IFPI: Music Sales Off Worldwide

The international music industry is once again singing the blues, and CD burning is the refrain.

Sales of recorded music were down by 5% monetarily and 6.7% in units shipped worldwide for the first half of 2001, according to figures released September 28 by the International Federation of the Phonographic Industry (IFPA). The IFPI reported declines of 20% in Latin America, 8% in Asia, and 5% in North America as well as decreases in other major markets. (Other reports, such as those appearing in the Wall Street Journal, quoted much higher figures, including a 30% decline in the Latin American music market, a 40% falloff in Brazil, a 12% drop in Germany's music sales, and a 6% drop in Japan's.) Overall sales of CDs went down by 4.6% for the first six months of the year. Prerecorded cassette tapes went down by 16.3%, as did singles, by 14.4%, according to the IFPI. This year, only the UK and France have showed upswings in music sales, by 10% and 8%, respectively.

The IFPI's report acknowledged a slowing global economy as a factor in the decline, but placed most of the blame on the widespread use of CD burners and the availability of free audio downloads over the Internet. "The problem is that too much music is being made available through pirate websites and by copying," stated IFPI chairman and CEO Jay Berman. "That is hurting the business globally." No mention was made as to the quality of the music offered for sale.

The National Association of Recording Merchandisers (NARM), a US-based trade organization for music retailers, blamed the record labels for missing the opportunities offered by new technologies—for example, embracing Napster as a sales tool instead of treating it as a poacher. "Retailers could have been competing with CD burning and file-sharing if they had been given the chance," said NARM president Pamela Horovitz. Record companies instead reacted by increasing the prices of CDs, she stated.

Two days prior to the IFPI's gloomy news, EMI Group PLC warned that pretax profits for the fiscal year would be off by as much as 20% due to weak music sales in the US and Latin America, and that it would take a restructuring charge of as much as £100 million ($146.2 million or 159.6 million euros) for the year. The news caused EMI shares to drop by 35% on the London Exchange.

EMI was twice recently the target of potential mergers—first by Warner Music Group and later by BMG—and both times the suitors were put off by regulatory intervention. The company has recently been in discussions with DreamWorks SKG, which does not have a strong presence in the music market, although DreamWorks partner David Geffen has long been a major player in the industry. EMI now has a market value of around £1.7 billion, far below the £4.6 billion evaluation it enjoyed only three years ago. For the year, EMI's pretax profit will be about £206 million, according to a Wall Street Journal report.

Bertelsmann AG's BMG Entertainment also reported slow results for its music business, with a loss of 293 million euros ($319.9 million). Bertelsmann's e-commerce unit, Bertelsmann Direct Group, also went into the red, with a loss of 157 million euros ($171.4 million). Not all was unhappy for the Berlin-based media conglomerate, however. Despite weak music sales, Bertelsmann AG managed to have a record year for sales and profits. Net sales rose 21%, to a total of 20 billion euros ($21.84 billion), with net income rising by a phenomenal 44% to 968 million euros ($973.5 million). Much of Bertelsmann's profits came from unloading its shares in two Internet ventures, mediaWays and AOL Europe, according to business reports in late September.