Adapting to the Future in a Rapidly Changing Environment | BPI Chief Executive Geoff Taylor AGM Speech, 7 July 2009

Thank you very much.  Now Tony, I know you're something of a Renaissance man - well Mike Batt tells me you're that old - so you will know that this year is the 150th anniversary of the publication of Darwin’s Origin of the Species.  And those amongst you who didn't bunk off double biology to do your own "field research" will be aware that Darwin’s great insight was that survival is based upon adaptability. The ability to change when the environment around you changes is the difference between survival and extinction. So this year seems like a good time to consider how far music companies and the BPI have come in adapting to a rapidly shifting environment.

As Tony highlighted, British artists consistently show an outstanding ability to adapt to, and to shape, musical tastes at home and abroad.  And British music companies have shown a similar willingness to experiment and take risks, abandoning DRM and taking the lead in licensing new business models.

But all these new digital models remain hampered by the easy availability of unlicensed music across the internet.  I have heard Lucian describe the threat from digital piracy as a kind of global warming for the creative industries. Research for BPI by Jupiter shows that this year music labels will forego £200m in lost revenue due to illegal downloading – to use modern currency, that's two and a half Ronaldos. Between 2007 and 2012 the cumulative loss will be £1.25 billion.  And to quickly deal with the cynics - these are independently researched figures that discount heavily for downloads that may not have been purchased. We believe that if anything they understate the problem.

That's why the BPI's number 1 objective in the last year has remained tackling online piracy.  We can't help you sign great artists and nurture them on to international success. Our mission is to help ensure there is an environment in which music companies are able to flourish.  That has meant stepping up our work with government on ISP responsibility.

When I spoke to you this time last year, the BPI was only two weeks away from signing the MOU on Unlawful Filesharing with the government, the film industry and the main UK telcos.  We were under strict instructions from Ministers to say nothing.  Any of you who have had dealings with the Minister, Baroness Vadera, will know that a vow of silence to her is like a mafia omerta. So I’m sorry I couldn't brief you last time on the progress we had made.

But the MOU was a watershed. For the first time, ISPs publicly accepted their responsibility to deal with online filesharing. And Government explicitly committed to achieving a 70-80% reduction in illegal downloading in 2-3 years.  The 3 month trial of notifications demonstrated that the BPI’s evidence is robust and that notifications work as the first step of graduated response. And Ofcom undertook a detailed analysis of technical measures ISPs can deploy to deal with subscribers who ignore notifications.

After another serious outbreak of consultations, the MOU was finally followed by the Digital Britain report last month.  

As you may have seen, we expressed disappointment over Government’s “digital dithering”, because it identified the measures necessary to achieve a 70% cut in illegal filesharing, but then failed to bring them immediately into force. We also do not share Government's view that litigation against filesharers is the best way of tackling a problem on this scale.

Nonetheless, we shouldn't lose sight of the progress made. Large numbers, potentially millions, of letters will go to subscribers educating them about copyright and legal services. This on its own is likely to have an impact, and may save millions of pounds for the industry every year. We don’t think it will be sufficient, even backed by legal actions, to cut illegal downloads by 70%, but Government has listened to us and given reserve powers to Ofcom to make ISPs implement technical measures, if its policy doesn’t deliver the goods within a year of letters going out.

With the legislative timetable still to run, we can't take these commitments to the bank and cash them, and we’re concerned both about how they will be implemented and the time it will take to get action up and running. But we’ll continue arguing for the legislation to be strengthened in Parliament - in particular by pressing for full graduated response from day one - and try to make sure that, should the Government change before the law is passed, the new administration is just as committed to getting it onto the statute book.

Moving from policy on piracy to action on the ground, we have responded to the changing digital environment by further strengthening the BPI’s internet anti-piracy team.  They have developed new robots which increased the illegal files we actioned for you in the last year by over 600%, to around 400,000 files.  Major cases include the arrest of the individuals behind one of the largest international pre-release trackers Oink, and last month’s successful raid on the DV8 and RageMP3 groups, which specialised in leaking albums onto the internet before their commercial release.  DV8 in particular focussed heavily on UK independent label music.  We can also report strong results on illegal peer-to-peer hubs: the number located in the UK has been reduced from more than 150 a year ago, to 54 today.

