Infringement of IP rights in the music sector can occur through physical or digital channels (for instance, through the purchase of fake CDs or downloading of illegal content). This sectorial study analyses the effect of piracy on the recorded music industry, independent of the format independently of the infringing good or service. Survey revealed that although citizens recognise the value of IP in principle, they tend to justify their infringements as a consequence of individual circumstances as opposed to the recognition of the principle.
The recorded music industry is a core copyright-intensive industry. The main finding of the study is that in 2014, the recorded music industry lost approximately €170 million of sales revenue in the EU as a consequence of the consumption of recorded music from illegal sources. This total corresponds to 5.2% of the sector’s revenues from physical and digital sales. These lost sales are estimated to result in direct employment losses of 829 jobs. If the knock-on effects on other industries and on government revenue are added, when both direct and indirect effects are considered, infringement of IPR in this sector causes approximately €336 million of lost sales to the EU economy, which in turn leads to employment losses of 2,155 jobs and a loss of €63 million in government revenue. Recorded music industry sales include wholesale value of the sale/licensing of recorded music products to domestic retailers/intermediaries. Revenues from music distributors and retailers are therefore not included in the study.
A major problem which has hindered the effective enforcement of Intellectual Property Rights (IPR) in the EU is a lack of knowledge of the precise scope, scale and impact of IPR infringements. Different approaches have been used, such as surveys, mystery shopping, monitoring of online activities, making it all the more difficult to aggregate information for the whole economy. The very nature of the phenomenon under investigation makes it extremely challenging to quantify reliably, as obtaining comprehensive data for a hidden and secretive activity is by necessity difficult.
The recorded music industry revenues are generated through a diverse portfolio of channels and formats of music consumption. The information available includes revenues detailed by format, including:
- Physical music: broken down into seven categories: singles; albums (LPs); music cassettes (MCs); compact discs (CDs); Minidiscs; Super Audio CDs (SACDs); and music video. CD sales via internet are included as physical sales.
- Digital music: includes permanent downloads, mobile personalisation, subscription streams income (both free and premium tiers), ad-supported streams income (e.g. YouTube or VEVO) and others.
- Performance rights: income received for licenses granted to third parties for the use of sound recordings and music videos in broadcasting (radio and TV), public performance (nightclubs, bars, restaurants, hotels) and certain internet uses.
- Synchronisation revenues: fees or royalties from the use of sound recordings in TV, films, games and adverts.
For the 19 EU Member States considered, the estimated total effect of infringement of IP rights amounts to 5.2% of recorded music sales. This ratio is a result of 2.9% lost sales in physical formats and 8.8% of digital formats sales. Total lost sales in 2014 amount to €170 million of which €57 million are lost sales in physical formats and €113 million are lost in digital formats.
In addition to the direct loss of sales in the music sector, there are also impacts on other sectors of the EU economy, as the sector suffering lost sales due to piracy will also buy fewer goods and services from its suppliers, causing sales declines and corresponding employment effects in other sectors. Across the 19 EU Member States in 2014, the total direct and indirect effects of lost sales due to piracy amounted to €336 million. Finally, the reduced economic activity in the legitimate private sector has an impact on government revenue as well. The total loss of government revenue (household income taxes and social security contributions, corporate income taxes and VAT) can be roughly estimated at €63 million.