Ms. Frances Moore speech at the 2010 International Copyright Forum

2010/11/25

 


  The following is the full text of the speech delivered by Ms.Frances Moore

  Opportunities and challenges for the music industry in the digital age – Frances Moore, CEO, IFPI

  Good morning –

  I am delighted to be here in Beijing to talk about the future of the global music industry, and the opportunities and challenges it faces. China is not only one of the music industry’s most interesting and potentially important markets, it is a country that reflects emphatically the most critical issues facing the global music business today, at the confluence of culture, creativity and new technology. I would like congratulate and to express my warm thanks to the NCAC and the Chinese government for hosting this conference. Many thanks also to WIPO for jointly organising what promises to be an invaluable forum.

  The International recording industry is a case study in change. Technology has transformed the way we communicate with our consumers, and in response we have transformed the way we do business. This has created enormous opportunities, illustrated nowhere better than in china: a country with more internet users than any other nation, providing a vast potential consumer base for the local and international music industry.

  But before moving to the theme of change, I want to emphasise the core mission of our industry, and how we work, in china and internationally.

  We are an industry that invests in bringing to the public the music they love. We discover, develop, promote, market and nurture artistic talent. IFPI issued a global report in March this year entitled “investing in music”. Data collected from our members led us to estimate that our business invests US$5 billion in talent every year. No other party in the music sector comes close to these levels of investment. As a percentage of our total turnover, if you look at what music companies globally spend on artists and repertoire, it comes to 16%. No other industry compares with our proportionate spend on research and development.

  This investment makes a major contribution to society, in terms of jobs, artists’ livelihoods and the enriching of cultures. There are over 10,000 artists on record label rosters worldwide, bringing their diverse musical gifts to the public. The industry invests at risk in a huge pool of talent—and only a small fraction will actually make a return on the investment. This function of investing and nurturing talent is the “engine room” of our business.

  If investing in music is one defining feature of our industry today, our transformed relationship with the consumer is another.  The music industry has been a driver and pioneer of change in the digital world. Seven years ago, digital revenues were a negligible presence on the balance sheet of record companies – today they represent one third of our global business, worth more than us$4 billion. To put this in context, the film industry makes 1% of its revenues from digital channels. No other creative or entertainment industry except games comes anywhere near our penetration of the digital marketplace.

  Of course there is the other, painful side to this story. While the recording industry’s digital sales grew 940% between 2004 and 2009, our overall market—physical and digital combined—still plummeted by nearly one third. Digital piracy has been catastrophic for music. It now threatens the same for other creative industries. We were, as the saying goes, the “canary in the mineshaft”.

  How have we as an industry responded to this revolution?  We have done so in three key ways:  adopting new ways of doing business; protecting and enforcing our rights; and promoting education.

  Before everything, the music industry has understood that the digital world is there to be embraced and not resisted.  My members today are focused on one target more than any other – developing business models in order to satisfy the consumer. This is a consumer unrecognisable from even a decade ago – one who wants music they can access at any time, in any form and in any place.

  Today record companies are licensing music widely and innovatively, across multiple channels and platforms.  The figures are impressive: 13 million tracks available on over 400 services worldwide.

  Downloading services were revolutionary when they emerged on the scene some years ago, but today they are part of a diverse market landscape. Music can now be enjoyed through streaming services; subscribed to via an advertising-funded, free-to-consumer site such as top100cn in china; bundled into an ISP offering; or pre-loaded into a handset.

  Across the world, and notably in china, the key to our future lies in partnerships with Intermediaries, be they telecom companies like china mobile, online retail stores such as ITunes or mobile operators like Vodafone. We recognise that developing a commercial music market means much more than just selling copies.

  Such opportunities are the exciting digital frontier for our business. We are an industry that has truly reinvented itself – knowing that otherwise it will have no future.

  But reinventing your business model, in an industry rooted in intellectual property rights, is not enough. Every legitimate service that is struggling to thrive is operating in a market that is massively rigged. These services can’t succeed long-term if they continue to be faced with unfair competition from free unlicensed models. The future health of the legal online marketplace is at stake.

  In 2009, IFPI looked at the existing surveys and estimated that digital piracy stood at a rate of more than 95%. Though streaming and new forms of piracy make measurement more complicated today, we are confident that this massive mismatch between “pirate” and “legitimate” has not changed significantly since then.

  The impact on our markets has been devastating, as is well known. A 940% increase in our digital sales from 2004 to 2009 is impressive, but scant consolation for the loss of nearly one third of our entire market over that period.

  This is not just a crisis for record companies. Individuals and society are harmed too. There are the countless artists deprived of a record deal simply because there are no longer the revenues to invest in them; and the macro-economic research showing the consequences for jobs across the creative industries. In Europe for example, the trade unions endorsed a comprehensive third party study in March this year, which forecast the loss of 1.2 million jobs by 2015 in Europe if digital piracy remains unchecked.

  Investment in culture is at stake, as well as investment in local artists is cut back. To give two examples: in brazil, the number of full-priced local artist releases dropped by 80 per cent between 2005 and 2009. And in Spain, the market is just a third of its size 10 years ago; local artist album sales in the top 50 declined by 65 per cent between 2004 and 2009.

