The Opening Address to The First MIDEM Latin America & Caribbean Music Market, Miami Beach, Florida September 9, 1997 Manolo Diaz, President, PolyGram International Latin America

Latin America is mostly known by its Tangos, its siestas and its substances. The image of this region in the rest of the world is far from being excellent, but the music industry is alive and well and living there. It could not be otherwise, because in spite of the historical volatility of its economy, there is no other region with the richness of its music.

Tango, Samba, Bossa, Cumbia, Mambo, Merengue, Reggae, Calypso, Salsa, Cha Cha, Bolero, Bachata are only a few of the musical genres and rhythms of this region. All of them are known around the world.

Recording artists from Latin America and the Caribbean that are highly respected internationally are many. Names like Chico Buharque, Roberto Carlos, Jimmy Cliff, Celia Cruz, Gloria Estefan, Gilberto Gil, Juan Luis Guerra, Bob Marley, Pablo Milanes, Milton Nascimento, Mercedes Sosa, Caetano Veloso, and many others, have succeeded and continue to succeed in all continents.

The songs of our composers like Antonio Carlos Jobim, Agustin Lara, Ernesto Lecuona, or Armando Manzanero have been adapted to many languages reaching universal popularity. Who in the world has not heard "Girl from Ipanema" or "It's Impossible"?

And what about the economy? Well, historically the only economic constant in Latin America has been volatility. After the catastrophic 80's, seen by many as "the lost decade", the first half of the 90's has demonstrated that Latin America's reputation as an economic roller coaster was well deserved.

Let us look at the last 3 year period, 94-96.

Mexico

• In 1994, Mexico joined the US and Canada in the NAFTA agreement. Inflation was as low as 7%; the local currency was stable.

   

• In December of the same year the Mexican Peso collapsed and one year later, in 1995, the currency had devalued 100% versus the US Dollar. Inflation increased from 7% to 52%. The music market, at retail, declined 24% in units and 45% in hard currency value.

   

• In 1996 The Mexican music market grew 31% in value, but today it is still below the 1994 level.

• In 1994, for no predictable macroeconomic reason, the Argentinean music market fell 15% in units.

   

• One year later, in 1995, due to the Tequila effect the Argentinean market fell another 22% in units. In two years the music market had declined 34% in units

   

• In 1996, the Argentinean music market recovered but today it is still below the level of 1993 in units.

• In the 4 year period, 93-96, Brazilian inflation fell from, 2148% to 10% per year.

   

• In the same period the retail music market grew from US$300m to US$1.2bn, or 4 times in 4 years.

• In 1996, the local currency devalued 80% against the US$. Inflation reached 100%.

  But what about the future? According to international analysts the future of Latin America is expected to bring across the region economic stability and macroeconomic growth.

  Investment bank, Bear Sterns, shows in its latest global report increased optimism regarding Latin America. And it predicts the following macroeconomic behavior:

   

• Latin America's GDP, that increased 3.9% in 1996 is expected to grow 5.2% in 1997 and 5.3% in 1998.

   

• Regional inflation in the same period is forecast to decrease from 15% to 10% and then to 7% in 1998.

On a more positive note a report compiled by Market Tracking International for Music Business International Magazine indicates that sales of music in Latin America from 1997 to the year 2005 should experience a compound growth of 12% a year in those 9 years. Or a total growth of 167%.

Now, in a future in which Latin America looks better than ever, the problems that affect our industry are big and urgent. Piracy, New Technologies and Legislation are the most important challenges.

The record business is truly unique in that it is a global enterprise based on local creativity. Unlike other industries, the record business is wholly dependent upon its ability to develop talent at national and regional levels, and has an enormous stake in the establishment of conditions that promote creativity and expression.

The thread that binds us is an appreciation of the need to find ways to encourage creativity, and the preservation and distribution of cultural materials. This fragile thread is known as copyright.

Where there is no legal protection and no enforcement of copyright - or where there is a law but no one will apply it - there are no financial incentives for investing in and producing music. That market necessarily becomes overwhelmed by pirate production. That was the case in much of Asia a mere ten years ago, and is still unfortunately the case in many parts of Latin America today, where piracy eliminates cultural production.

It is essential that policy makers and law enforcement officials understand that adequate copyright protection is not an issue for multi-national companies alone. It is a matter of survival for local companies and dictates whether music will be produced at all. Without financial incentives for retention, local culture perishes.

Piracy should not be viewed as a crime only against authors, performers, composers, musicians, record companies, legitimate distributors, wholesalers and retailers, but against all of us. Pirates do not invest in recorded music and pirates do not pay taxes.

While much remains to be accomplished in the traditional fight against piracy, we need to expand our notion of what we consider to be piratical activities, always bearing in mind that the goal, or at least one of the goals, of copyright legislation is to ensure financial rewards for the production and distribution of creative works.

The unauthorized digital transmission of a sound recording is as damaging to the financial incentives, regarding production, and as effective in drying up creativity, as conventional piracy. As a consequence, today's unauthorized digital broadcaster, or Internet service is no less piratical than their less sophisticated associates. We must be vigilant in ensuring that standards of protection are not outdated by technology, and that the financial rewards remain a realizable goal for creators of copyrighted materials.

