thereport ISSUE 356 | 10 DECEMBER 2014

2014 in review

What we learned from Spotify’s financials

Contents06 Beyond music: 2014 review

07 Pinboard: Stats, deals, startups and more 09 Country profile: 2014 by region

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Taylor Swift put the boot into Spotify as she didn’t want her music to be reduced to the level of free. The public put the boot into U2 and iTunes for forcing a whole album on 500m users for free – but without their consent. Thom Yorke turned his back on both iTunes and Spotify and gave his album to BitTorrent to test its new payment gates. Meanwhile Google Play Music and others paid handsomely for exclusives. It was, all told, a very confused year but also one in which high-def audio properly marched towards the mainstream, analytics and playlists came of age and streaming got added into more charts, rubberstamping its steady rise. Here, then, is the story of 2014 in digital music.

COVER FEATURE

in review

COVER FEATURE

The who, what, when, where, how and why of the past 12 months

SpotifygateS2014 both was and wasn’t Spotify’s year. In November, it announced that it had managed to reach 50m users, of which 12.5m are subscribers. Great news. Except that it only published these figures when on the defensive after Taylor Swift pulled all of her music from the service and announced that, because Spotify would not budge on its position that all music has to be available to both free and paying users without windowing, the model was unworkable and untenable. For her. Not necessarily for everyone else. (That said, a number of holdouts – most significantly the Ministry Of Sound label, which was threatening legal action over similarly themed UGC playlists – came on board and licensed its music. So respite of sorts.)

The spat last year with Thom Yorke had fruitier language that the Swift dispute (“the last desperate fart of a dying corpse”), but that only made mild media ripples. Taylor Swift caused a media tsunami – the precise sort of mainstream act Spotify needs on its side was actually pulling the rug from under its feet. This caused others to, whispering off the record, accuse Spotify of arrogance and of belligerently refusing to change its stance on anything.

This year was one of mounting worries for Spotify as Beats Music, which launched at the start of the year in the US but caused the Swedish service to barely blink, suddenly found itself bought up by Apple as part of a $3bn acquisition of its parent company.

Taylor Swift caused a media tsunami – the precise sort of mainstream act Spotify needs on its side was actually pulling the rug from under its feet”

There will, justifiably, be

a lot of dry mouths in Sweden

throughout next year”

Spotify, still running at a loss and still to IPO, suddenly had to take Beats very, very seriously as it has the backing of the most cash-rich company in the world which needs to transition itself from downloads to subscription streaming. If anyone can start a serious price war and fund a loss-making service for not just years but decades, it’s Apple, with suggestions it could drive prices down to $5 a month. Spotify perhaps anticipated this at the start of December when it began offering users in the US a three-month trial of its premium service for just $0.99 a month.

Plus Apple has never had to deal with the level of public spats with artists that Spotify has been fielding in recent years. A streaming service which is now part of a company with huge financial resources that can tap into a powerful mobile OS and which has arguably the best artist relationships in the world? There will, justifiably, be a lot of dry mouths in Sweden throughout next year.

one louder: Streaming goeS high-def

The BPI reported that UK vinyl sales in 2014 crossed 1m units – the highest sales for the format since 1996. More ammunition for the audiophiles who like to applaud the “fuller” and “warmer” sound of the format compared to the “cold” and “thin” sound of MP3s and streams.

The digital business, however, began seriously putting audio higher up its agenda – and also using it as a super-premium offering that significantly increases ARPU. Higher audio quality – such as FLAC files on services like Bleep and 7digital – has been around for a while but, for the most part, has

been targeting a niche such as professional DJs. This year saw an explicit play for a more mainstream user.

There couldn’t be a ‘more 2014’ story than that of Pono – Neil Young’s new music service: celebrity, classic rock, technology, audio quality and crowd-funding all wrapped up in one. It comfortably sailed past its Kickstarter target by raising $6.2m in April, making it the third most successful project on the platform’s (albeit brief) history. It still has to launch commercially, but Music Ally was able to test the player and was genuinely enthused by what it heard.

In the streaming space, Deezer finally made it to the US – but initially as Deezer Elite, its premium audio incarnation targeted explicitly at the audiophile market (and with a monthly price tag to match). The company has said it will roll Elite out in other markets but has no confirmed date for this. It was interesting that it debuted in the US with a service costing twice as much as its main rivals each month, but argued that the initial market it was after was about bringing non-streamers across for the first time rather than trying to poach users from Spotify, Rdio, Rhapsody and others.

