London (Reuters) - Legitimate digital music sales grew strongly in 2008 but were still dwarfed by the scale of illegal downloads, despite industry efforts to adapt to the Internet and offer more choice to customers.
A report by the trade body IFPI showed legal digital global sales grew by an estimated 25 percent to $3.7 billion in trade value, to account for about 20 percent of the industry’s global recorded music sales, up from 15 percent in 2007.
However, the rapid rate of growth has inevitably slowed -- digital sales grew by more than 30 percent in 2007 -- and the scale of the piracy has eaten into traditional revenues, meaning the overall music market for 2008 is expected to be down about 7 percent. It fell by 8 percent in 2007.
The report showed about 95 percent of the music downloaded in 2008, or more than 40 billion files, was illegal and not paid for.
As part of its response, the music industry has launched a host of alternative ways to sell music, such as through subscription models on mobile phones and Internet service providers (ISPs), and on advertising-supported models.
It has also pushed ISPs to help curb mass copyright infringement on their networks and believes it has reached a “tipping point” in persuading governments that doing nothing is not an option.
“The recorded music industry is reinventing itself and its business models,” IFPI Chairman and Chief Executive John Kennedy said in the report.
“Music companies have changed their whole approach to doing business, reshaped their operations and responded to the dramatic transformation in the way music is distributed and consumed.”
Mobile companies and operators have shown an interest in packaging music with their core services in the last couple of years, as a way of growing loyalty and reducing the number of users who churn off the service.
According to the report, Denmark’s telephone operator TDC has seen churn drop significantly since it bundled music with its mobile and broadband services.
Churn among its mobile customers dropped by between 30 percent and 40 percent and in broadband customers by some 60 percent -- both highly attractive improvements for any company focussed on keeping its customers during the economic downturn.
Nokia, the world’s top mobile phone maker, launched a phone model with an unlimited music bundle in Britain in 2008, in a bid to challenge the dominance of Apple and its popular iPhone.
Advertising-supported services are also taking off, with a joint venture between social network MySpace and the four major music labels known as MySpace Music one of the most exciting propositions to hit the market.
The development of new services and the apparent interest from some governments in helping to curb piracy has, Kennedy said, resulted in the industry feeling more confident about its future than in recent years.
Single track downloads were up 24 percent in 2008 to 1.4 billion units globally while digital albums were up 36 percent.
“A percentage of the existing business is not the way to measure the growth of the digital business,” Rob Wells, the senior vice president of digital for Universal Music Group International, said on a conference call.
“This is a brand new business and I won’t be satisfied until the business is bigger than it’s ever been and I think that’s something we can achieve within the next five years.”
Reporting by Kate Holton; Editing by Andrew Macdonald