IFPI MIDEM Speech

John Kennedy, CEO & Chairman of IFPI

MIDEM, 22nd January 2007

It's a tremendously exciting time to be working for the music industry and a time of monumental change. As an industry body, our job is to make sure that we address both the opportunities and the challenges head-on and make it as easy as possible for you to do your job - making music, getting it heard and making a living out of it.

I'm going to spend a few minutes telling you how we are planning on doing this in 2007.

But first - some of you here are members, some aren't, so it may be useful to introduce our organisation and our mission.

IFPI's mission is to promote the value of the recorded music you create, to safeguard your rights as members, and to expand the commercial uses of your music.

Our mission is, quite simply, the success of the recording industry as a whole, regardless of whether you are an individual producer or a multinational company.

Our membership comprises some 1,400 record companies in 75 countries. We represent majors and hundreds of independents. Members can be any company, firm or person producing sound recordings or music videos, which are made available to the public.

Though based in London, we have regional offices for Europe, Asia, Latin America and the CIS, coordinating our strategies and activities in those regions.

We also have national groups in 48 countries - many of whom are co-hosting this event with us tonight. They are a key pillar in our structure, because they are the first response team in each country - whether by promoting producer-friendly legislation, battling issues damaging to the industry, or coordinating physical and online piracy and education campaigns. I can confidently say that in many areas of the world, a recorded music business would not exist were it not for the existence and contributions of these national groups.

Which brings me to our agenda for 2007.

A few days ago, we launched our Digital Music Report, which you'll find a copy of in the bags. It gives a pretty comprehensive overview of where we stand internationally.

This is our fourth report and we would have hoped that business in the digital world would get more straightforward each year - but in fact it's the opposite. Life in digital music is a thousand times more complicated than it ever used to be. We are seeing an explosion of change, innovation and experimentation.

Only in the last few months, we saw internet advertising revenues increase to the stage where they will shortly overtake radio advertising revenues. We've also seen evidence that some of the online business will be about micro transactions, where a million dollars of revenue can be the result of 57 million transactions and where music is released in an array of different digital products and with up to four hundred different partners.

And the digital music sector is growing strongly. As we outline in the report, we nearly doubled our trade revenues in 2006 to about US$2 billion, and expect at least one quarter of all music sales to be digital in 2010.

Obviously some commentators have expressed concern about the pace of annual growth. But we never claimed it would double every year, and the rate of growth that we are seeing today would be considered wonderful for many businesses.

There have been a number of other milestones in the last year, you'll we have seen the emergence of advertising-funded models, video licensing and the opening up of new markets like china that are offering the possibility of a 'leap to digital'.

Most importantly, what 2006 has proven is that the chief winners in the rise of digital music are consumers. They have effectively been given access to 24-hour music stores and services with unlimited shelf space. They can buy or consume the music you make in new ways and formats - an iTunes download, a video on YouTube, a ringtone or a subscription library.

We should have no problem with the idea of a liberated consumer - on the contrary, the consumer is driving the market opportunity. The consumer is king... but only as long as there is something to consume, and good music continues to be recorded, produced, distributed and paid for.

That's all good news. But let's not kid ourselves - digital growth in itself isn't enough until it offsets the decline in our physical markets. That is our holy grail and it is not happening yet. We are there in Japan, we may nearly be there in the US and the UK, but globally we have some way to go.

There is, correctly, a certain amount of nervousness around. This is sensible. We should all be troubled by the research that suggests the number of new tracks purchased per mp3 player is low, and we're still hit hard by piracy. Lack of interoperability between services and devices is a big issue, particularly in holding back the progress of subscription services. Low levels of marketing of digital services, particularly in some markets in Europe, is also a problem we have to deal with.

As an industry bound together by the common love of music, i believe we need to work together to develop a vibrant and strong global music market and make it work.

Whether it's about digitising catalogues, setting up new accounting systems, or incorporating social networks into marketing our artists, there's still a lot to be done.

Some of us have come further down this route than others, depending on available funds or resources. We at IFPI, and our national affiliates, are doing our bit to help develop this new digital age. As your trade association we see it as our aim to help you make the most of the opportunities that now present themselves to you.

One of our key priorities is to help facilitate the process by which record labels get their music online. We do this by helping put the structures into place.

Some of our national groups are becoming "digital brokers" for our smaller members, helping them to distribute and market their acts digitally to consumers by giving them advice and getting them in touch with the most appropriate aggregator, distributor or contact.

Our UK national group BPI, for example, has just today hosted an information session with iTunes on how to market your music on the service.

