The Internet: The Rites of Passage for the Music Industry

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A report from PriceWaterhouseCoopers predicts that global spending on recorded music will slip worldwide from $33.4 billion in 2007 to $32.5 billion by 2012.

While digital music services have yet to fully live up to their potential in becoming the next medium of choice for music purchases, digital formats are still expected to grow substantially in that time.

PWC predicts, in fact, that digital revenues will overtake physical revenues in Asia by 2009; Latin America by 2010; by 2011 in North America, and by 2010 for the rest of the world.

While mobile will edge out internet-based distribution as the more lucrative sector, the internet will remain the fastest growing, rising to $8.6 billion by 2012, while mobile phones will bring in $10.3 billion of revenue.

According to PWC, there were 361 million songs downloaded via mobile phone worldwide in 2007. It predicts growth of about 4% to 373 million downloads this year, and to 580 million by 2012.

Meanwhile, single track sales continue to be the dominant component of digital sales, but album downloads increased by whopping 54% in 2007 over the prior year.

PWC pegged the world’s music subscription market at $201 million with 1.8 million subscribers. It indicates, however, that this market will only grow very gradually, at about 2% annually to $218 million by 2012.

Meanwhile, Apple's iTunes Music Store burst through the five billion download sales milestone on June 19. iTunes boasts a licensed catalog of more than eight million songs, 20,000 TV episodes and more than 2,000 film titles.

With the growth of the marketplace, and the success of iTunes, the cost of digital music is rising, and falling, depending on where you shop online these days

This is leading to complaints that major labels are utilizing pricing strategies could stunt the establishment of a viable digital entertainment marketplace as well as revenue disputes by creators.

For example, Kid Rock has said he would rather have fans steal his music than buy it from iTunes. He now refuses to put his albums on iTunes because he says iTunes doesn't pay artists enough.

Meanwhile, as digital music services, excepting iTunes, continue converting their libraries to digital rights management-free sales, the demand by the major labels to establish variable pricing for digital downloads.

While several digital music services now either have variable pricing, including Amazonmp3—or plan to begin testing it in the near future as part of new DRM-free deals—such as Napster—the impact of the strategy will be minimal until iTunes comes onboard.

Aside from a brief flirtation with a $1.29 price point when EMI Music Group launched DRM-free downloads on the service, iTunes has refused to move from its 99-cents-per-song strategy.

The idea behind variable pricing is for labels to make more money from those who download a higher quantity of songs by raising the price on certain tracks, while at the same time convincing those who rarely download to buy more at reduced pricing.

Whatever the outcome, with CD sales continuing to decline and digital revenue still not making up the difference, major labels are going to continue trying to exact hefty advances from digital music operators, as well as seek an equity stake in companies.

Ad-supported download service SpiralFrog, for instance, paid more than $3 million in upfront advances to Universal Music Group prior to being launched; while Imeem reportedly paid advances as high as $20 million and also gave labels equity in the company.

Major labels argue that such strategies are just the cost of doing business in today's music industry.

Independent labels and artists, still second class citizens in the digital music sector, want digital media companies to pay music creators fairly and not to have them just use content to build their businesses.


Journalist/broadcaster/researcher Larry LeBlanc has been a leading figure in Canadian music for four decades.

He has been a regular music commentator on CTV’s “Canada A.M” for 35 years, and has been featured on numerous CBC-TV, CTV, YTV, Bravo! MuchMusic, MusiMax, and Newsworld programs in Canada; VH-1, and EEntertainment in the U.S.; and BBC in the U.K.

Larry was a co-founder of the late Canadian music trade, The Record; and, most recently, the Canadian bureau chief of Billboard for 16 years.

He has been quoted on music industry issues in hundreds of publications including Time, Forbes, the London Times, and the New York Times.

The LeBlanc Newsletter is exclusively carried and archived by Canadian Music Week in Canada at:

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