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10 June 2011 Convergence Review Secretariat Department of Broadband, Communications and the Digital Economy GPO Box 2154

CANBERRA ACT 2601 By email: convergence@dbcde.gov.au Dear Sirs Framing Paper: Convergence Review 2011 Thank you for the opportunity to comment on the Convergence Review Framing Paper (the Framing Paper). The Australian Recording Industry Association (ARIA) is the peak trade body for the recorded music industry in Australia. We have over 100 members ranging from the local affiliates of the four major international record companies through to significant Australian independent record labels and a substantial number of smaller Australian record labels. ARIA considers that the key guiding principles set out in the Framing Paper are broad enough to cover the necessary range of issues which we highlighted in our submission to the Draft Terms of Reference, including relevantly from our perspective: a. the production and distribution of local market content; b. the protection of content to ensure its ongoing production and distribution and thus to maximize the range of legitimate content services available to Australians; and c. the ongoing development of appropriate legislative and regulatory frameworks. In particular, ARIA specifically welcomes the principles set out below: Principle 2: The communications and media market should be innovative and competitive, while still ensuring outcomes in the interests of the Australian public. Principle 3: Australians should have access to Australian content that reflects and contributes to the development of national and cultural identity. Principle 6: Australians should have access to the broadest range of content across platforms and services as possible.

ARIA Submission re Convergence Review Framing Paper Implicit within each of these guiding principles is a recognition that content needs to be appropriately protected to ensure its ongoing production and distribution. As the recently released Sphere Report into 1 The Impact of Internet Piracy on the Australian Economy confirmed, the negative impact of internet piracy on the Australian economy in 2010 was significant: 1. The annual value of lost retail revenue to Australian core content industries was $900 million. 2. Over 8000 jobs were lost in the core content industries sector as a result of internet piracy. 3. The annual impact of internet piracy to Commonwealth Government revenues was $190 million. By 2016, the Sphere Report estimates: 1. The value of annual lost retail to the Australian core content industries sector will be $5.2 billion a loss of $18 billion over the period 2010-2016. 2. A further 40,000 jobs could be lost in the core content industries sector as a result of internet piracy. 3. The annual impact of internet piracy to Commonwealth Government revenues will be $1.1 billion a loss of $3.7 billion over the period 2010-2016. With an estimated 95 percent of music downloads on the internet being illegal, it comes as little surprise that the incentive for the Australian music industry to invest in new artists, particularly Australian artists, and new business models to deliver legitimate content to Australian consumers is severely undermined in circumstances where major and independent labels cannot capture the gains generated from their investments. The International Federation of the Phonographic Industry (IFPI) Report entitled Investing in Music (the 3 Investing in Music Report) highlights that labels invest about 30 per cent of their sales revenues in developing and marketing artists. Of this, an estimated 16 per cent is spent on artist and repertoire work 4 (A&R). This far exceeds the research and development investment of many other industries. As a result, Australia has a vibrant and diverse music scene, with many of our artists being recognised internationally. Innovative business models have also transformed the music industry enabling it to operate in the digital economy, to deliver diversified products to Australian consumers and to enter new online markets. The recent IFPI Recording Industry in Numbers report illustrates that while global recorded music revenues declined in the past six years, digital sales grew strongly in many territories including Australia, with digital channels now accounting for 30 per cent of all trade revenues to record companies worldwide. There are now more than 14 million tracks available from over 400 legal music services worldwide in Australia they range from download stores such as iTunes to streaming subscription services such as via Bandit.fm. In February 2010, AAPT launched Music to Your Ears a 24/7 unlimited broadband bundle that enables Australian customers to stream over 1 million songs and download $50 worth of music per 5 month. But to ensure ongoing investment in Australian artists and innovation in content delivery models it is critical that there is sustainable commercialisation. As the Investing in Music Report canvasses, labels
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The Sphere Report is based on the highly regarded report by the independent Paris-based firm TERA Consultants delivered to the International Chamber of Commerce on the economic impact of internet piracy in the European Union (EU) in March 2010. The report is available at http://www.bsa.org/country/Research%20and%20Statistics.aspx?sc_lang=en-AU. 2 IFPI, Digital Music Report 2009 available at http://www.ifpi.org/content/section_resources/dmr2009.html. 3 IFPI, Investing in Music, 2010 available at http://www.ifpi.org/content/library/investing_in_music.pdf. 4 ABS, Innovation in Australia Business (catalogue number 8158.0) available at http://www.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyCatalogue/06B08353E0EABA96CA25712A00161216. 5 See http://www.aapt-broadband.com.au/unlimited-broadband-music-downloads/home?gclid=CKX94P3c36ACFQa0bwodXAfgCg.

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ARIA Submission re Convergence Review Framing Paper are the principal financial investors in musical talent, they are key in developing and promoting artists and they add value to artists throughout their careers. Artist advances, recording, marketing and promotional costs are the biggest items of record label spending. Continually investing in new talent in the music industry is a hugely risky business, as only a minority of the artists developed by music labels will be commercially successful in a highly competitive market. Estimates on the commercial success ratio of artists vary between one in five and one in ten according to the Investing in Music Report. Typically less 6 than 15 per cent of all sound recordings will break even and even fewer will return profits. In an article in the Weekend Australian, Ian Cuthbertson commented:
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But when people steal files from the big stars, its the emerging artists at the bottom of the tree who frequently pay the piper by not being signed not being allowed to even exist. Everything may be free now, as Gillian Welch sings, but in the end we all pay the price. In Spain, where illegal file-sharing continues unabated at high rates due to weak legislation, music sales fell by around 17 per cent in 2009 and the market is about one-third of its level in 2001. In Spain, the victim has been investment in local acts. The number of local artist album sales fell by 65 per cent 8 between 2004 and 2009. Similarly in France, a territory also adversely affected by high online piracy rates, the number of local repertoire album releases plummeted from 271 in the first half of 2003 to 107 in 9 the same period of 2009. Finally in Brazil, a country where 70 per cent of music consumed is domestic repertoire, music sales fell by more than 40 per cent between 2005 and 2009. This had a disastrous impact on investment in local repertoire in 2008 there were only 67 full priced local artist album releases 10 by the five biggest music companies. Furthermore, ARIA affirms and repeats its strong view that local content quotas that currently apply to commercial radio (under Commercial Radio Australia Codes of Practice: Code Of Practice 4: Australian Music) should continue to apply and be extended to other forms of radio in a converged media environment. In this way, we can best ensure Australians continue to have access to Australian content that reflects and contributes to our national and cultural identity. ARIA welcomes the opportunity to provide additional information on these important issues that are recognised in the principles of the Framing Paper in its formal submission to the Convergence Committee. Please do not hesitate to contact me if you require any additional information. Yours sincerely

Dan Rosen CEO ARIA drosen@aria.com.au Tel +61 2 8569 1147

Digital Britain, Digital Economy Bill Impact Assessments, November 2009, page 96 available at http://www.bis.gov.uk/assets/biscore/corporate/docs/d/10-810-digital-economy-bill-impact-assessments.pdf. 7 Cuthbertson, I The death of the CD, Weekend Australian, 23 October 2010, page 6. 8 IFPI, Digital Music Report 2010, page 6 - available at http://www.ifpi.org/content/library/DMR2010.pdf. 9 Ibid. 10 Ibid at page 19.

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