Music Industry Upbeat Over Online Sales

By | January 22, 2005 at 12:00 AM

CANNES, France – The theme song isn’t quite “Happy Days are Here Again,” but almost. Music industry veterans, after several years of worrying about how illegal Internet downloads could threaten their business, are humming a decidedly upbeat tune these days.

While questions remain about how to best deliver hits by U2 or arias by Luciano Pavarotti to music fans, one of the industry’s top conferences opened Saturday in this Riviera resort amid new signs that online downloads could become a moneymaker after all.

The optimism at the Midem conference is a sharp turnaround from a year earlier, before music publishers mounted a high-profile crackdown against piracy and online music sales soared.

“We’re feeling very upbeat,” said John Kennedy, head of the International Federation of the Phonographic Industry, or IFPI. “I don’t think our problems are over, but we’re in much better shape than we were a year ago.”

Music aficionados in the United States and Europe legally downloaded more than 200 million tracks in 2004, or 10 times more than in the previous year, the IFPI reported Wednesday. Estimated digital music revenues jumped sixfold to around $330 million.

The industry bugaboo in recent years has been online piracy over peer-to-peer, or P2P, networks that give computer users access to music files directly from the computers of other users on the network.

The music industry has been in a slump since 2000, when P2P networks emerged and cut into sales of recorded music. Worldwide sales fell about 8 percent in 2002 and 2003, the IFPI says. Figures for last year are expected to be more positive.

The number of illegal downloads far outstrips online purchases of music, and industry leaders grumble that piracy will remain a permanent threat.

The challenge for the industry is to convince consumers that Internet-based purchases are easier and provide higher quality tracks than by receiving secondhand music on the peer-to-peer networks.

Panelists at Saturday’s first day of the conference debated how best to deliver music to customers online. Some argued that music fans want to pay to download individual songs; others are pushing for a subscription model, in which users can temporarily download music from a vast library of songs. Some championed a mixture of both strategies.

“We think it’s critical to test out different models,” said Dan Sheridan of RealNetworks, which distributes music online, echoing the belief among many that the market is still in its infancy.

The IFPI and affiliates filed thousands of lawsuits against individuals and groups that allegedly shared music illegally, and has vowed more. The industry group is also launching an education campaign warning consumers against illegal file-sharing.

Music industry executives are pushing for governments to step up efforts against pirated music. Some insist Internet Service Providers, which have enjoyed subscriber growth because of increasing use of high-speed Internet technology, could help more in the fight against piracy.

The invisible presence in Cannes is Apple Computer’s chief executive, Steve Jobs, who is not on hand but whose marketing wizardry is behind much of the new oomph in the industry.

The groundbreaking moneymaker is Apple’s hot-selling iPod, the portable music device that has reduced suspicion that consumers won’t pay to download music. Users can buy tracks online from the company’s iTunes music store, then upload music into the portable gadget.

Apple said this month it has sold more than 10 million iPods since October 2001, and now claims a 65 percent share of the hard drive-based portable music player market.

Some say the Cupertino, California-based technology company has a prestige with consumers and marketing know-how that has revved up the music industry, and others are hoping to ride along.

“There is a ‘cool’ factor” at Apple, said Ted Cohen, senior vice president of digital development for music publisher EMI. “They could come out with soap – and people would buy iSoap.”

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