Norwegian company WiMP also exported

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ISSUE 35610.12.14 COVER FEATURE

its high-definition service (WiMP HiFi) to the UK and US – but under the name Tidal. It got something of a soft launch at the end of the year, putting trial versions in the hands of music industry professionals and key influences to help build the buzz, a strategy not dissimilar to how Spotify entered the market in 2008.

Also of note were Rdio upping its streaming quality to 320kbps, under the Artists For Quality initiative pushed by Bob Weir of The Grateful Dead. Finally, Technics announced that its 24-bit download service, Technics Tracks, would arrive in early 2015. So what was previously considered a niche is now becoming a very busy space. It is unlikely the truly mainstream consumer (for now) will care that much about such offerings, but the heartland is really heavy consumers of music with significant disposable income who would not regard £240 a year as excessive if they believe the pay off in audio quality is there. Spotify has yet to make its move here, but will be keenly watching its rivals and considering how it can possibly add a new upsell tier in the new year.

the big Sell off, buy-in and Shut down

For a part of the market where services either run at a (mounting) loss or see meagre profits (unless you’re Apple), digital music is a place where huge acquisition deals are still being done. But equally, for those who can’t manage to convince VCs or incumbents of their commercial potential, a huge amount of road kill also piled up this year.

The biggest buy up, of course, was Apple spending $3bn to buy Beats. While most of that was for its headphones business, it was also an investment to fast-track iTunes into the subscription space – a place it needs to be, and quickly, as the wheels start to fall off the downloads business that has served it so well for the past decade. Since the deal in May, things have been quiet, but there are suggestions that Beats Music subscriptions (or trials) could be bundled into iOS 8 and possibly at a price point that could have its rivals claw at their own faces in anguish.

Other notable acquisitions include Spotify buying The Echo Nest as it looks to dramatically improve its recommendations to try and give it a serious advantage over its rivals. In a similar vein, Rdio bought TastemakerX and Deezer acquired Sitcher (more of which below).

While the majors (and indies) all have a stake in Spotify, they are expanding their investment portfolios by taking a stake in other digital music services and in May, Warner, Universal and Sony bought shares in Shazam estimated at $3m, with a keen eye

There are suggestions that Beats Music subscriptions (or tri-als) could be bundled into iOS 8 and possibly at a price point that could have its rivals claw at their own faces in anguish”

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Real-Time Charts to expand its existing social media-based charts – a clear and assured rubberstamping of analytics as a core part of the music industry that has a clear consumer-facing benefit.

Other services, in the light of artist criticisms, are starting to open up their data. Spotify had already done this by making its play counts public and this year Pandora announced that it would open up its backend interface so that artists could see rich listener data based around their music. SoundCloud also expanded its own data offering by letting artists on its Pro Unlimited tier access fan location analytics to help them plan their marketing and touring activities with greater precision.

While some will complain that there is an unhealthy reliance on data and this should not override “gut instinct” (especially when making A&R decisions), the fact remains that analytics are giving the industry whole new ways to understand what is happening as well as ways to respond to that data and prepare for the future. It’s a trend that is only going to grow to become more refined and more precise in the coming years.

bittorrent comeS of age

Thom Yorke might hate Spotify, but he threw his all (well, his latest solo album) into BitTorrent to test out its pay gates – and also, we presume, to make a political point. For some, BitTorrent is a byword for infringing content online but the service has been aggressively trying to position itself as a key marketing channel for music this year. This clearly attracted the likes of

Yorke and Moby who wanted to be seen to be breaking with convention despite their advancing years.

Yorke’s BitTorrent Bundle was the Tomorrow’s Modern Boxes album, which came in a reduced free version but also the full version for $6 dollars. Within a week, it was claiming to have done over 1m downloads (although a precise breakdown of free and paid was not clear). Yorke positioned it as a way of “bypassing the self-elected gatekeepers” (presumably he meant Spotify and iTunes but, as with many of his online proclamations, it is never quite clear) and urged other acts to follow his lead.

Soon after his album release threw the spotlight on BitTorrent, the service opened up its paygate model to all acts, saying that it would take just 10% of resulting revenues as its cut, a considerably more attractive deal than the 30% that is seemingly taken as the industry standard today.

playliSt for today

The streaming industry is obsessed with cracking recommendation and discovery as the idea of 25m+ tracks is regarded as

driven, in the main, by local services until now.

