IFPI releases world recorded music sales figures for first half of

2004
Some markets show first signs of recovery

London, 30 September 2004

Global sales of recorded music - audio and music video - grew by 1.7% in units and fell 1.3% in value in the
first half of 2004, compared to the same period in 2003.

Audio sales fell by 2.7% in value, while the music video sector grew by 20.2% driven by DVD music video,
which increased by 26.6%.

Interim sales of all audio and music video formats totalled $US13.9 billion, compared to $US14.1 billion in
2003.

The figures reflect a slowing of the rate of decline in music sales of the past four years. This is the best first-
half year result achieved since 2000.

Sales in regional and individual territories varied widely, with the effects of unauthorised file-sharing on the
internet and commercial piracy, among other factors, still affecting many of the world's markets.

The US music market is leading the recovery, while markets such as Canada, Germany and Japan are
showing a substantial reduction in their rate of decline. But other markets including Spain, Italy and the
Netherlands are still weak, and more recent reversals have hit sales in France and Australia.

Two bright spots are DVD music video, which continues to show strong growth and has helped offset the
decline in audio formats. Meanwhile, the growth of legitimate digital music downloads which suggests a
strong future for the online music market. These are not currently included in official industry figures.

The figures, including a summary of the world's top ten markets, were published today by IFPI, representing
the recording industry worldwide. IFPI has over 1,450 major and independent record company members in
more than 70 countries.

Jay Berman, IFPI Chairman and CEO said: "There are some signs that the world's markets are beginning to
recover, boosted by the continued growth of DVD music video, digital sales and added-value releases.
However, markets continue to be hampered by the dual effects of commercial and internet piracy. IFPI and
its national groups are continuing to persuade music fans to download from legitimate music sites, and not
file-share illegally. More and more consumers are using authorised download services - a distinctly positive
sign."

Regional and Country Highlights

In the North American region, the USA, the world's biggest market, rebounded from a steep drop in the first
half of 2003, showing a recovery with 5% growth in units, and 3.9% growth in value. Excluding record club
sales, unit sales and value were up 8.5% and 4.7% respectively (as reported by RIAA)*. Strong album
releases, retail promotions, and value-added product are helping to drive the recovery. Digital sales
continued to grow, outselling physical singles by 10:1. The Canadian market was virtually flat, resulting in
overall growth for the region.

In Europe, music sales fell by 5% in units and 7.7% in value, most affected by steep drops in Austria,
France, Portugal, Spain and Sweden. The UK, the world's third largest market saw a modest (0.6%)
increase in CD sales, helped by new acts including Franz Ferdinand, Keane and Joss Stone, and other high
profile albums. In Germany, sales continued to fall, but at a significantly slower rate than in previous years.
In Asia, there are signs that the long term decline in the Japanese market has at last slowed. Japan, which
accounts for 80% of sales in the Asian region, showed a slight increase in volume and stable revenues.
South Korea, which is severely affected by online piracy, again fell steeply, by 25% in value. Hong Kong also
fell sharply. Both markets have seen a significant reduction in the number of high profile releases. Although
physical piracy seriously undermines China's ability to realise its true potential, the country now has the
second largest Asian market and saw strong overall growth.

The Latin America region saw an increase in value of 23.5%, largely due to increased sales in Brazil,
Argentina and Mexico, economic recovery in the region and a strong release schedule.

Australia, buoyed during 2003 by strong local repertoire and DVD music video sales, dropped 9% in value.
New Zealand continued to fall, down 6.8% in value.

Sales in the second half of the year generally account for around 60% of annual sales, and this year will be
helped by a strong schedule of releases from acts including Andrea Bocelli, Britney Spears, Daniel
Bedingfield, Destiny's Child, Eminem, Green Day, Joss Stone, Ludacris, Nelly, R.E.M, Robbie Williams,
Shania Twain and U2.

* Note: IFPI's global market figures are based on a consistent methodology that is used across all markets.
In certain cases a different methodology may be used in national markets, and this may result in slight
discrepancies between global and locally-reported figures. For example, the figures reported by the RIAA in
the US will differ slightly from those reported in this release because IFPI counts total units as album
equivalents for global comparison (3 singles = 1 album). The RIAA does not apply this methodology.

