Difficult Times for the Music Industry as Sales Plummet; ENTERTAINMENT

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Byline: By Matt Dickinson Special Correspondent

Reports of the death of the record company may be exaggerated, but there is little doubt that the industry is facing a prolonged bout of ill-health.

Last year was the worst ever for the European music business in terms of a sales decline, according to one expert, and it is feared that revenues won't rebound for another couple of years yet.

The problem is that sales of digital music are not making up for declining CD sales in the way the record bosses hoped.

Though European digital spending was higher than ever before last year at 401.2 million euros (pounds 297 million), it was just 13 per cent of the drop in CD sales.

It has led to a fundamental re-examination by the industry of ways to drum up new revenues, alongside the inevitable cost-cutting after last week's job losses and restructuring at the private equityowned music giant EMI.

Sales of physical format music have plunged across the world in recent years.

The number of CDs sold in the US last year was 449.2 million, according to Nielsen SoundScan, down 19 per cent from the year before.

In the UK, physical album sales were 131.8 million during 2007, down 13 per cent in 2006. Sales of CDs and other physical formats also fell by nine per cent in Japan, France and Spain.

Total UK album sales, which provide 90 per cent of the industry's revenue, fell nearly 11 per cent last year. It was the third annual drop in a row.

Digital music accounts for just 10 per cent of music revenues - equivalent to a niche market. And with 95 per cent of downloads still not being paid for and with no mechanism yet to clamp down on what is technically theft, a big upturn is not on the horizon.

Music industry specialist Mark Mulligan, vice president at analysis firm JupiterResearch, said the business decline was something more than a dip in fortunes.

He said: "This is a fundamental change in the structure, shape and size of the music industry.

"Music as a premium format is becoming less important to consumers. We have more music freely available to us than ever before - on the internet, TV music channels, digital radio.

"The challenge which the music industry has got is moving from where it is all focused on transaction-based revenue, to one where they have to monetise consumption.

"What they need to do is breathe new life into the digital format."

That sentiment was echoed by the new boss of EMI, which boasts acts such as Coldplay, Lily Allen and Robbie Williams.

Terra Firma, run by the financier Guy Hands, bought the historic company for pounds 3.2 billion last summer after it racked up a pounds 264 million loss last year. EMI had been struggling with falling CD sales, particularly in the US, and music piracy.

Mr Hands unveiled a "revolutionary" new structure for the label to enable it to cope with the digital age.

As well as up to 2,000 jobs going in the next six months, it will see big cuts in the label's roster of 14,000 artists - three per cent of whom are reportedly profitable.

Big advances paid to bands are also set to go, with artists being paid on performance. There will also be a drive for corporate sponsorship of acts and greater pressure for people to pay for digital music.

The revamp came after a number of developments for the industry that would have made uncomfortable reading for Mr Hands and other record industry executives. …