The oscillation of digital music services between success and failure will continue next year. The harsh reality is that more casualties will mount in the coming 12 months and we may even see some of the smaller services merge as a last roll of the dice to stay both relevant and in business. Most services are running on huge and bold promises but, unless they get into the same postcode as profitability soon, a form of fiscal euthanasia will be the bitter reality.

analytically retentive

Previously the preserve of arithmi-geeks, analytics really flexed their muscles this year and will continue to shape developments (and investments) next year.

Former Warner Music executive Lyor Cohen’s new label venue, 300, was a swift mover here at the start of the year, partnering with Twitter (a platform that has struggled to crack music as the Twitter #Music white elephant revealed) to tap into the social network’s data to inform its A&R and marketing decisions.

In a similar move to 300, Warner itself signed its own partnership with Shazam to use its trending information to shape its own artist investment decisions. On top of this, Billboard partnered with Twitter in March to create the self-explanatory Billboard Twitter

COVER FEATURE Analytics are giving the industry whole new ways to understand what is happening as well as ways to respond to that data and prepare for the future”on it heading for an IPO and them receiving a

substantial (and swift) windfall.Sadly, if inevitably, some services hit the

wall or were offloaded by parent companies keen to move on. These included budget subscription service Bloom.fm that had an interesting tiered offering but was perhaps just too early as there is clearly a need to break from the £9.99 monthly offering which will not appeal to a truly mass and mainstream audience.

Another big closure this year was Samsung pulling the plug on its Music Hub offering while there was something of a digital blood bath in Australia this year with the loss, within a few months of each other, of both Songl (which was set up by Sony, Universal and Southern Cross Austereo) and Telstra’s Big Pond Music.

As part of cuts, Microsoft (after buying Nokia’s phone business) decided to spin MixRadio off as a standalone music service. Its precise future is not 100% clear but the team behind it says it has big plans for its evolution so we’ll class it as down but definitely not out.

Some services were granted a Lazarus moment, the biggest being Dhingana which was shuttered but then acquired by Rdio, using it as a plank for the Western service to expand into the huge Indian music market which is brimming with potential but has been

overwhelming for a lot of users and they need some form of expert curation to guide them through.

Playlists are increasingly regarded as the best way to do this and also as a way to lock users into particular service – something that Sean Parker said back in 2010 was an explicit part of Spotify’s strategy to get users “by the balls”.

The major labels all have their own playlist platforms in the shape of Digster (Universal), Filtr (Sony) and PlaylistMe (Warner) and see them as a powerful way to break new acts. Some of Lorde’s breakthrough success, for example, was put down to ‘Royals’ appearing on Sean Parker’s Hipster International playlist on Spotify and labels are increasingly keen to capitalise on their reach and to help them fast-track their marketing of acts. They are also looking to third-party playlisting services with Warner’s acquisition of UK company Playlist.net (formerly ShareMyPlaylists) being

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added to different charts around the world and is equally slowly, but steadily, shifting the industry away from its obsession with unit sales as the key way to measure success. Sure, CD sales and downloads account for the bulk of revenue – but they only tell part of the story and, in the coming years, that part of the story they tell will steadily erode away.

the chequebook’S in the poSt

Taylor Swift and Thom Yorke might not want to be on Spotify and AC/DC and The Beatles (for now) might not want to be on any streaming service; but for other acts – and for certain big albums – a new form of chequebook marketing is starting to impact here.

Spotify already has notable exclusives in place with Metallica (who, rumours suggest, managed to negotiate a stake in the service in exchange for their music) and Led Zeppelin. For the upper end of acts, this could become more commonplace and more aggressive in 2015.

The indications are already there, with Google Play Music, at the end of the year, securing a month-long exclusive on the new Take That album in the UK – a concerted play to use the act to target a mass market audience who perhaps haven’t fully engaged with digital before.

It must be said, however, that getting the exclusive does not always have the desired results as the giveaway of U2’s Songs Of Innocence to 500m iTunes customers in September showed. Apple and the band

(who were paid a handsome advance and guaranteed huge marketing spend) thought they had scored the marketing coup of the year; but it backfired in a very public manner as users felt unhappy that the album was pushed to them whether they wanted it or not. Apple had to quickly issue a workaround delete option for those who wanted no trace of their album in their account. A lot of lessons were learned here – but most notably that just because something is exclusive it does not follow that it’s desired.

