Social networks are changing the accessibility of music, helping it to become more democratic and utilitarian and this, according to the 2007 Digital Music Survey released today by music and entertainment research specialists, Entertainment Media Research and law firm Olswang, is having a profound impact upon the discovery and purchase of music, with far-reaching implications for the music business.

The Impact of Social Networks on Music Discovery & Purchase

The Digital Music Survey is currently in its fourth year and is an independent survey of 1,700 UK consumers. The research indicates massive increases over the last 12 months in usage of sites containing music such as YouTube (up 310% to 53%) and MySpace (up 57% to 55%). Amongst teenagers the incidence is huge – 77% have used MySpace and 69%, YouTube.

For users of these social networks, music is playing an increasingly important role. For example, 39% of social network users have embedded music in their personal profiles (65% of teenagers). Approximately 70% do so to show off their taste and half do so to reflect their personality. What’s more, it seems to work as almost 60% agreed that they could tell a lot about a person from the music in their profile.

The survey findings strongly suggest that social networks are also impacting music discovery. 53% of people revealed they actively surf social network sites to discover new music and artists and two-thirds of all users regularly or occasionally discover music that they love on their preferred social network site. The incidence is higher still on MySpace (75%), Bebo (72%) and YouTube (66%).

Crucially, the discovery is translating into changing purchase behaviour. 17% of social network users claimed it has a “big/massive impact” on the way they purchase music and 30% state that they “regularly/occasionally” buy CDs or downloads of music that they discovered on a social network site. This rises to 36% of MySpace users.

However, more needs to be done to make purchasing this music easier, with 46% of respondents agreeing with the statement “I wish it was easier to purchase music that I find on these sites.”

Russell Hart, Chief Executive of Entertainment Media Research commented,

”Social networks are fundamentally changing the way we discover, purchase and use music. The dynamics of democratisation, word of mouth recommendation and instant purchase challenge the established order and offer huge opportunities to forward-thinking businesses.”

John Enser, partner and head of music at Olswang, says,

"The music industry needs to embrace new opportunities being generated by the increasing popularity of music on social networking sites. Surfing these sites and discovering new music is widespread with the latest generation of online consumers but the process of actually purchasing the music needs to be made easier to encourage sales and develop this new market."

Is Legal downloading still booming?

After the dramatic 40% increase in the number of legal downloaders between 2005 and 2006, it appears the rate of growth of legal downloading is in decline. Over the last 12 months the total number of people legally downloading only rose by a much more modest 16% to 58% of music consumers. What’s more, the number of consumers who have stopped legally downloading music increased from 9% to 11%. In addition, 22% of legal downloaders admitted that they had not legally downloaded a track for at least six months (up from 12% in 2006) and the same number said they had only ever downloaded one legal track.

The survey by Entertainment Media Research and Olswang identifies a number of likely explanations for the slowdown:

1. Piracy is on the increase
Illegal downloading has risen to an all time high, with 43% claiming that they are illegally downloading tracks compared to 36% in 2006 and 40% in 2005. There is one clear reason why unauthorised downloading is increasing and that is because consumers are less concerned about being prosecuted (42% gave this as a reason for downloading less in 2006, compared to only 33% in 2007). Going forwards, the trend towards piracy appears to be in real danger of accelerating as 18% claim they will download more unauthorised tracks in the future compared to only 8% in 2006 and 6% in 2005. We note that the drop in fear of prosecution coincides with those prosecutions falling off the front pages of national newspapers.

2. Legal downloads are too expensive
As the retail price of new release CDs has declined materially over the last 12 months so the perceived pricing advantage of digital downloads has been eroded. In 2006, the price advantage of downloads was the third most significant factor (45%) in motivating download purchases. However, in 2007 this has declined to 31%. One measure to help combat this issue might be for music companies to consider introducing variable pricing models. 84% of consumers agreed that older digital downloads should be cheaper whilst 48% claimed they would be prepared to pay more for newly released tracks.

3. Increased awareness and rejection of Digital Rights Management
Digital Rights Management technology ("DRM") seems to be an increasing concern for legal downloaders. Almost two in three respondents (62%) had heard of DRM (with 42% having at least some knowledge of DRM), of whom the majority (61%) believed that it invaded the rights of the consumer to listen to their music on different platforms. Furthermore, of those that had an opinion (60% of all respondents) 68% felt that single track downloads were only worth purchasing if free of DRM and 22% of all respondents would prefer paying extra for DRM-free tracks, lending support to EMI's recent decision to release tracks DRM-free.