  The problem is critical in China as well. Internet piracy in china is throttling the potential of the legitimate market, with copyright infringing traffic happening on a devastating scale.  Tens of billions of infringing downloads and streams are eclipsing a market of legitimate digital sales of only 19 million us dollars in 2009. We need help to reverse this trend. Creativity and culture are under threat in an environment where creators’ rights and music are being undervalued on a vast scale.

  Digital piracy has created a crisis for the creative industries. Our environment is rigged by unfair competition, and this cannot be solved by the market or new business models alone. This is why protecting our content and our rights is so vital.  But we need cooperation from other industries – most importantly, internet intermediaries. To get there, we also need government support.

  Internet service providers (ISPs) are uniquely placed to help curb online infringement, given their role in providing the pipes through which content flows and their relationships with their subscribers. Since 2005 we have sought their cooperation as the way to make a measurable difference. Specifically, we need ISPs to take down infringing content that they host, but also to take action to block infringing websites and to help curb piracy over peer-to-peer networks. We believe this can best be done through the system known as graduated response. ISPs send educational warnings to customers whose accounts are identified via their anonymous IP addresses as being used for illegal file-sharing; repeat infringers who refuse to stop can then be subject to deterrent sanctions. This is a proportionate approach designed to migrate consumers to legal services, and in our view, far superior to the civil or criminal legal action that otherwise may be rights holders’ only form of redress. And the evidence shows it is an approach that will work. Surveys in Hong Kong, New Zealand, the UK and France found that the majority of respondents would switch to legal services following a second warning from their ISP rather than risk a sanction.

  For all of these reasons, the graduated response approach is taking root in countries around the world. France and South Korea, Chinese Taipei and the UK have enacted such laws. Legislation is on the verge of being passed in New Zealand, and is under consideration elsewhere as well.

  In China, there appears to be a real commitment in the government to making this country a global champion in terms of promoting its creative and culture industries. Minister Liu Bin Jie gave us his personal assurance when he visited our office in London in September. China has a long and rich musical tradition. We appreciate the government’s desire to enforce intellectual property rights effectively and ensure a legal framework that permits right holders to be fairly rewarded. We have taken up Minister Liu Bin Jie’s invitation to work with him to achieve this.

  But the mountain we still have to climb is large. Piracy continues to hobble the legitimate music market in china. What could be the largest market in the world is ranked only number 26. The technology exists to develop a first-class digital music sector here. I’ve met the Chinese entrepreneurs that are keen to build a market. Mainland Chinese artists could punch their weight on the world stage with strong and effective protection for their copyrights online.

  We have been active in taking steps to enforce our rights in China. About 1,500 administrative and over 400 civil copyright infringement cases have been filed by the recording industry in the last decade. Most of these civil cases have been won – but the lack of deterrent penalties means that the impact has been very limited. Other difficulties have involved the interpretation of the law in the online environment. This has made it difficult to enforce our rights against online commercial infringers before the local courts. Significant online commercial infringers like Baidu have been distributing unlicensed music in china and possibly many parts of the world. This has been a major obstacle in the way of developing legitimate partnerships between the music industry and china’s internet companies.

  Another major obstacle for our industry in China is the lack of performance rights for phonograms. In most countries worldwide, artists and record producers are paid when broadcasters and commercial entities use their music to attract customers. Performance rights revenues are an increasingly important part of our business, and today account for around 5 per cent of record companies’ global trade income. It has been very encouraging to see signs of interest in moving toward the adoption of performance rights in china. This would be a huge boost to domestic artists and producers as well as to international investment.

  Censorship and market access are also crucial issues for us in China. Current censorship procedures for physical products are burdensome and impractical, making it difficult for record companies to plan their album release schedules. At the same time a new content review process introduced for digital music imposes extra burdens on legitimate companies. These problems penalise legitimate business and benefit pirates. We need a streamlined, more efficient system. And restrictions on market access make it difficult for record labels, which are used to working across a full range of artist-related activities, to run dynamic campaigns to promote local or international talent in China.

  Finally – I want to come back to the third aspect of our industry’s strategy in the digital world: education.

  We take education very seriously in the music industry today. Record companies and their trade associations are involved in more than 70 education programmes around the globe at the moment. Let me give you just two very current examples:

  ·We’re sending positive, consumer-friendly education materials to schools and parents across the world, to encourage discussion of the ethics, safety issues and legalities of obtaining music online. The project, in collaboration with the charity childnet International and the film industry, was launched only this month.

  ·We’re signposting consumers to the variety of legal services available through websites such as pro-music.org and whymusicmatters.org, as part of the strategy of promoting all the legal ways of accessing music.

  So to conclude. The music business is an industry that has reinvented itself for a new era. It is not, as some commentators would suggest, a dying or outmoded industry. But it still needs sensible, enlightened help from governments. Meaningful legal protection for our content is not an optional extra – it is the basis of all that we do. We as an industry are evolving, with innovative new services and education programmes. But these alone are not enough to secure the future of music in the digital age. The role of government in helping to establish an environment where we can do our business is more important today than it has ever been.

  Many thanks for listening.

                                                                    By IP Channel of People's Daily Online