Customers look for their favourite music CDs at a music shop in Satwa. With the growing entertainment industry trend towards digitisation, music stores in Dubai are taking a hit. Image Credit: Gulf News Archive

Dubai: Music stores in Dubai are reporting a decline in CD sales as customers opt for digitised music online or cheaper, albeit illegal, pirated CDs.

But the directors of a new multimedia investment fund, chaired by former James Bond movie star Roger Moore, claim that digitisation of media content will make piracy irrelevant.

The MultiMediaFund proposes to acquire and invest in intellectual property rights in movies, television series, music and gaming, making the digitised content more widely and easily available to a larger number of customers at reasonable prices, said MultiMediaFund advisory board member Christian Moore, Roger's son, during a phone call from Monaco.

Since digitised content is easier to track, making it relatively simply to collect royalties, and given that people will pay for high-quality content that cannot be found through illegal channels, piracy can be ruled out, "but never 100 per cent", said the fund's board member and COO of Lehner Investments, Klaus Lovgreen.

Operating on a subscription model, the fund is exploring new markets and hopes to increase accessibility through new distribution channels beyond Apple iTunes Music Store and to eventually create and acquire other distribution channels, said Moore.

Moore and Lovgreen will be visiting the UAE in October for talks with potential investment partners and to search for projects to invest in.

But with the growing entertainment industry trend towards digitisation, music stores in Dubai are taking a hit.

"One hundred per cent, the digital is affecting our business. We have a drop in terms of sales volume and value as well," said Virgin senior international music buyer Mahdi Sherif. Since 2003 global music sales dropped when Napster was legalised and iTunes opened, he added.

"People don't see any value for music because they can get it for free," Sherif said.

Online library

There were 11 million music tracks available online and about 400 licensed digital music services in 2009 compared to just one million tracks and less than 50 music services in 2003, according to the 2010 Digital Music report from the International Federation of the Phonographic Industry.

"We have music, but we can't stock like we used to," said Sherif.

The digital music threat to stores is evident when customers ask for an album that they do not have, but which can be found easily online.

The other constant threat is the pirated CD business. The UAE's National Media Council destroyed 22,000 pirated CDs confiscated in Dubai in the first quarter of 2010. But the country's piracy rate is still below the international average, according to the Ministry of Economy.

Migrating online

As music stores realise the necessity of selling digital copies of their music in addition to the traditional formats, online music stores are searching for innovative ways to attract the gadget-savvy customer.

Managers of both online music stores and traditional stores agree that music fans in the Middle East have not caught up with the trend of purchasing music online using credit cards. Apple iTunes, the largest online music store in the world, can be accessed by UAE users if they provide a credit card based in a country where the service is already available such as the US or Europe.

"In the Middle East where online trade is maybe not as developed as other countries, people may not buy online. With the music industry, I don't see the credit card as a big mode of payment," said Frederic Copper-Royer, Music Manager for Nokia Middle East and North Africa.

The digital way forward in the Middle East, according to Copper-Royer, is the "comes with music" model. Customers with an X6 Nokia phone can access the online music store Ovi and download over four million tracks for free to their phone.

"In the Middle East digital piracy has been prominent as a way of music consumption.

"We match that type of consumption in a legal way, said Copper-Royer. Offering more diversified content than in piracy websites in a secure and efficient environment and compatibility with other music-playing devices makes online stores more attractive.

Faced with this digital revolution music stores are scrambling to keep up. Virgin will soon offer customers units stocked with digitised music copies, according to Sherif.

The other solution for stores is to offer a greater variety of content that cannot be found illegally, said Frederic-Copper.

Digital music industry by digits

More than 25% of record companies revenues came from digital channels in 2009 globally, for the first time, as music fans acquire tracks and albums from download stores, streaming sites, subscription services, free-to-users sites bundled with their broadband or mobile phones.

The digital music industry revenues reached $US 4.2 billion in 2009, compared to $US 20 million.

Music companies' global digital revenues grew by an estimated 12 per cent in 2009 totalling US$ 4.2 billion in trade revenues. Digital channels now account for 27 per cent of music sales, up from 21 per cent in 2008.