To this end, it is critical that record producers have the ability to authorize or prohibit the digital transmission of their recordings. Delivery of prerecorded music to consumers via the sale of a tangible good, such as a physical carrier, could become a historical antiquity as consumers have direct digital access to digital audio signals via satellite, interactive cable, telephones, the internet and other delivery systems. The legislation of many countries leaves transmission of audio signals outside of the control of the sound recording copyright owner - indeed such owner is not even entitled to compensation under the existing provisions of many laws.

The international legal community has come to recognize the need to remedy this, and this past December produced two new treaties at the World Intellectual Property Organization designed to bring copyright legislation into the 21st century.

These treaties contain three critical provisions:

1. record companies and other copyright holders must have the ability to authorize or prohibit the transmission of their works through interactive media;

    

2. states must ensure that technological systems, used by copyright holders to guard against unauthorized uses, may not be circumvented; and

    

3. states must provide interference with rights management information used by copyright holders to identify their works.

The ease of international transportation has also necessitated legislation, providing the copyright owner with the ability to prevent the importation of articles from one territory into another - such importation leading to severe disruption in marketing and distribution practices.

Technologies that permit unauthorized access, collection, and storage, are expanding more rapidly than the ability of copyright owners to protect their properties.

Finally, and most importantly, without a strong copyright environment, musical diversity will be replaced by a homogenized musical tradition, in which the only music that is produced is the one appealing to the large Western markets. This would be a grave loss not just to those with an interest in copyright, but to the world's inhabitants.

Given all these challenges, what are the opportunities for growth in Latin America? There are many.

1. The improved quality of A&R production.

   Latin America has seen in the last years the emergence and consolidation of an important number of young producers, musicians, and sound engineers that are contributing to the infrastructure improvement of the A&R production and its quality. The Pan-American multi-million successes of Luis Miguel, Carlos Vives, Ricky Martin, Shakira and Ricardo Arjona are good examples. This is helping in the crossover of artists within the region.

   As A&R is the essence of our business, we hope that our improved production quality, together with the historical talents of our artists, will soon be noticed by other regions as a great source of music for the international markets. It is up to those markets to milk our products.

    

2. The further penetration of CD.

   While in units the CD carrier is already the most popular, representing 73% of all units sold in Latin America, CD player penetration is only 27% in the region.

   Even in Brazil, where the legitimate market is totally dominated by the CD carrier with 94% of sales, the player has only penetrated 32% of households.

   At the other extreme, the CD units represented only 36% of the total Chilean market in 1996

   There is yet much room for CD growth in Latin America, and this will continue to help the music business in the coming years.

    

3. The consumer base and its potential growth.

   The consumer base in Latin America is too small when compared to the size of the population.

   In spite of the growing young segments of population, the need for a higher standard of living for the majority, who remain very poor, is of the essence.

   Let me give you some good news: according to The Economist, in Brazil alone, in the period 93-95, 8 million people were lifted out of poverty. This represents the whole population of Ireland and Norway together.

   Thanks to the macroeconomic stability, the region is attracting a massive flow of foreign investment in industrial projects mainly in the automobile, mining and electronic industries. This should be an opportunity for young professionals and educated workers, and will contribute to an increase of the consumer base in the region in the next years. As I mentioned before, in Brazil the consumption of music has grown 4 times in 4 years, in hard currency, although some of this growth represents the recoupment of lost ground.

    

4. The development of retailing.

   The music retail sector is substantially under-developed across the region, and often record stores are small and mismanaged. In a recent market research done in Colombia by Marketing Data Limitada, out of 300 potential customers, that were interviewed coming out of record shops with no purchases, 62% did not buy any records because either the shop did not have the record or the consumer was not helped by the shop employees.

   There are some exceptions across the region, and Mixup of Mexico and Musimundo of Argentina, have opened attractive and sizable shops, which, together with the recent arrival of Tower Records to Mexico, Argentina and Colombia, indicates the beginning of the needed modernization of the music retail sector.

    

5. The future growth of the music publishing business.

   This area of the music business is expected to experience strong growth in the region. The enforcement of the copyright protection, the improvement of efficiency in the collection of rights from secondary exploitation (like public performance), the predictable success of Latin American repertoire in other regions of the world, and the forecasted organic growth of the region, should materially increase the income for songwriters and Publishing companies in the coming years.

    

6. The expansion of music broadcasting.

   There are many radio stations all over the region and music broadcasting on TV is developing rapidly. Globo, Televisa and Venevision lead the market of opened TV, but the growth is mainly coming from cable and satellite broadcasting. Besides the success of MTV Latino, HTV, Much Music, TeleHit, Showbiz, Bravo TV etc the expected increase penetration of cable and satellite channels, carrying music videos, by mainly international artists, should boost the sales of English language music. This will confirm that Latin America is not only a good source of product, but also a good market for international music.

    

7. The recoupment of the pirated market.

   The enforcement of copyright protection should help to reduce piracy, and should help improve the collection of public performance for all rights holders.

   Also the creation of Enforcement Associations for the Protection of the record industry rights, called APDIF, should contribute to a substantial reduction of the levels of piracy in Latin America, during the coming years.

In 1996 the region sold 225m units with a value of US$2.5bn. Four years later, in the year 2000 we forecast sales of 350m units and US$4.5bn in value. No other region in the world will grow faster in the same period.

But the future counts on the talent, effort and cooperation of Artists, Producers, Songwriters and Publishers. Only by working together, will the many challenges become opportunities and our discrepancies be eclipsed by our common goals.