U.k., France, Australia Buck Worldwide Sales Decline

Strong domestic repertoire and a lively music retail sector are among the factors that helped three major world markets—Britain, Australia, and France—buck the global trend of declining music sales in the first six months of 2001.

According to the International Federation of the Phonographic Industry (IFPI), first-half trade shipments worldwide fell by 5% in value and 6.7% in units (Billboard Bulletin, Oct. 1). Of the top 10 markets, the U.S., Japan, Germany, Canada, Mexico, and Brazil all posted value declines ranging from 5% to 36%, while Spain was effectively flat and the U.K., France, and Australia enjoyed increases of 10.5%, 7.9%, and 10.8%, respectively.

Sony Music Europe president Paul Burger says, "The good results both in the U.K. and France are indicative of the fact that when the product flow continues to be strong, frankly, there is still room for good news in this business."

HMV Media Group CEO Alan Giles comments, "Looking at the collective forces of the industry, at both the retailers and the labels, we've been firing on all cylinders in the U.K., whereas in some of the other markets one cylinder or another has been misfiring somewhat." HMV operates in North America, Europe, Asia, and Australia.

Another major music merchant, Virgin, is making news in all three of the territories that are showing first-half growth. It is returning to the Australian market in a deal that also sees the company selling its 77-store Our Price U.K. chain to Australian retailer Sanity (see story, page 53). Earlier this year, Virgin sold its 16 stores in France to local media group Lagardere. The pact bolstered the latter's Extrapole chain in its competition with market-leading music merchant FNAC.

EMI Recorded Music Europe president/CEO Emmanuel de Buretel says domestic repertoire is healthy in the U.K. and France. In both, local acts take 51% of the business, according to the IFPI. De Buretel adds that France is "a much more organized market than before. We have a quota for domestic [repertoire] on the radio, and we have help for touring outside France."

In Australia, the emergence of a third music radio network, British-owned DMG, has helped both domestic and new international acts. Its first metro outlet, Nova Sydney, found a 7% share after an April launch. Its arrival "created a lot of competition," Sony Music Australia chairman/CEO Denis Handlin says, "and we're hearing more new music than before, and a lot sooner."

According to the IFPI, the global slide—compared with the first half of 2000—is the result of such factors as the macro-economic slowdown, a massive proliferation of CD burning, and the increasing availability of unauthorized Internet downloads.

Interim shipment figures do not necessarily reflect the full-year performance of the business. Warner Music Europe president Paul-René Albertini remarks, "I don't like to make major judgments based on [the first half of the year]. We could very well see markets returning to better figures by the year's end, particularly as all European markets will benefit from a very strong release schedule in the last quarter."

Likewise, executives warn that the IFPI figures for Australia should be viewed in context of an extraordinary 2000. Sanity managing director Ian Duffell says, "You need to look at retail sales, not wholesale sales."

Giles adds, "There have been some distortions in that market around the changes to the [Goods and Service Tax in July 2000], and there was the Olympics effect."

Universal Music Australia chairman Peter Bond observes, "After a flat 2000, it wasn't surprising that consumer confidence bounced back."

The strength of independent labels is another factor common to Australia, France, and the U.K. Philip Mortlock, board member of Australia's Assn. of Independent Record labels, says, "[That sector] shows up substantially in sales and chart activity in the last 12 months."

Cliff Dane, whose British-based Media Research Publishing offers an annual accounting of U.K. music-industry profitability, cites a number of U.K. independents with strong income, including World Circuit, XL Recordings, and Wildstar.

Global music chiefs will take heart from the three growth territories not only because they buck the downward trend, but because these have traditionally been important profit engines. The financial strength of U.K. and French record companies has helped advance their chief executives' careers onto the world stage in several cases, while Sony Music's Australian unit has consistently been a strong profit performer. That said, there are concerns about the future. Giles says, "We worry that there is less focus on local artist development than is appropriate for the long-term health of the industry in some markets."

Transhipments continue to muddy the waters, too. Parallel imports are a controversial topic in the U.K., while one leading Australian retailer contends that export sales there account for up to 8% of the market's growth.

"As a business, we're facing challenges from many quarters," Burger says. "In all likelihood, more people have consumed more music than ever before, in the first half. The only thing is that many of those people are for the first time, in a wholesale way, consuming that music without paying for the consumption."