Despite this growth, the increase in the music industry's digital sales is not offsetting the sharp decline in sales of physical formats. Overall, global music sales fell for the tenth year running in 2009. Digital and physical global sales in the first half of 2009 were down 12 per cent, excluding performance rights income.

Illegal file-sharing has a negative net impact on music purchasing: In the UK, research from Harris Interactive in 2009 highlighted that nearly one in four P2P (peer-to-peer) file-sharers (24%) typically spend nothing on music, while finding an overlap of legal and illegal downloading among some file-sharers. A Jupiter Research study in five European countries in 2009 found that, although there is an overlap between online music buyers and file-sharers, the net effect of illegal file-sharing is negative.

P2P network file-sharing remains the most damaging form of piracy, but the last two years have also seen a sharp rise in non-P2P piracy, such as downloading from hosting sites, mobile piracy, stream ripping, instant message sharing and downloading from forums and blogs. According to Jupiter Research in 2009, about one in five internet users across Europe's top markets (21%) are engaged in frequent unauthorised music-sharing. P2P piracy is still the biggest source of this.

Piracy threatens creative industries: For years, digital piracy has been a problem most associated with music. Today, however, creative industries including movie, publishing and television, regard "monetising" the online world and addressing digital piracy as their greatest challenges. Illegal streaming and film downloads now account for 40% of the movie piracy problem by volume. Illegal distribution of TV content is growing faster than music and movie piracy.

(Source: International Federation of the Phonographic, Digital Music Report 2010)

Illegal industry impacts

Illegal file-sharing has a negative net impact on music purchasing: In the UK, research from Harris Interactive in 2009 highlighted that nearly one in four P2P (peer-to-peer) file-sharers (24 per cent) typically spend nothing on music, while finding an overlap of legal and illegal downloading among some file-sharers. A Jupiter Research study in five European countries in 2009 found that, although there is an overlap between online music buyers and file-sharers, the net effect of illegal file-sharing is negative.

P2P network file-sharing remains the most damaging form of piracy, but the last two years have also seen a sharp rise in non-P2P piracy, such as downloading from hosting sites, mobile piracy, stream ripping, instant message sharing and downloading from forums and blogs. According to Jupiter Research in 2009, about one in five

Internet users across Europe's top markets (21 per cent) are engaged in frequent unauthorised music-sharing. P2P piracy is still the biggest source of this.

Piracy threatens creative industries: For years, digital piracy has been a problem most associated with music. Today, however, creative industries including movie, publishing and television, regard "monetising" the online world and addressing digital piracy as their greatest challenges. Illegal streaming and film downloads now account for 40 per cent of the movie piracy problem by volume. Illegal distribution of TV content is growing faster than music and movie piracy.

(Source: International Federation of the Phonographic, Digital Music Report 2010)

Revenue: Figures in 2009

25% : Record company revenue from digital channels

$4.2b: digital music industry revenues in 2009

27%: share of digital channels in total music sales 

Industry takes a strong stand against piracy

"A decade's worth of music file-sharing and swiping has made clear that the people it hurts are the creators ... and the people this reverse Robin Hooding benefits are rich service providers, whose swollen profits perfectly mirror the lost receipts of the music business."

- Bono, singer-songwriter, in the New York Times, January 2010

"We have to find a way of funding our future and not pretend that new revenue models are magically going to rescue us as the world of recorded music is destroyed by piracy ."

- Björn Ulvaeus, singer-songwriter, formerly of ABBA

"Unless we engage the ISPs in assisting in the protection of rights, then the value of copyright is going to completely disappear."

- Simon Renshaw, LA-based artist manager

"In order to take the business to the next level and capture the enormous potential that's still untapped, we need new services to truly break through to the mass market. To do that, an attractive user interface, a strong value proposition and a clear marketing message are essential, as is an effective way of curbing piracy."

- Thomas Hesse, President, Global Digital Business, US Sales & Corporate Strategy, Sony

"We are in danger of creating a world where nothing appears to have any value at all, and the things that we make ... will become scarce or disappearing commodities."

- Stephen Garrett, Chief Executive, Kudos

"In the digital market place we need both the carrot and the stick - and that includes legislation to help people move from pirate services to the legitimate ones."

- Daniel Ek, CEO and founder, Spotify

Where do you get your music from? Do you prefer buying the physical product? Or do you find it better to keep digital music files?