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Digital Music Distribution Channels Diversify

According to the IFPI, record labels are making some progress, selling an estimated $2 billion worth of music online or through mobile phones in 2006 -- almost doubling the market in the last year. Digital sales now account for around 10 percent of the music market as record companies experiment with an array of business models and digital music products.

Among new developments in 2006, the number of songs available online doubled to four million, thousands of albums were released across many digital formats and platforms, classical music saw a 'digital dividend' and advertising-funded services became a revenue stream for record companies.

However, despite this success, digital music online sales has not yet filled the revenue void from the decline in traditional CD sales for the major labels. The conclusions are published in IFPI's 'Digital Music Report 2007,' a comprehensive round-up of developments in the sector.

Consumers are finding that digital technology is helping to change their purchasing habits. They are taking advantage of the unlimited content availability in online stores, buying recordings that would have long vanished from the shelves of even the largest offline stores.

Meanwhile, independent labels have prospered, and many artists are now choosing to sell their recordings directly to consumers via the Internet.

Recent months have also seen digital music distribution channels diversify. A-la-carte download services, led by iTunes, remain the dominant digital format, but they compete in a mixed economy with subscription services, mobile mastertones and more recently new advertising-supported models and video licensing deals on sites like YouTube and MySpace.

Mobile music accounted for about half of global digital revenues in 2006, but the split between mobile and online varies sharply by country. In Japan around 90 percent of digital music sales are accounted for by mobile purchases.

Also, 2007 could prove to be a landmark year in the mobile music market, as handset makers such as Nokia and Sony Ericsson develop their music phone series. Meanwhile, Apple has announced the launch of the much anticipated iPhone.

Portable players are one of the major drivers of growth in the digital sector. New figures show that the proportion of portable player owners who source mainly from paid downloads is roughly the same as the proportion who source mainly from P2P and free websites (about 14 percent).

IFPI Chairman and CEO John Kennedy said "The record industry today has evolved into a digital thinking, digitally literate business. Revenues in 2006 doubled to about $2 billion and by 2010 we expect at least one quarter of all music sales worldwide to be digital. This is a market combining evolution and revolution, where the learning curve is changing direction on a regular basis."

I believe that Mr. Kennedy and his peer group within the music recording industry created the challenges that they are now facing, because they waited far too long to embrace the digital media revolution -- essentially fueling the consumer-led P2P file sharing phenomenon.

Even though the major labels have since moved beyond their initial denial that consumer demand had shifted, they are clearly still on the 'trailing edge' of digital media innovation.

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