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Music Piracy Is Rampant Even as Labels License Online Sites

Jan. 20 (Bloomberg) -- Hundreds of online music services licensed by record labels in recent years have done little to stem rampant illegal downloading, which is pushing down the value of recorded music.

Digital piracy is still rising along with websites and forums linking to content accessible by piracy services, the International Federation of the Phonographic Industry said in its annual report today. Global revenue from music via the Internet and mobile phones rose 6 percent to $4.6 billion, accounting for 29 percent of record companies’ sales. The rate of growth was less than 2009’s 12 percent increase.

Record companies have been licensing online music services such as Spotify and Rdio and relying on premium ads around online videos to help make up for a drop in CD sales as more physical shops shutter and online piracy shows no signs of waning. Brazil and Spain are among countries with the highest proportion of people visiting unlicensed music sites, and the majority of content distributed on file-sharing networks infringes copyright, the IFPI said.

“As we enter 2011, digital piracy, and the lack of adequate legal tools to fight it, remains the biggest threat to the future of creative industries,” Frances Moore, the federation’s chief, said at a press conference in London today.

Digital piracy is eroding industry revenue, hurting employment and investment in new music, according to the report. With fewer new artists breaking through globally, total sales by debut acts in the top 50 album chart last year were a quarter of the level in 2003.

Falling Value

The value of the recorded music market has fallen by 31 percent since 2004, because of piracy and the decline in CD sales. Recorded music remains core to many artists’ careers. Once a performer is known for their recordings, they may find it easier to attract an audience for live performances and to gain branding and sponsorship deals.

Record companies are lobbying governments and Internet service providers to do more to block sites that offer unlicensed content and cut service to users who habitually download illegal material.

Moore said some headway has been made in South Korea, France and Ireland where Internet service providers agreed to take some action against repeat illegal downloaders.

“Great new legitimate music offerings exist all over the world, offering consumers a wide range of ways to access music,” Moore said. “Yet, they operate in a market that is rigged by piracy, and they will not survive if action is not taken to address this fundamental problem.”

U.S. Revenue

Revenue from digital music in the U.S. accounted for almost half of record companies’ sales in the country, IFPI said. In Europe, digital sales rose by almost 20 percent because of online music sales and revenue from subscription services such as Spotify, which became the second-largest source of digital sales for labels in the region.

The number of licensed online music services last year exceeded 400, compared with fewer than 60 in 2004, when revenue from digital services totaled 2 percent.

The worldwide best-selling digital single in 2010 was Ke$ha’s “TiK ToK,” followed by Lady Gaga’s “Bad Romance.”

To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net.

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net.

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