Growth in internet music sales slowing

LONDON -- The growth in digital music sales is slowing considerably, falling into the single digits for the first time since record companies began making significant amounts of money online in 2004, according to recent figures.

The International Federation of the Phonographic Industry said in its annual report that digital sales increased by 6 percent in 2010 -- only half the growth rate registered in 2009 and far from the explosive expansion seen in earlier years. The federation values the market in legal digital music at $4.6 billion, but says the trade in unauthorized content remains much more important.

"As an industry we remain very challenged," federation chief executive Frances Moore told journalists before the report's publication. "Something like 95 percent of downloads are still unlicensed."

The International Federation of the Phonographic Industry is a dogged opponent of illegal file-swapping, which it claims is ravaging the world music business. Its annual reports have charted its campaign to crack down on pirates -- as well as the growth of the industry's digital offerings, which now account for nearly a third of the industry's flagging revenues. Fighting piracy and expanding the digital market is crucial to making up for declining sales at bricks-and-mortar retailers such as HMV, which earlier this month announced plans to close about 60 of its U.K. stores.

Thomas Hesse, the president of Sony Music Entertainment's global digital business, said the industry was "fighting against the backdrop of the continued decline of CDs, the continued decline of retailers who sell music."

The IFPI counted some qualified successes last year: Britain followed the lead of countries such as France and South Korea by enacting a law that could eventually lead to persistent illegal file-sharers having their Internet access limited or suspended outright. China, one of the music industry's biggest problem areas (music piracy rates there are estimated at virtually 100 percent) said it was working to tackle the issue.

There was some good news for the IFPI on the legal front as well. In October a U.S. District Court issued an injunction preventing Limewire -- which the IFPI accuses of being the country's biggest source of illegal music downloads -- to stop supplying its software. The next month, Sweden's Court of Appeal upheld the convictions of three men operating The Pirate Bay, one of the web's notorious file-sharing sites.

But all that has failed to quash illegal file-sharing, which the IFPI blames for taking 31 percent of its revenue in the past six years. Piracy is threatening jobs across the creative sector, starving independent labels of cash and debut acts of attention, the IFPI said.

The group renewed its appeals to governments and internet providers worldwide to help put a lid on the problem. And while providers have traditionally resisted such calls, the report highlighted one development which may help bring them over to the other side.

Increasingly, they're the ones supplying the music.

The IFPI singled out Nordic countries, where Swedish and Finnish provider Telia offers a four month free subscription to streaming music Spotify Ltd. and Denmark's TDC offers unlimited music downloads to its mobile and broadband customers. Italy's FASTWEB and Ireland's Eircom have also recently begun offering subscribers similar access to millions of songs.

Moore described the music industry's emerging partnerships with providers as a win-win situation, with those who supply the web access getting a new source of revenue, and those who supply the music getting a new ally in its campaign to get consumers "to be responsible in their use of the internet."

The IFPI did not provide estimates for how much such arrangements could win for the music industry, but it said that, in the U.K. alone, partnerships like the one inSweden could earn internet service providers more than $160 million annually by 2013.

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