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Wednesday, 14 November, 2001, 16:31 GMT
Music sales set for fall
The internet should represent a huge growth opportunity for the music industry
The internet: Music industry friend or foe?
Music sales are set to drop as consumers curb their spending because of fears about the slowing world economy, a report suggests.

So far, music fans in Britain and France have buoyed sales in those countries even as sales have fallen worldwide.

But the fear of recession and the growth in piracy are likely to make a dent in music sales soon, the report from Merrill Lynch finds.

The internet may have presented the recording industry with a legal and piracy headache but in the longer term - the report argues - it should help boost profits.

Less cash

The report forecasts that in US dollar terms, music sales will fall by 11% this year to $32.9bn (22.8bn).

As the global economy slows, people will have less cash to spend on music, an industry usually affected badly by economic slowdown.

Sales fell 15% in the 1980 to 1981 recession.

The impact of the recession in the early 1990s was muted by the advent of the CD as people swapped their old record collections for new versions on CDs, the report said.

Music sales are unlikely to recover before 2005, after which Merrill Lynch expects to growth of about 6.5% a year for the following five years.

Music boom

Some argue that new technology could save the industry from the impact of a recession this time around as well.

But while there are new formats - such as DVDs - which should encourage people to spend money on music - the increase in piracy is hitting home.

Music sales in the first half of 2001
US: -5.4%
Germany: -11.3%
Japan: -7.2%
UK: +10.5%
France: +7.9%
Source: Merrill Lynch

The music industry was worth nearly $50bn (34bn) in 2000, with piracy accounting for about 10.2% of the market.

Internet downloads

The advent of unmetered access ISP services, for which users pay a fixed price per month, means it is relatively cheap to download internet music, thanks to a "glut" in capacity.

Merrill Lynch argues that as investment in the ISP sector falls, there will be less capacity and services will become more expensive, making it less attractive for people to download music.

As labels invest in their own online services and the law becomes clearer, the major recording companies should be in a good position to profit from the new technology, the report suggests.

Online sales could account for 46% of music sales by 2010, with these sales being a mix of subscription, downloads and physical sales.

See also:

30 Oct 01 | New Media
Napster 'to re-launch in 2002'
10 Oct 01 | Business
Napster 'successors' emerge
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