year in a row with a drop of 14.4% in value in 2003.

The industry has shrunk, causing labels to downsize, retail stores to close and the reduction of certification awards in many markets to reflect fewer sales. Mexico dropped out of the world’s top ten rankings, suffering a 16.2% decline in value. Argentina, Peru and Uruguay showed increases on 2002’s steep declines.


Effect of illegal file-sharing on music sales

Reputable third party research overwhelmingly proves the link between illegal file-sharing and falling music sales. A summary is below:

Enders Analysis – Europe March 2003
Enders report, ‘Piracy – Will it kill the music industry?’ concluded that “digital piracy cost about 35-40% of the reduction in the size of the global music market last year”.

Forrester Research – Europe January 2003
Recent research by Forrester in Europe (‘WholeView Technographics’, January 2003) presents stronger arguments of the negative impact on sales specifically in Europe. The study states: “music industry executives claim that downloading tracks via services like KaZaA and Morpheus cannibalises CD sales – and they’re right”.

The survey concluded that more than 40% of frequent downloaders buy less music now than they did before they began downloading. This is not enough to be compensated by 2% of people who say that they bought more after having downloaded. Therefore the overall impact on sales is negative.

Jupiter Research – US August 2003
This was a survey of 1,326 US-based online music fans. One third of active file-sharers said that they had decreased spending on music since they started file-sharing. Only 16% said spending had increased. This suggests a net negative impact among this group, consistent with IFPI National Group findings.

Ipsos-Reid (US) – Q4 2002
As at end 2002, the quarterly US study TEMPO found that while 25% of Americans aged 12+ own a PC-based CD burner, 59% of file-sharers own a CD burner. Of these, 42% (representing 17 million people) reported having burned a pre-recorded music CD rather than actually purchasing that CD. Even if this occurred only once per person, it would equate to almost one-quarter of album sales losses.

Edison Media Research – May 2003
The survey found that the heaviest downloaders have the most negative influence on sales. Among those who have downloaded more than 100 files, roughly 16% of respondents, CD purchases dropped 61% from last year. A year ago heavy downloaders purchased an average of 28.9 CDs a year versus the current average of 11.3 CDs.