At the dawn of a virtuous circle?

David El Sayegh, chief executive, SNEP

September 2010

The recorded music market in France increased by 4.1 per cent year-on-year in the first half of 2010 to €239.3 million.

This is good news, but does it mean we are at the dawn of a virtuous circle that will end the crisis the recorded music industry has suffered for more than eight years?

It is still too early to declare a definitive "yes" and we are cautious about rushing to peremptory judgements of the type that have characterised commentary on our industry in recent years.

Yet there are several encouraging signs that allow us to consider the future optimistically.

First, the market for physical music products is not dead. Indeed, 82 per cent of record companies' revenues in France are still generated by physical format sales. We remember the predictions of some that the physical format would be dead by 2010.

More importantly, the income from digital sales in France has become very significant. The digital music market saw strong growth at 12 per cent - or €42.9 million - in the first six months of 2010.

For the first time, the decline in physical format album sales was offset by strong digital album sales, with revenues increasing by 47.2 per cent. The development of album downloads is very important for record companies and a positive sign for the entire sector, which needs the long play format and not just a singles market.

At the same time, streaming and subscription services have also been performing strongly over the last 12 months, with the market growing by 20 per cent.

However, it would be irresponsible to claim that all is well in this brave new world. The future of recorded companies depends on external factors that need to be in place to enable them to invest in the next generation of talent.

The establishment of a graduated response mechanism for tackling online piracy and the launch of parallel education programmes are cornerstones of a new social contract. After several years of the law of the jungle prevailing online, the French government is establishing the rule of law on the internet.

Graduated response is, despite the vocal opposition of some in the blogosphere, an approach accepted by the majority in France. Some 70 per cent of people recognise such a system will change their behaviour and encourage them to use legal services online.

In addition, the launch of the young persons' discount card will attract a new generation of music users to legal online services that pay artists, songwriters and producers.

Such an approach enables record companies to have a chance of achieving their ambitions in a fair legal environment and is more beneficial than government simply subsidising the music industry.

Making the system work will be a challenge for SNEP and its members in the coming months.

The recording industry will be fully engaged as this regulatory framework begins to be put into action. Its success will be vital, not just for record companies, but for the healthy transition into the digital world of all France's cultural industries.