Battered Record Execs Set to Face the Music

http://www.abcnews.go.com/wire/Entertainment/reuters20030117_378.html

Battered Record Execs Set to Face the Music

Jan. 17
— By Bernhard Warner and Merissa Marr

LONDON (Reuters) – Global recorded music sales look set to fall for the fourth straight year in 2003 thanks to piracy and the economic downturn, and its bosses are desperate for solutions.

Executives gathering for the global music industry conference Midem in southern France this weekend know it’s make or break time.

The bruised industry needs a new formula as fans increasingly spend their disposable income on video games and “burn” their own CD compilations while labels desperately seek a new crop of long-lasting stars.

Major music labels have so far responded by slashing jobs, axing B-list artists and trimming back their bloated businesses. However, the industry appears no closer to a long-term solution than last year and talk of consolidation among the big five music companies is growing louder by the day.

“2003 will be the tipping point. The fundamentals continue to deteriorate and consolidation will have to happen,” said Michael Nathanson, media analyst at U.S.-based investment research firm Sanford Bernstein.

Forecasts see sales sliding another six percent in 2003 — a fall felt most by the big five music giants — Universal, Sony, Warner, EMI and BMG — which account for 70 percent of sales.

That comes on top of an estimated nine percent fall in 2002, a five percent dip in 2001 and a 1.4 percent fall in 2000.

PIRATES AHOY!

Critics assert the age-old business model of merely selling physical copies of music to the masses is hopelessly out of date in a digital era of track downloads and song-swapping on Internet services like Kazaa and Morpheus.

Music execs, meanwhile, remain cautious about the Net, held back by technological, economic and legal limitations to putting their entire repertoire online.

The fear persists that the popularity of song-swapping services and the ease of CD-copying will give birth to a sort of doomsday scenario — generations of music fans who refuse to pay. Unsurprisingly, piracy will be a key topic at this year’s Midem.

Trade organization International Federation of the Phonographic Industry (IFPI) has gone to battle against the proliferation of music bootlegs, primarily by pouring money and resources into helping police shut down the pirate operations.

The IFPI estimates the market for bootlegged music, whether it be mass-produced in CD-pressing factories or burned onto recordable CDs from a university dorm, was $4.3 billion in 2001 with sales of pirated discs hitting 950 million units.

The toll of Internet song-trading networks is harder to quantify. According to an IFPI study, at any one time, there are five million users on peer-to-peer networks swapping 900 million files.

COOPERATIVE SPIRIT

Over the past year, the majors exhibited a rare piece of co-operative spirit, making available more of their tunes to subscription-based music download services Pressplay and MusicNet, plus to third-party players such as the UK’s OD2.

But the industry-backed services, with their relatively meager music selection and downloading limitations, have failed to slow the popularity of the free services.

IFPI chairman and CEO Jay Berman will issue a call to arms in his annual address on Sunday, asking the majors to step up their online activities.

“This is a time when different sectors of the music industry, for all their diverging interests, have one big common interest: namely to develop a new online music business and to fight piracy,” Berman told Reuters.

Critics are dubious.

“The politics at the major labels hasn’t changed. The guy who puts his neck out on the line could get fired. Whereas the guy who keeps his head down is safe, and he gets to keep his BMW for another year,” said Paul Myers, founder of Wippit.com, a subscription download site.

CONSOLIDATION TALK

In the meantime, the five major music companies need to find ways of cutting costs further, but European regulators showed a distaste for further consolidation among the big five in the last attempt in 2000.

However, the subsequent collapse in the industry could encourage them to be more accepting now, observers believe.

Of the five majors, EMI is the only music company that is not part of a bigger conglomerate. EMI, home to ColdPlay and Pink Floyd, has been peppered by merger speculation of late, propelling the stock to a 20 percent gain in the past two weeks as reports of a BMG tie-up surfaced.

As the industry looks for a new business model and possibly new combinations, finding the next chart-topping newcomer, such as last year’s teen rocker Avril Lavigne, will be key. Still, landing the next big thing isn’t likely to draw attention from the industry’s dismal business fortunes.

“The outlook is miserable. It’s going to take at least two years to get out of this and a lot of people will disappear in the process,” one music executive predicted.