Music industry looks to cloud for new business


This article is part of our special report ICT: Fuelling the economy.

Cloud computing is paving the way to access music online legally, boosting new revenues for major and independent labels alike. But in Europe, national licencing systems may pose a hurdle to the development of cloud music, experts say.

Cloud music is quickly becoming a market reality because of the added value that it brings in terms of music portability. Users who subscribe to one of the available services can listen to music stored in remote servers regardless of the devices they use.

Listening to music is gradually shifting from a devise-based system (for instance with iPods) to an access-based approach, where what matters is the subscription to so-called digital music lockers, huge libraries stored in the cloud.

The industry welcomes these new developments, as record companies expect a traffic increase on their digital boutiques if customers turn to use the cloud to store or access their music.

“The market is showing that consumers are willing to pay for the portability of music,” said Charles Caldas, chief executive of Amsterdam-based Merlin, which represents independent record labels.

Access rather than ownership

Music access is becoming an important alternative to music ownership, as many users now combine listening to high-quality streamed music with actual downloading it.

“The fact that these two models of consumption co-exist speaks volume about the future,” said Rob Wells, president of the global digital business of the Universal record label.

“We have really only scratched the surface of digital music in the last decade. Now we are starting the real mining, and on a global scale,” he added.

Many in the industry are thinking that increasing the use of cloud services is a win-win situation for the music industry –  major and independent labels alike.

Data support this view. Between 2009 and 2010 sales of music in the cloud services grew by 4.6%. At the same time the digital music industry increased its global sales by 5.3%.

Moreover, cloud music operates through licenced services which make available only copyrighted music, and therefore offers an incentive not to use pirated material.

The main actors

In 2008, a Swedish start-up launched Spotify, which offers access to copyrighted music to its subscribers.

The service is available for free, but for a monthly subscription costing as little as €5 for its cheapest packages Spotify allows unlimited streaming of music and no advertisement. It is a sort of upgraded YouTube where users pay a little fee to have access to higher-quality content, to dispose of content not available elsewhere, and to avoid security problems.

For a €10 fee Spotify also allows its subscribers to directly download music from the cloud to mobile telephones.

Last November Apple's iTunes, the digital music market leader, launched in the United States iTunes Match service, which is now slowly making its way in Europe. It offers download of copyrighted content from the cloud to its subscribers.

Other services followed, such as Google Music, which is currently only available in a few countries and not in the EU.

“We have only launched Google Music in the US at the moment and we have nothing to announce about any other countries at the moment – although we are very interested in expanding the service,” a Google official told EURACTIV.

Legal hurdles for portable music

Despite being praised for giving its users a higher portability of music content, in Europe cloud services face a serious hurdle to turn this pledge into reality.

Spotify, the main actor in Europe, is not present in all EU countries. “I have a subscription in Belgium, but I cannot access my collection when I am in Greece, because Spotify is not operational there,” said Kostas Rossoglou, legal officer at BEUC, a consumers’ organisation.

But even if a service were available in all 27 countries, subscribers might find themselves unable to access their entire collections. It always depends on licences, which remain a national matter. The same song can be licenced in Germany but not in France, making it impossible for a user to access it once the border is crossed.

A pan-European licencing system would be the solution, but it remains a mirage as collective societies fight for national privileges, raising invisible but very tangible barriers in the theoretically border-less EU internal market. 

Regulators welcome music in the cloud services as they are perceived as bringing new incentives to prefer legal offers. EU Digital Agenda Commissioner Neelie Kroes said in an e-mail sent to EURACTIV: “I think the cloud is a great opportunity to bring more legal content to Europeans. Whether it is music, or films or other content – the cloud makes it easy and cheap for both the consumer and the creators.”

“We all know the music industry is in a period of dramatic change. Much of this is cause for optimism and opportunity,” said celebrated opera singer and IFPI chairman Placido Domingo.

“Thanks to the amazing technology of the internet, the audience for recorded music is fast-expanding across the world. Artists who might not otherwise find a way to make their music available can take advantage of the new ways to distribute music the internet offers.”

Mark Piibe, executive vice president of EMI Music, said: “We think the presence of access services can expand the whole market”.

Independent labels agree on the advantages of access-based services such as Spotify or iTunes Match. “The evidence is that subscription-based streaming services do not take value away from other services,” said Charles Caldas, chief executive of Merlin, which represents independent labels worldwide.

Independent labels’ association Impala executive chair, Helen Smith, said: “While new services such as digital music lockers are welcome developments which will help boost the online market, they also raise fundamental questions. Digital music lockers should be based on a simple licencing models and the monetisation of these services should deliver fair value to artists and labels.”

“This is essential to the development of new cloud-based services and also includes the need to ensure that services negotiate terms with Small and medium enterprises’ rights holders on similar terms and at the same time as with the major rights owners,” she added.

BEUC, a consumers’ organisation, underlines in a note the advantages of music in the cloud services which favours consumers to legally access to music. However, BEUC also reminds that “a number of issues remain to be solved.”

“Consumers should be able to use the music they have legally bought on the device, at the time and place of their choice. The application of technical protection measures and Digital Rights Management have long been used by the content industry as a way to further restrict the use of legally acquired content contrary to consumers’ expectations,” a BEUC statement said.

The digital music sector recorded significant growth in 2011. According to the yearly digital music report, published by the International Federation of the Phonographic Industry, global revenues rose by 8% in 2011 compared to the previous year. 

IFPI estimates that subscribers of paid online services to access music grew from 8 million to more than 13 million last year.

In some countries, such as the US or South Korea, digital revenues represent more than half the total revenues of the music sector.

In Europe, the sale of digital albums was up by 27% in the UK and by 23% in France.

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