Another example is our Dutch national group NVPI, which is putting together download agreements with several stores, and is in the process of developing a commercial aggregator for its independent members. NVPI has also got together with other music sector partners and consumer groups to create "music fan" a kitemark indicating that a music service is licensed and legal.

IFPI is also involved in assisting producers' collecting societies in developing one-stop licensing solutions for multi-territorial users, notably through our webcasting and simulcasting agreements. We're now extending those agreements to value-added services such as "listen-again" archived radio, and partially interactive webcasters.

But helping you get your music online isn't enough. If people think that the music they listen to - and love - is not worth the price of the raw material a CD is printed on (or the digital file it's coded into), then we have a problem. The devaluation of music, its ubiquity and the growing perception that it should come for free, are critical problems for our business. That is why education has to be such a big huge priority for us.

We are busy in this area. Our national groups have produced fantastic materials and campaigns: the DVD "1001 jobs in music" in France; the value of music schools campaign in Austria; the TV documentary showing the making of an artist in Argentina; the MyMusic lesson plans which were rolled out in schools last autumn across the UK - and many others.

In 2007 we will be developing our educational programme further. Please speak to our communications team if you want to find out more, and if you have any suggestions or ideas - they'd like to hear them.

But you can't change peoples' perceptions of the value of music without knowing what and whom you're dealing with.

IFPI is the recording industry's most authoritative source of market research and industry statistics around the world. We compile global recorded music sales, we aggregate industry statistics and we analyse developments in the marketplace for our members.

We announce world sales figures twice a year and track piracy trends. Our figures provide journalists and groups around the world with a benchmark by which they can determine the state of our industry.

All this is, of course, available to our members for free - notably via the IFPI market research online (MRO) facility. In the bags you'll also find a physical and a digital copy of the report and a copy of our "recording industry in numbers".

Our technology department, headed by Richard Gooch, provides consultancy and advice on all matters which link the music industry to technology providers and developers.

We do a lot of work here with standards bodies, technology companies, ISPs and anti-piracy companies amongst others, to help shape the development of new and secure physical or electronic distribution.

IFPI is also involved in setting technical standards for new services and devices. We develop open content identification standards like ISRC, which provides a digital fingerprint to automatically identify your recordings for royalty payments. We use another standard, grid, to identify releases of sound recordings for electronic distribution.

IFPI also works to identify responses to new threats, such as digital stream ripping. It's about choices you have made and whether or not you want your music to be part of a library of free mp3 files or not. Stream ripping software can take this choice away from you. We have made a lot of progress in identifying technology that could help with this particular problem, and we're working to encourage its deployment.

If you have any question at all about digital technology, watermarking, identification standards or getting your music online please get in touch with us, and in particular with Richard Gooch.

We also work to introduce and to improve copyright and other laws in both online and physical distribution. This is led by our policy experts in London and in the regional offices.

Much of my work is spent lobbying governments many of whom have an incredible disregard for intellectual property rights. Believe me; we have our work cut out for us.

In the last few months we have been intensely engaged in the campaign for equalisation of term of copyright and this is an issue on which the music sector and artists and performers have really come together. The issue here is that composers and authors currently get better rights in the EU than artists or producers for example, Wayne Rooney - whom some of you may know - gets life plus 70 years for his autobiography. The producer of a music video gets life plus 60 years. But the performer and record company only get 50 years. This is wrong and it is discrimination and this campaign is one of our top lobbying priorities of 2007.

At the same time, it makes no sense in today's global economy that performers and record companies in Europe should have a 50 years copyright term, while their counterparts in the us enjoy 95 years.

Term equalisation is an opportunity for governments in Europe put their money where there mouth is - to go beyond the friendly rhetoric and prove that they are serious in supporting our dynamic industry and really making a difference.

In recent months the campaign came to a head in the Gowers Review of intellectual property. And i am afraid that Gowers, and the UK government's response, have bitterly disappointed us. That doesn't mean we're giving up - we're going to Brussels to achieve parity in the EU, but also to countries such as Japan and Argentina where performers and record producers face similar discrimination to that we face in the EU .

In today's changing world, broadcasting and public performance rights are growing revenue streams for the recording industry. For all the talk of digital recording revenues, let us not forget that broadcasting and public performance is an underexploited area. It presents huge opportunities for us just by improving our efficiency and setting aggressive targets for collecting revenues. Global overall royalty income has effectively doubled in five years between 2000 and 2005, and is now worth over € 800 million. We aim for it to double again in the coming few years.