SMEI also established the first major music company website in 1994, and launched the New Technologies and
Business Development department that same year. That department explores new businesses for SMEI, and
develops new products such as ringtones, Enhanced CDs, ConnecteD, and other Internet-related distribution
platforms.

In 1999, 100 years after the introduction of the Gram-O-Phone, the originators of the compact disc, Sony and
Philips, unveiled their jointly developed next generation sound carrier - the Super Audio Compact Disc (SACD) -
nearly 20 years after they introduced and established the Compact Disc as the standard and preferred format for
packaged music. By 2003 three of the other four major music companies began releasing their own SACD discs in
addition to those of more than two dozen independent labels.

Continuing its tradition of promoting technical innovation, SMEI entered the new century by establishing a joint
venture with Universal Music Group to launch an on-demand, Internet-based commercial music subscription
service, pressplay, that offers licensed content from all the major music companies as well as several independent
labels. Its music is also available online through services provided by MusicNet, Rhapsody, and Rioport.

Online music sales are expected to be weaker than analysts earlier forecast
because of overall sluggishness in the industry and lackluster digital
services, according to Jupiter Research.

The research firm, however, still expects Net music sales to grow to $3.3 billion in
2008 from less than $1 billion in 2003. Jupiter, which released its updated
estimates Monday, said it expects Internet sales to account for just over 25
percent of U.S. music spending by 2008.

Sales of CDs over online outlets will remain flat in 2003 at about $750 million,
according to the study.

"The industry is suffering from competition for entertainment dollars, changing

demographics, the end of the CD upgrade cycle, and piracy," Jupiter analyst Lee
Black said in a statement.
Services such as Apple Computer's iTunes and BuyMusic--launched last week
by Scott Blum, the founder of Internet retailer Buy.com--have created some new
buzz for digital download services by offering songs from major labels and
independent recording companies.

However, "while Apple has rekindled interest in digital downloads, total digital
sales--downloads and subscriptions--will not surpass $80 million this year," Black
said.

Jupiter has repeatedly lowered its online music forecast over the past few years,
each time citing an under-performing market and the failure of digital music
services to meet consumer expectations. Last year, the research firm projected
that the online music market would grow to $5.1 billion in 2007, a downward
revision from the $5.5 billion it expected in 2006.

Legal issues are proving to be a stumbling block for online music services. The
recording industry last month said it would step up its efforts to crack down on
individual file-swappers who illegally trade songs online.

BuyMusic's Blum last week said his goal is to have 1 million downloads a day by
the end of the year. In contrast, Apple's iTunes service soared when it was
launched in April, selling 5 million songs in the first eight weeks of operation.

The picture for Europe is no better, according to Jupiter Research. "Europe's

online music market has been stuck in the starting blocks for the last few years,
but the tide is finally beginning to turn," Jupiter Research analyst Mark Mulligan
said in a statement, citing EMI Recorded Music's decision to make most of its
catalog available online.

Facts and figures of the online music market
The Informa Media Group forecasts for the year 2006 a turnover of 9.7
billion US $ for the digital sale of music. 46,5 billion US $ are expected to
be earned overall with music on the internet world­wide.
For the same year, Jupiter MMXI expects more than two billion euros will
be earned in Europe with online music sales. According to analyst Mark
Mulligan these figures are a conservative estimate. They are presuming an
online share of the music market of 15 %. Optimists, such as for example
the Bertelsmann eCommerce forecasters, expect as much as 30 % online
business.
The online music market is divided into two main segments. CD sales via
E­tailers (Amazon, BOL, etc.) with 63% and the purely digital music sales
with 37% of the market. The latter represents 784 million euros. Of this,
463 million euros will be earned with music subscriptions and 321 millions
in pay­per­download. Music subscriptions offer the customer unlimited
access to the offer for 7 to 14 euros per month. In the pay­per­download
method, each title is paid for individually. Already this summer, the kick­off
for the first subscription models will occur when the new Napster­
Bertelsmann business model is launched.
Apart from the price of a piece of music or a subscription, the decisive
factor for the success of the digital sales models will be the range on offer.
According to various questionnaires, between 25% and 39% of the
Napster users are generally prepared to accept a subscription model,
however 56% just click off if they cannot find what they are looking for.
Simple and comfortable user guidance is repeatedly given as a minimum
requirement for successful internet sides. Jacob Nilsen, the „Webside
guru“, as the New York Times called him, has been warning for years about
the lack of user­friendliness of most websides.
The considerable fall in turnover in the German music industry in 2000 –
about 2.2% ­ will be even greater this year according to the IFPI
(International Federation of the Phonographic Industry). Music with a value
of 3.3 billion DM is illegally copied or downloaded. This development is
occurring world­wide.

