Piracy and its Impact on Philippine Music Industry

Based on Danny Yson's report:

• The Philippine music industry was a P2 billion thriving industry, selling local and international artist songs, before the vicious tentacles of music piracy choked it to near collapse starting year 2000.
  
• It is estimated that the pirate audio disc piracy was a P1 billion a year illegal business while the legitimate industry has dropped by 25% in the year 2000.
  
• In 2001 alone, sales plummeted by 42.5% because of piracy.
• The loss of revenue in the local music industry continues to date.
  
• As an indication of poor sales, Philippine Association of the Record Industry (PARI) certified gold and platinum awards given in 2001 were only 18 compared to 35 in 2000.
  

The PARI has also reduced the required sales units for a gold record to 7,500 units from 20,000 units for international repertoire and 12,500 units from 20,000 units for OPM. There are is an average of 15 to 20 albums hitting a gold record while up to 3 albums may reach platinum in a year these days.

In the early years of music up to 2003, majority of records sold is from international artist pegged at 70% while OPM sales is only 30% at that time. However, the campaign for Original Pilipino Music (OPM) and the popularity of bands resulted to a market shift. Majority of sales today is OPM pegged at 70% while international labels is at 30%. (for further validation)

The local music industry has not grown much since the year 2003 where sales have not even reached P1 billion since that time - as the music piracy business is eating most of its market. Therefore, today in the year 2008, the local recording music industry is a struggling sector earning revenues up to P840 million a year from CDs, mobile phone tones, and Internet music download purchases. (for further validation)

The pirated music sector, victimizing local and international music, is growing at 40% to 50% per year and earns around P2 to 3 billion a year on local pirated music in terms of duplication, non-payment of performance rights, print rights, and digital performance rights. (for further validation)

Music piracy has shown that people love music but may not necessarily find it worth paying to the usual prices it is marketed today. Unlike movies and games where a person needs to have a player and set a time to watch, music can be heard almost anywhere and mostly for free (radio, coffee shops, bars, establishments, online radio, among others).

In addition, pirated music is so affordable that even artists that are not that popular are being purchased by Filipinos out of curiosity at the time of purchase. If no pirated CDs are available, it is still possible that pirated music buyers will not buy legitimate copies in the first place. Therefore it can be assumed that a big percentage of pirated music customers are not really the paying customers.

Music can indeed be heard everywhere but somebody (record label, radio, tv, bar or malls) paid for its cost. It is hard and perhaps even unfair to go on a price war with pirates as they do not incur expenses other than manufacturing cost. They did not spend money on production and marketing. As a result, record labels are reducing the number of releases. Just a few years back, big record labels will have 12 albums scheduled for release in one year. Today, most labels only have 5-6 albums planned releases for the year. While 1 to 3 big players will likely launch up to 12 albums a year.

We heard of international popular artists leaving their record labels to go on their own, partner with retailers, concert organizers, and even online music sites. This is caused by the dwindling sales of CDs and as a result, everybody's looking for other revenue streams. CDs are now being bundled with concert tickets, merchandise, among others. Independent artists have the freedom to do whatever they want with their songs and albums such as selling whatever price the consumer is willing to pay. In the end, music can be made cheap but it's not free.

Of course, if the artist has not established a following or name in the industry, the above options may not possibly work out without working with a record label. Especially if they want to profit from their music.

Minimize or eliminate piracy
In the eyes of intellectual property rights advocates, possessing a pirated cd/dvd or whatever copyrighted works should be criminalized. If nobody buys pirated work, then the pirates will stop or reduce their production. However, that's wishful thinking as eradicating piracy is a tall order but tougher Intellectual Property Rights Law implementation can perhaps minimize it.

Buying Filipino music download online

The increasing penetration of mobile phones that has music download capability and Internet users becoming more sophisticated globally, creates an opportunity for the selling and buying of music download online.

Internet-based music download sales reaches up P24 million a year and at its infancy stage. Most of these revenues are derived from international music sites such as iTunes. (for further validation)

Admittedly, not all record labels and websites are ready for this as piracy, cost, and other legal constraints come into play. Checking out music websites online led me to the following discoveries:

• Amazon now sells 1500 Filipino music titles online. Most of the images I noticed has a watermark of TatakPilipino.
• There are almost 110 Filipino artist listed in MP3.com but I haven't found any of them selling music downloads.

There are sites where some of the local artists were able to get their songs listed. Some of them includes:

• iTunes - the band Overtone, Kitchie Nadal, Universal Records, and Star Records have Filipino songs sold through it and can be purchased at US$0.99 each.
• From what I found out by asking around, at least 0.70 goes to the artist/record label. In the U.S., bands normally get 4.5 cents on every 99 cents digital download while the music publisher gets 9.1 cents.
• Local record labels would surely love to have their catalogue on iTunes. However, iTunes doesn't deal with record labels where iTunes is not available. The only way to do it is to have a deal with an agent based in a country where iTunes is available such as The Orchard. In that case, the revenue for the label will be lower as the agent will receive a commission for every download.
  
  
• Digijooze - is a local site where it sells music download of various Filipino artists and the cost per song ranges from 10 to 12 pesos. A prepaid card is usually purchased and the credits in it are used for purchasing. Record labels are usually offered up to 50% to 80% cut of the retail price. (3rd party source, no info on site, e-mail bounces) The site is able to offer at a lower rate as part of its value-added service is to improve record labels' website as well.
  
• As the site is selling songs using MP3 format without digital rights management (DRM), this has discouraged some of the record labels.
  
• I was trying to purchase from this site and realized that I can't buy the Digijooze card online as there is no registration page for that. When I clicked on the credit card feature, I didn't proceed as it immediately asked for personal information without even asking me to order the merchandise first and be informed of its cost. This makes me wonder on the policy of the credit card payment gateway it signed up with as that is usually not allowed.
• This site will also be working with one of the big shopping portal site in the country soon.
  
  
• Fliptunes - this site has almost 7100 songs that can be purchased online at 30 to 40 pesos each. It offers music downloads in WMA format with DRM. The site accommodates signed and independent artists and bands. Including video, its listing reaches up to 9000.
  Revenue share given to record labels is at 80%. (3rd party source, no info on site, refused to disclose)
  
  
• PinoyTunes.net - this has 4281 songs that can be purchase at US$0.75 per download. Revenue share given to record labels is at 80% (3rd party source, no info on site, no reply on inquiry so far)
  
  
• Another site where Filipino artist also tries to get into is Payplay and CDBaby.
  (Drip's song Far Side of the World can be found on that site)
• Mostly indie bands and performers.
• Record labels are not so keen in having their songs downloaded without DRM.
  
• Other popular sites where we will see more artists likely to join in the future are:
• Musicane
• Indie911
• Fuzz
• SNOCAP
• TuneCore
  

The download volumes of all local music sites are not encouraging at this time. There's no royalty report submitted as of this writing. In addition, there's hardly any marketing effort visible at this time on TV, radio, print, and online to drive sales. However, local record labels are optimistic still.

The revenue sharing arrangement between the record label, composer, and artist is based on mechanical production and digital performance rights.

As I was told, some CDs have different pricing tiers. Pricing usually depends if the CD is just released or if it's an old title. Obviously, the new ones would be more pricey than an old title unless the newly released CD has some sort of promo.

For music purchased online, one can argue that it is expensive compared to a CD with its per song price. Although being able to purchase only the songs you like may make it cheaper.