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Midem You don't need to be a Kremlinologist to detect the latest shift from the sound recordings industry. In its digital music report this week, the IFPI, the international trade group for recordings owners, provides scarcely a mention of the roaring "success" of its litigation against file-sharers. Instead the focus is squarely on getting the service providers to clean up their networks.

“I am convinced it is no longer a question of whether the ISPs act – the question is when and how,” IFPI chairman John Kennedy writes in a foreword to the report.

“More than anyone else in 2007, our industry has to thank French President Nicolas Sarkozy and the Chairman of FNAC Denis Olivennes for the change of mood.”

“It takes the protection of intellectual property online into new territory, requiring ISPs to disconnect copyright infringers on a large scale, using an automated system and to test filtering technologies," writes Kennedy. He also cited the Sabam-Tiscali case in June, in which the ISP was ordered to monitor its network for infringing material. In France, households found infringing will have their broadband disconnected.

[We have a wide-ranging interview with Kennedy that we'll post shortly.]

As with any kind of politics, it's important to distinguish rhetoric from reality. Is the sabre rattling an end in itself, or a means to an end?

It all depends on how effective the French model is in changing behaviour – assuming it becomes adopted by ISPs - and that depends on how effective the infringement detection is. LimeWire users, MP3 blog surfers, and (especially) people using unencrypted Torrents are sitting ducks. But with so much infringing material rapidly disappearing behind the cloak of encryption, it's going to be hard for the ISPs to do an effective job of what's being asked: Torrents has a very popular legitimate use already. If IFPI doesn't already know all this, then it's been beguiled by sweet talking technology vendors - and not for the first time.

But if the goal is financial, rather than behavioural, you can see why the music business eyes the ISPs enviously. Broadband revenue, at $100bn, is three times the size of the global sound recording business worldwide. Mobile network revenues are an order of magnitude larger – text messaging alone is worth twice the global sound recording business, and the gap is getting wider.

The IFPI report argues that since broadband ISPs already filter their networks for email spam, they should be able to filter them for infringing material, too. However with the popular BitTorrent clients now using encryption by default, the law would require a presumption of guilt to be shifted onto the suspect. Distinguishing between legal and illegal exchanges in an encrypted stream is extremely difficult.

No wonder the IFPI is cock-a-hoop at the French decision, because copyright owners had to give so little back in return. There was a promise from the movie business to release films sooner, and a promise to mandate DRM interoperability. But DRM on music is dead anyway. The stick worked, without the accompanying carrot. ISPs gained no new favourable licensing terms, such as decriminalizing music consumption that went on in their networks.

Executives will be further encouraged by a column here at The Reg where Guy Kewney calls for state licensing of computer use, and suggests that high-end PC owners register their details (and IP address) with the authorities in advance. Not surprisingly, such intrusive state interference has won little support from Reg readers.

The bulk of the report is statistics on the digital music marketplace – the bit that's legal.

The digital kiosk

IFPI estimates digital revenues rose by $800m to $2.9bn in 2007, or from 11 to 15 per cent of total sound recording revenues. Overall, the report highlights that growing licensed digital revenues are failing to balance the fall in physical CD sales. Mobile accounts for around a third of the digital revenue in markets such as USA, Germany and the UK – mostly in the form of master tones – and an amazing 91 per cent of digital revenues in Japan. The report cites Universal Music's Rob Wells as describing the singles market as reaching late 1980s volumes, thanks to mobile downloads and ringtones. Subscription accounts for just 5 per cent of digital sales.

A sobering thought haunts executives - as it should. The games industry association reported spectacular growth in the business, which is worth almost $19bn, $9.5bn of which comes from software. Even as it thinks it's "winning the war on piracy", the music business is losing the battle for the share of our wallets, and until it puts revenue first, it's in a terminal condition. ®

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