Global Digital Music Sales Triple To US$1.1 Billion In 2005 As New Market Takes Shape

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19th January, 2006

• IFPI Digital Music Report 2006 shows 2 million songs online

• Mobile music revenues top US$400 million

• More needed from telcos and ISPs to promote legal music

Sales of music via the internet and mobile phones proliferated and spread across the world in 2005, generating sales of US$1.1 billion for record companies - up from US$380 million the previous year - and promising further significant growth in the coming year.

The findings are released today in IFPI's Digital Music Report 2006, a comprehensive review of the development of the digital music market internationally.

Music fans downloaded 420 million single tracks from the internet last year - twenty times more than two years earlier - while the volume of music licensed by record companies doubled to over 2 million songs. Digital music now accounts for about 6% of record companies' revenues, up from practically zero two years ago.

The legitimate digital music business is steadily pushing back on digital piracy. In Europe's two biggest digital markets, UK and Germany, new IFPI research indicates more music fans are legally downloading music than illegally file-swapping.

The mobile phone became a portable music device in 2005, the first year in which song downloads to mobile phones spread internationally. Mobile music now accounts for approximately 40% of record company digital revenues. Record companies are seeing sharply increased sales of master ringtones (excerpts of original artist recordings) which account for the bulk of their US$400 million-plus mobile music revenues.

The Digital Music Report shows how music is helping drive economic activity worth tens of billion of dollars; identifies key challenges, notably over intellectual property protection, that need to be faced if the digital music business is to sustain this success; and assesses the impact of the educational and enforcement actions taken by the music industry in 2005.

IFPI Chairman and CEO John Kennedy said: "Two years ago, few could have predicted the extraordinary developments we are seeing in the digital music business today. And there will be further significant growth in 2006 as the digital music market continues to take shape.

"Already in the UK and Germany - two of the biggest digital markets worldwide - legal buyers from sites like iTunes, Musicload and MSN actually exceed illegal file-swappers. We expect this trend to spread as new and pioneering legal music distribution channels open up to consumers.

"This is great news for the digital music market and the wider digital economy. Record companies are licensing their music prolifically and diversely. A new wave of digital commerce, from mobile to broadband, is rolling out across the world. It is generating billions of dollars in revenues, and it is being driven, to a large extent, by music - by the people who create music, who produce it and who invest in it.

"The challenges we now face are far too big for any complacency, however. In particular we need more cooperation from service providers and music distributors, to help protect intellectual property and contain piracy. It is not enough that they share in the success of the digital music business - they need to take on their share of the responsibilities as well."

Shaping the future of the digital market

2005 has seen the new digital market take shape as courts around the world tipped the scales against unauthorised services and the market diversified into new formats and distribution channels.

A series of court judgements against unauthorised file-sharing services in late 2005 - in the US, Australia, Taiwan and Korea - has helped transform the market environment for digital music and consumer attitudes to illegal file-sharing. Illegal activity on peer-to-peer networks has stayed static in the last year in comparison to a 26% increase in broadband use.

Key challenges for the industry and its partners

IFPI sets out the key challenges facing the music industry at the start of 2006 if it is to see further growth. Above all, governments and the music industry's partners in the digital marketplace need to place copyright, rights management and the campaign against piracy at the top of the digital agenda.

Specifically, the music business needs support for Digital Rights Management, which is the key enabler of digital music services allowing new and flexible uses by consumers; it also needs more cooperation from Internet Service Providers (ISPs) in protecting music from piracy on their networks.

Digital milestones in 2005 included:

• In Europe, British artist James Blunt topped the first ever European digital song downloads chart with You're Beautiful.

• In Japan, the most developed mobile music market, mobile sales reached US$211 million, representing 96% of all digital music sales, for the first nine months of the year.

• Globally, there are now more than 335 legal download sites, up from 50 two years ago. New music services arrived for the first time in 2005 in Argentina and China.

• Online song catalogues doubled, with more than two million tracks and 165,000 albums available on the major services.

• Apple iTunes music store spread to 21 countries and the portable video was launched for the first time.

• New potentially exciting digital distribution channels for music are in the pipeline, such as podcasting and digital radio - but key licensing issues need to be resolved for these new channels to realise their market potential. In the US, the first publicly-available legal peer-to-peer service, iMesh, has been launched.

New IFPI consumer research unveiled

New consumer research commissioned from Jupiter and published today by IFPI shows 6% of internet users regularly download legally in the UK and Germany, compared to 5% who regularly swap files illegally

Shifting illegal file-sharers to legal digital services is, however, a long-term challenge. The research indicates that legal downloaders are a more likely to be starting from scratch than migrating from unauthorised sites. Only one in five legal music downloaders is also an illegal file-swapper, underlining the vital role of consumer education and marketing in the new legal music market.

The same research shows that the music industry's education and deterrence activities are helping bring about a widespread change in consumer attitudes to digital music. Every second person in Europe who has cut down on illegally file-sharing has done so out of concern for the legal consequences.

Actions against illegal file-sharing, which in 2005 were extended to nearly 20,000 cases against uploaders in 17 countries, will be stepped up and spread to new countries in 2006. They are supported by four separate global education campaigns which IFPI launched in 2005 - including the Childnet/Pro-music.org information campaign for young people and Digital File Check, the free software launched to help internet users enjoy music safely and legally on their computers (www.ifpi.org).