Global online music sales doubled in 2006

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LONDON  -- Global online music sales nearly doubled in 2006 to about $2 billion, or 10% of all sales, but failed to compensate for an overall decline in sales of CDs, the global music industry trade body said Wednesday.

The International Federation of the Phonographic Industry, or the IFPI, also said it would move to sue Internet service providers if they continued to allow identified digital music pirates -- a costly scourge of the industry -- to use their networks.

"We don't have the holy grail of digital (online) offsetting the decline of CDs as yet," IFPI Chairman John Kennedy said in London after the release of the group's 2007 Digital Music Report. Kennedy said overall music sales fell approximately 3% in 2006.

The IFPI said early last year that it expected online sales to grow enough to compensate globally for the declines that the industry has recorded over the past five years due to illegal file-sharing, piracy and competition from new media.

However, the report showed that growth in online sales has slowed compared with 2005, when sales nearly tripled to $1.1 billion from $380 million in 2004.

Kennedy said he now hoped online sales would compensate for the decline of CDs sometime this year.

"There's nearly the holy grail in three major markets -- the United States, Britain and Japan. Next year I would like to be announcing that is the case for around 10 markets," he said.

Alex Zubillaga, Warner Music's executive vice president for digital strategy and business development, said that music companies in the past were too complacent, and needed to innovate in order to attract customers.

"We as an industry have had it too good for too long," Zubillaga said.

Offering additional services and products with album downloads -- rather than simply lower prices -- proved to boost online sales, Zubillaga said, citing Madonna's last album release. Warner issued three versions of "Confessions on a Dance Floor" -- a straight release at $9.99 and two others with bonus material for $11.99 each.

"Each of the $11.99 offerings sold more than the $9.99," said Zubillaga.

In the meantime, the IFPI said it would continue to pursue illegal music downloaders through the courts.

ISPs have been harder to pursue legally than the individual downloaders the IFPI has so far targeted because they can claim they have no knowledge of any piracy occurring on their networks. However, Denmark's supreme court ruled last year that ISPs were obliged to terminate the connections of customers engaged in music piracy.

Kennedy pointed also to a British government consultation paper, which said ISPs that allow illegal music downloads and uploads would face a "legislative clampdown." The Gowers report said ISPs had until the end of 2007 to deal with illegal activity on their network.

Kennedy urged ISPs to voluntarily shut down music pirates -- or face legal action.

The IFPI report predicted that online sales will account for a quarter of all sales worldwide by 2010.

Single-track downloads totaled nearly 795 million in 2006, up 89% on the 420 million online singles sold in 2005. The United States accounts for the bulk of those sales, with 582 million single tracks sold online in 2006, up 65% on 2005.

The U.K. is the world's second-largest market for online music sales, with 53 million single track downloads sold in 2006, double the number sold in 2005.

Kennedy pointed to mobile music sales as a major area for growth this year, with the launch of Apple's much anticipated iPhone and the development of music phones by Nokia Corp. and Sony Ericsson.
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