As someone who closely follows the intersection of technology, media and entertainment, I have been terribly impressed with the analytical work coming from rethinkresearch’s Faultline. Charlie Hall and company are one of only a handful of people who are putting out unique and intelligent analysis. Its a pleasure to find an objective approach to complex technical and political issues. Original analysis of this caliber is an unfortunate rarity.
Their (subscription only) discussion of the impact of file sharing on the music business is so compelling that (with permission), I am reproducing an excerpt from earlier this month:
Falling music sales blamed on file sharing (look for no other reason)
How is it that TV can lose 10% of its leading audience in a single quarter (18 to 34 year old males) and although it’s worrying, no one gets arrested. Yet when CD sales fall by 7.6% in a year, it is automatically down to illegal file sharing and legal actions are filed.
We have lived with the file sharing anomaly for so long now, blaming it, with or without proof, for everything that’s wrong in the music industry, that it has become a truism. That doesn’t make it true.
Figures from the International Federation of Phonographic Industry (IFPI) says that it’s the fourth consecutive year in which music sales are down and in the same breath illegal file sharing was blamed, and it cites a sequence of analyst groups that claim to have shown various links between file sharing and a reduction in CD sales including work from Enders, Forrester, Jupiter, Ipsos-Reid, and Edison Media Research. The various studies show that between 25% and 40% of lost sales are down to file sharing, but little effort is spent explaining what caused the other 60% to 75% of sales reductions. While it is fairly well accepted that file sharing in the UK is worst than anywhere, the IFPI report says that in the UK overall sales were virtually flat with 0.1% growth in 2003. No discussion is made of this apparent anomaly.
The IFPI report show that Western Europe is 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.
The IFPI report says that there are positive signs in robust album sales in the US and a global rise in music DVD sales. But file sharing isn’t given the credit for these improvements, it’s down to a good schedule of releases and some innovative marketing. Yeah right.
DVD music video now accounts for 5.7% of global retail revenue compared to 3.1% in 2002 says IFPI, but again this increase isn’t seen as a reason for not buying CDs, which of course it would be. If you have the music on a DVD, you can play it any time.
These factors are credited with slowing down the global downturn in CD sales, which at the six-month point had been down 10.9% in value and finished with just 7.6 decline. IFPI then pats itself on the back for creating a significant online music business (which of course it didn’t)
but again, the availability of legitimate online music sales is in no way considered responsible for any part of the downturn.
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.
If anything gets the credit for improvements is it the legal fight against online piracy. The legal actions are seen as instrumental in promoting sales. Again no causual link and we’re not quite sure how.
The global music market for 2003 was worth $32 billion (USD) with total unit sales of 2.7 billion. Music on audio formats fell 9.9% in value. A small portion of this loss was compensated by an 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%.
Other details from the report were that 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 the 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.Issue 52 8 12th April 2004 marginally by 0.1%.
UPDATE August 16, 2004 6:30am
A commentor (albeit in a bizarre manner) mentions the IPFI study; You can see the complete IFPI release here: Global music sales fall by 7.6% in 2003 – some positive signs in 2004
More RIAA lawsuits as latest study shows the strategy is not working
3 May, 2004
Global music sales fall by 7.6% in 2003 – some positive signs in 2004
IFPI, April 7, 2004