On the physical piracy side – or “putting doors through" as Woody likes to call it – the APU has done 138 raids so far in 2009, recovering over 2.4 million pirate discs. This is just the stock the pirates were holding at the time; the impact in terms of halting their operations is far greater. Long jail terms have been handed down to ten individuals in organised crime gangs in the North West of England and to a major supplier of physical counterfeiters in Scotland. In the Scottish case, we uncovered a domestic manufacturing facility with 18 computers, 79 external hard drives and about 6,500 discs, containing over 1 million MP3 music files.  As licensing becomes more important to the business, the unit has diversified to assist PPL in enforcing its licences, and has also targeted getting  compensation from those who defraud the industry. It has returned £1.7 million in recoveries to PPL in the last 12 months.

The second major area in which we are trying to improve the environment for music companies is copyright term. I’m pleased to say that in this area too there has been real progress.  In December, then Culture Secretary Andy Burnham announced that the UK Government, which had long led the opposition to any extension, would support an extension to 70 years.  Behind this welcome change lay months of painstaking work by BPI with the Musicians Union, PPL and AIM to craft an agreement ensuring that extension would deliver real benefits for musicians and artists.  The deal included workable measures on “use it or lose it”, an enhanced share of PPL revenue for session musicians in the extended term, and a “clean slate” and minimum royalties for featured artists. These applied to all future as well as current recordings. Some of these measures ended up as features of the Directive.  It’s very frustrating that despite the change in UK government position, we remain just short of the qualified majority we need for the Directive to pass in the EU Council of Ministers, and it looks like we have to wait until early 2010 before further progress can be made.  We will continue to press our Government to maintain its position of support and to convince other Member States that an extension will deliver real benefits to European musicians and culture.  

Our legal team has had a key role to play on both digital piracy and copyright term. But they have also been working hard to update the contractual relationship between labels and session musicians. And I’m pleased to tell you today that at an executive level, BPI and the MU have reached a consensus on basic heads of terms for a new deal that we hope will both simplify and update the basis on which session musicians are paid and ensure that the terms are appropriate for the digital age. The shared aim is that the new agreement should incentivise the employment by labels of British musicians, while reflecting changes in the industry over the last few years. It should also allow labels to avoid up-front costs for backing track and music video buyouts, before they know whether a recording will be successful. There is a lot more work to do together, but agreement on the basic framework for a deal represents a step forward.

In the vital area of communications, we have endeavoured to show that record labels have evolved and are now in the forefront of the new digital economy, and that they play a key role in the music ecosystem by supporting emerging British talent.  To help us do this we have launched a new BPI website, and our research department has helped with new studies revealing the exceptionally high levels of A&R investment in the UK and the strong  growth in digital licensing revenue mentioned by Tony earlier

And as you have seen, the BRIT Awards and Classical BRITs once again excelled as showcases for British music.

Independent members face particular challenges at the moment, so Julian Wall has been busy on behalf of our members, organising two very successful trade missions to Japan & Los Angeles, helping members to develop their businesses in these major markets. He has also worked with Midem to reduce the cost of this important trade fair for smaller labels in 2010, and with AIM and others to help manage the fall-out from the collapse of Pinnacle, Zavvi & EUK last year.  Looking forward, BPI has strongly supported the recent launch by OCC of an independent chart, which will provide a valuable platform for independent music, both in the UK and abroad.  

Indeed, in all of the areas of our work, I’m privileged to work with an exceptional team of talented and committed people, and I’d like to say thank you to all of them - in particular to our Events team who have once again pulled out all the stops to look after us today.  Thank you.  

Now as we’ve worked to improve all our services to members, we have been exceptionally conscious of the financial climate for labels and the need to deliver better value than ever before.  So with our finance team, we have focused hard on programmes to reduce subscription costs for members. One example of such an initiative is that our good friends at the Official Charts Company have recently come in to share the office space at County Hall.  As a result of this work, budgeted BPI member subscriptions were reduced by 34% from 2007 to 2008, and actual subscriptions for major members were halved year on year, taking into account a refund we are making from additional savings. We plan to deliver on our budget for a further 10% reduction in subscriptions for all members in 2009 and we are now examining further ways to save costs and drive new income to reduce subs in 2010.

2009 has seen the anniversary of revolutions in China, Eastern Europe and Iran – indeed, they nearly had another one.  As epitomised in Barak Obama’s election campaign, the watchword for the year has been change.  I don’t see it being any different next year.

The Conservative philosopher Edmund Burke said, “unless you have the means of change, you do not have the means of your own conservation”.  

You have shown that rather than being swept away by the tide of events, you have the imagination, the energy and the will to embrace the transformations that are happening and that, rather than just be moulded by them, you can be sculptors of your own future.   We work every day on your behalf to help ensure there is a business climate in which those changes are properly rewarded.

For there is one constant that underlies all of this adaptation and which means that our genetic future as a business is secure.  Making great music is our DNA and that is something that natural selection will inevitably favour.  

Thank you for listening.