John Enser, partner and head of music at Olswang, says,

"As illegal downloading hits an all time high and consumers' fear of prosecution falls, the music industry must look for more ways to encourage the public to download music legally. Variable pricing models and DRM free music, which would allow consumers legally to transfer music to other devices, were popular among respondents and represent new ways of enticing people away from breaking the law."

Radio on mobiles rather than mobile downloading

The 2007 Digital Music Survey reveals some positive news for radio broadcasters. The incidence of listening to the radio on mobiles jumped from 15% in 2006 to a solid 25% in 2007. This is particularly heartening news for broadcasters for two reasons.

Firstly, it indicates that there is a “new” mass market platform with which to grow the critically important breakfast time market both in terms of audience and total listening hours.

Secondly, DAB-equipped mobiles of the future offer the prospect of additional revenue through the sale of music from broadcasters directly to the user’s handset.

Conversely, the outlook for downloading music to mobile via mobile telephony networks remains uninspiring. While a third of respondent consumers transfer music to their mobiles on at least a monthly basis, suggesting that there is increasing acceptance of mobile phones as music players, still only 16% of all downloaders claim to have purchased and downloaded music direct to their mobile phone. Moreover, the potential for rapid growth in the near future seems limited with 57% of downloaders either unlikely or very unlikely to start mobile downloading, whilst a further 9% "don't really understand how to do it". It is therefore clear that providers still have some way to go to make downloading to mobile attractive to the mass market.

The love of live music delivers new webcasting opportunities

The 2007 Digital Music Survey also has exciting news for webcasters and content owners with 10% of consumers willing to pay for live webcasts as they happen. Another 74% are interested of whom 31% are “very interested” in live webcasts and although they are not prepared to pay for it, at this level of overall interest one can anticipate an advertising-supported model for webcasting working well in the UK.

This substantial demand for live webcasts reflects the strong positive consumer relationship with live music: 64% agree that music is much more enjoyable when performed live and 59% say they are much more excited about seeing a band live than listening to their album. Additionally, the survey provides evidence of live music stimulating album sales: 57% of respondents often buy an artist’s album after seeing them live and 61% prefer to buy an artist’s new album before seeing them perform live.

Russell Hart, Chief Executive of Entertainment Media Research commented,

“The buoyancy of the live music scene combined with consumers’ stated preparedness to pay for live webcast content offers enlightened rights owners the prospect of a valuable new revenue stream.”

Notes to editors:

The 2007 Digital Music Survey was carried out in June 2007 using an online questionnaire by music research specialists Entertainment Media Research. This is the 4th year in which Entertainment Media Research has reported upon the state of the digital music industry. (www.entertainmentmediaresearch.com)

The sample comprised over 1,700 music consumers aged 13-60 drawn from Entertainment Media Research’s UK database

About Entertainment Media Research:

Entertainment Media Research is Europe’s foremost research consultancy for music & entertainment, founded in 1997 in anticipation of the digital entertainment revolution.

Today, Entertainment Media Research is an international research business headquartered in London serving the music, broadcast, entertainment and consumer goods industries in the UK, Continental Europe, Scandinavia, USA and Australasia. The company is independent and privately-owned.

What does Entertainment Media Research do? In short it supplies the research intelligence that enables entertainment decision-makers to push their creative boundaries and increase their marketing effectiveness to achieve the greatest financial return.

It achieves this by possessing unrivalled expertise in music and entertainment research, a large and continuously refreshed database of music and entertainment consumers representative of all popular music genres and a suite of ground-breaking research methodologies that have become the industry standard across Europe.

Entertainment Media Research is widely recognised as being one of the leaders in forecasting consumer trends in the music industry and as the publisher of PopScores. For example it was the first organisation to correctly predict the UK population of legal downloaders would exceed that of illegal downloaders in 2005.

About Olswang:

Olswang is a leading law firm renowned for its work in telecommunications, media and technology, real estate and biosciences. Founded in 1981, the firm has grown to a staff of more than 600 including 85 partners and has offices in London, the Thames Valley, Brussels and Berlin. Olswang has an alliance with US firm Greenberg Traurig LLP extending the firm's international capability and is acclaimed as a leading employer in The Sunday times Best 100 Companies to Work For 2007, for the third year running.

The firm's music team has established itself as a leading adviser to the industry through its work with major record companies, trade bodies and music users such as film producers and website operators. The firm's client list features several of the biggest names in the business, including record companies, collection societies and industry figures. We offer these clients a broad-based service that takes in corporate and commercial advice, dispute resolution, intellectual property, competition and e-commerce.
(www.olswang.com).