Business Impact of Online Music Piracy

By Chao-Hsuan Wu

Nowadays, the U.S. has the biggest digital music market in the world. In the U.S.,CDs comprised of 48% of music sales, and digital sales comprised of 52% of music sales in 2010.In the United Kingdom, CDs comprised of 81% of music sales, and digital sales only comprised of 19%of music sales.As compared to global music sales, CDs composed of 68.3% and digital sales comprised of 31.7%. Therefore, the U.S market relied on digital sales more than any other countries in average. In other words, the digital market in the U.S. is easier affected by Internet piracy than any other countries(IFPI, 2010).

In past years, music industry faced serious challenge from Internet piracy. Increasing illegal download and free upload programs threaten physical music industry. According to IFPI’s newly report, the U.S. music market value declined 10.7%  in 2009 and decreased 10.8% in Japan. In the U.S market, digital sales grow 15-20%  and physical sales decrease by the same proportion. Although CDs sales are still the main revenue in the music industry, digital music sales will exceed CDs sales some days(IFPI, 2010).

In fact, Internet piracy affects not only the revenue of the music industry but also job loss and tax revenue. Music companies such as EMI and Universal Music Group cut jobs due to illegal downloading. These companies have already cut thousands employees. The IPI study has shown that record companies, record stores, and other related business lost more than 70,000 jobs. Besides, local, state, and federal tax decline when music revenue decreases. The IPI study points out that the tax losses every year are over 400 million since 2005(McKay, 2010).

Sony Music Entertainmentnet income has dropped 12.5% last quarter. Besides, it also closed its largest CDs manufacturing factory due tothe growing of digital download. The plant was located in Pitman and made 18 million CDs per month. CDs albums have decreased 18%, to110.3 million units. CDs revenue fell by 7.2%, to 17 billion. Online piracy only makes the situation even worse. On the bright side, digital sales such as MP3 increased 9.2%, to 4.3 billion which is ten times what they were in 2004 (Cooney, 2011).

Surprisingly, not all countries face a decreasing trend regardless of the digital pirates. In United Kingdom, rising digital sales must be the trend in the future. Although Britain music business has declined for few years, the growth of digital sales offsets the decrease in physical sales. In fact, when physical sales dropped to1.2 billion, digital revenue rises up to 295 million. Therefore, digital revenue drives total value of sales up to 1.6 billion. Besides, 36% of digital revenue comes from digital album and 44% comes from single tracks(Borthakur et al., 2010).

In Sweden, digital sales increase 11.9%, to 20.4 million. After the legislation requiring the ISPs to restrict those law violators, file sharing activities decrease. Sales volume grow up to 13.6 million units. July 2009 in Korea, the three-strikes legislation forced Korean music consumers to download songs from licensed music services. Music operators Soribada and Bugsare forced to turn their services to offering copyrighted songs in lieu of illegal songs. Although physical sales decreased 5.9 %, to 64.5million, digital revenue rise 27%, to 80.4 million (Borthakur et al., 2010).


1 Comment (+add yours?)

  1. Please click
    Jun 13, 2012 @ 02:31:00

    This publication has inspired me to continue writing on my own blog


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