The trend towards unlicensed music will not be greatly influenced by
repressive measures. A study by the diebold Management Consultants
identified a clear need for the music industry to catch up and improve its
digital music offer.

UMG is the global market leader and the leader in 65% of the markets
where it operates including the U.S., U.K., Germany, France, Canada,
Italy and Australia. With over 10,700 employees worldwide, UMG
leads the music industry in global sales with an estimated worldwide
market share in 2003 of 23.6%.

Album prices are rising at all the services, including Apple’s iTunes Music Store and the revived
Napster. Many titles sell for $13.95 and higher, up from a standard $9.99.

Singles had been a nearly universal 99 cents. But at Sony’s new Connect, tracks longer than a
standard pop tune are priced from $1.99 to $5.99.

Adding to the confusion: Many releases are sold as “single song” purchases only, so
consumers lose discount pricing for a one-click album purchase.

Music services pin part of the problem on copyright issues. Some songs haven’t been cleared
for digital use. So, the services sell “partial” albums, which requires a higher fee.

Sheryl Crow’s hits collection is sold on iTunes as a “partial” album for $15.84. “The Very Best
of the Eagles” — missing seven songs — goes for $13.86 at MusicNow.

Consumers aren’t offered an explanation for why the songs are gone. A new Carly Simon hits
package is missing 10 songs on iTunes. The entire 20-song album is available for $9.44 at
Wal-Mart and $9.99 at Musicmatch and Napster.
Chalk it up to growing pains. With 500,000 to 700,000 songs at the average digital download
store, keeping up with the music library is “like playing whack-a-mole,” said Laura Goldberg,
Napster’s chief operating officer. “We’re obviously not catching it all.”

If a database thinks there’s a missing song, albums can go for sale as “partial.” Jessica
Simpson’s “In This Skin” came with a bonus DVD, so Musicmatch’s database priced it as if it
were missing a song, CEO Dennis Mudd said.

Unlicensed free download services like KaZaA and Morpheus dominated digital music until
Apple’s iTunes launched in April 2003. Now, Musicmatch, Wal-Mart, MusicNow, Napster and
Sony have all entered the legitimate market, and Microsoft plans a download store. The
business is expected to grow from a projected $308 million now to $4.4. billion in 2008,
according to market tracker Forrester Research.

Online Music Sales to Crescendo

››› Retailing

By Robyn Greenspan | October 1, 2004

Digital music sales are expected to hit high notes in the coming years, but CDs will
still be the medium of choice, according to JupiterResearch

The European digital music market is expected to quadruple from the €10.6 million
(US$13.17 million) earned at the end of 2003 to €46.3 million (US$57.5 million) by
year-end 2004. The surge will continue through 2009 when digital music revenues
reach €836 million (US$1.03 billion), representing 8 percent of the total music
market.

The UK will lead the digital music charge, accounting for 30 percent of the 2009
European total at €248 million (US$308.27 million).

Digital music sales in the U.S. will outpace that in Europe, but CDs will continue to
rule in the States too. JupiterResearch expects digital music sales to reach US$270
million by the end of 2004, and grow to US$1.7 billion by 2009 - 12 percent of the
total consumer music spending.

Evidence that the paid downloading surge is well underway comes from research
from Ipsos-Insight. As of the first quarter of 2004, the firm found that 37 percent of
American downloaders had paid for online music, compared to 22 percent in 2003,
and just 8 percent who said they paid a fee the year prior.

Ipsos found that 62 percent of those who paid to download music burn the songs to
CDs, while just 26 percent transferred the files to a portable MP3 player. Jupiter
predicts that U.S. shipments of MP3 players will grow over 50 percent in 2004 - to
more than 5 million - and will continue to grow almost 50 percent per year for the
next several years.

Jupiter Research expects online music sales to grow to $3.3 billion by 2008.