Governments and businesses have yet to adapt to the growth in online music, a leading think-tank warned today (June 13).

Governments and businesses have yet to adapt to the growth in online music, a leading think-tank warned today (June 13).

The Paris-based Organization for Economic Co-operation and Development, which gathers the world's 30 wealthiest nations, called into question the online business model. In a 132-page report, OECD notes that record labels generated direct revenue from the sale of digitalized music, at the cost of third-party services.

For governments, the OECD warned that public policy was needed to address Internet piracy and deal with differing approaches to copyright.

The OECD said that Internet-based piracy may be curbed if licensed file-sharing and new forms of distribution were allowed to develop. However, it remained ambivalent about the effects of piracy on the music industry. "It is difficult to establish a basis to prove a causal relationship between the 20% fall in overall revenues experienced by the music industry between 1999 and 2003, but digital piracy may be an important impediment to the success of legitimate online content markets," the report said.

The report also warned that the incompatibility of audio and digital rights management formats and hardware devices could hamper the growth of online music. "A diversity of interoperable content, standards and hardware is likely to prove most beneficial to competitive online markets," it said.

It called for policies to balance the interests of suppliers and users in areas such as DRM without hurting innovative e-business models and new technologies.

The report said 2004 marked a turning point for the legitimate online music business. In-line with the IFPI's "Online Music Report,” the OECD said the U.S. and European online music markets featured 230 sites last year with more than 1 million available titles. It said online music sales account for only a small share of total revenues (1-2%), but are forecast to represent 5-10% of revenue by 2008.

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