As a rule, performance rights income is shared between the right holders according to airplay or other public performances. Every euro collected by our collecting societies benefits both the majors and the indies.

Unfortunately, however, in some markets our work is not to collect revenues but to fight for the very right to collect them.

As an industry, we need to achieve broadcasting rights in all countries, and that includes China and the US. In China, as in Japan, bars, shops and restaurants don't pay to play music to attract customers. Meanwhile in many other countries, such as Italy, the rates broadcasters and retailers have to pay is capped at an artificially low level.

We're lobbying hard to address these issues.

In all these campaigns, our regional offices and legal policy experts are working with governments to get our arguments over.

We are looking closely at commercial opportunities in china. Our key focus is karaoke. We are working to set up the revenue-collecting structure to collect royalties from karaoke bars across the country, for music videos. Karaoke is a massive business in China - and getting our share of this revenue could be worth as much as million dollars of new business for record companies, which is actually more than the entire worth of our industry's legal CD sales over there.

Finally let me mention our work in anti-piracy, the area we are probably best known for around the world. As your trade association, it is our job to ensure that your product and your rights are protected from those who would seek to take advantage of them. We know we have a huge adversary. Last year in our Piracy Report we reported that 20 billion songs were illegally downloaded across the world in 2006 - that is 40 times the number of tracks that were bought online.

In London we have an impressive internet piracy unit which does fantastic work tracking and taking down pirate music. The IAPU, led by Jeremy Banks, works on several fronts. It identifies infringing content on the internet and sends takedown notices to, for example, ISPs, cyberlockers, newsgroups, forums and blogs.

It is also very much involved in pre-release security, working closely with the labels to monitor leaks. This year, for example, we were involved in helping with the security around the new Beatles "Love" album. The first leaks of the album were found only some 36 hours prior to the first official release date and just few hours away from the UK radio embargo time - these days that's considered an unqualified success.

We also bring litigation against unauthorised p2p services, p2p hubs, music search services and pirate websites. We have achieved a great deal here in the last couple of years. The legal environment is better because of settlements and rulings involving operators like kazaa, bearshare in the us, zoekpm3 in the Netherlands and Kuro in Taiwan. We are also tackling the Russian pirate site allofmp3.com. There are few quick wins when you are dealing with Russian copyright enforcement - but I'm confident that all the actions we are bringing against that website in different countries will come to fruition.

As you know we also take legal actions individual uploaders - 30,000 cases so far and this will continue in 2007. As I have always said, we are reluctant litigators but we are committed to a strategy which has helped educate, deter and contain file-sharing - though no one here would be mad enough to think it will solve the problem altogether.

But it is clear that these actions are only the second best answer to p2p file-sharing. We have to get the cooperation of the ISPs. These are the gatekeepers of the internet who have the technological means to deal with copyright infringement on their networks - if only they would start taking their responsibility for doing so.

When we first approached ISPs on the issue they were friendly. Discussions, however, have gone nowhere. But we are not going to let this one go. With cooperation from ISPs, we could make huge strides in tackling content piracy globally. Disconnection of service for infringers should become the speeding fine or the parking ticket of ISP networks.

We are some making some progress. The Gowers review in the UK recommended a deadline of the end of this year for voluntary cooperation from the ISPs and proposed government intervention. At IFPI we have made it clear we are ready to legal action against the ISPs when that becomes necessary. We are determined to get real results internationally, because I believe the rewards of doing so are so great.

IFPI is here to work against online piracy on behalf of our members. If you would like us to investigate and take action on your behalf, we may be able to help. We can provide you with information to help ensure your repertoire is filtered out by p2p networks that have gone legal and employ filtering, if you have not licensed them. You can also providing us with pre-release information or tell us about how we can help identify your pirated product. Please speak to Richard Gooch or Geoff Taylor to find out more.

Finally we also combat physical piracy around the world and this is still a huge concern for our record company members.

IFPI has a dedicated team of investigators and a specialist forensics laboratory. We identify sources of illegal pressed discs, and we take action and work with police to conduct seizures of pirate material - in street markets, in cafés and bars and other locations where piracy is thriving.

Should you have any pirate material you would like investigated send it to us, our enforcement and forensics teams will try to help, so let us know.

To conclude, I am very happy to have had this opportunity to give you a brief picture of some of the things we do in a year. IFPI's programme, like the activities of its members, has be to constantly changing and relevant. And to keep it relevant we need to be very much in tune with the needs of our members large and small across the world.

Please do come and talk to us and discuss your priorities and meet my colleagues to find out more.