While – generally – exclusives are a good way to coax users onto digital platforms, there is a real risk that could quickly descend into an arms race where a handful of marquee acts use services’ desperation for a USP to get special advances or marketing spend commitment. So not only will this irk other (smaller) acts, it will also create confusion and frustration among consumers who are paying for one service but finding that certain acts are lured to other services with the waft of a chequebook.

At a critical stage in streaming’s evolution this could be read as not just risky but also as “punishing” consumers who are willing to pay for a subscription but just happened to pick, for certain favourite acts, the “wrong” platform. If streaming sells itself as being able to access all the music in the world on one platform, to renege on that seems dangerously anti-user. :)

an indication of things to come in this space. As noted above, Rdio bought TastemakerX

and Deezer bought Stitcher this year to super-charge their own recommendation tools and algorithms while Google bought Songza to add more power to Google Play Music’s elbow.

The growing trend will be to blend algorithmic recommendations with human curation and this will be a very public battleground for services in the next few years. As they have all (bar the odd exception or holdout) pretty much the same catalogues, being the best at guiding users through this all and, more importantly, holding their attention (i.e. ensuring they keep paying their monthly subscription) is going to be absolutely key to their survival.

chart bypaSS

The UK singles chart followed the lead of markets like Sweden and the US by counting streams – making this the first time the British charts have been based on anything other than sales. Currently 100 streams is treated as the equivalent of one sale and, soon after the chart rules were changed, Meghan Trainor became the first act to chart on streaming data alone, with ‘All About That Bass’ entering the top 30.

Both Australia and Germany moved in a similar direction this year by adding streaming to their singles charts while the US moved into the next phase of its evolution by, like Sweden, adding streams to the albums chart too.

Slowly, but steadily, streaming is being

COVER FEATURE Slowly, but steadily, streaming is being added to differ-ent charts around the world and is equally slowly, but steadily, shifting the industry away from its obsession with unit sales as the key way to measure success”

Facebook in particular. Why? Because news publishers were waking up to the fact that a growing number of people – millennials in particular – were getting their news from their Facebook feeds. Yet for publishers, the algorithm that narrowed down around 1,500 possibles to 300 stories shown in the average news feed was a complete mystery.

virtual reality

We also explored the implications of Facebook’s decision to pay $2bn for virtual reality startup Oculus VR and wondered whether it would have uses beyond that company’s initial focus on gaming. We noted that, as Mark Zuckerberg announced the deal, he was already talking about non-games uses.

“Imagine enjoying a courtside seat at a game, studying in a classroom of students

and teachers all over the world or consulting a doctor face-to-face – just by putting on goggles in your home,” he wrote. And by the end of 2014, music was on the agenda for Oculus too.

youtuberS’ riSe

The music industry has been closely enmeshed with YouTube for some time now, but the rise of YouTubers and multi-channel networks has been a very interesting non-music trend in 2014. We tracked the rise of channels like PewDiePie, the Swedish gamer who ended the year with more than 32m subscribers and monthly views regularly over the 400m mark.

Other trends we tracked included the boom in children’s viewing – even the hypnotic Disney Toys Collector toy unboxing channel, which dethroned PewDiePie as the

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All year, Music Ally has been casting its eye beyond the world of music, looking to understand what’s happening in sectors as varied as

book publishing, games and television, as well as non-music apps and social services. Here’s a reminder of some of the key trends we covered.

mobile gameS hitS

We wrote about European mobile games developers Supercell and King – and the money they were making from a handful of games. Supercell reported $892m of revenues in 2013 from just two games: Clash Of Clans and Hay Day.

With 132 staff, that meant $6.75m of revenues per employee, with an overall net profit of $464m. But rival King did even better: $1.88bn of revenues in 2013 from Candy Crush Saga and other games, with a net profit of $567.6m. Sweet success that fuelled its IPO.

newS algorithmS

We attended a fascinating session at the SXSW Interactive conference in March focusing on the algorithms used by Facebook to decide what stories to show users in their news feeds as well as those used by Google to rank its search results for topical stories. Both were causing concern for online news publishers.

BEYOND MUSIC

2014: from mobile games to book rowsA look back at some of the key trends in the world outside music

biggest channel on YouTube in October – as well as the emergence of Vice as a serious player in the online news space.

hachette v amazon

Finally, we looked outside music to the long-running dispute between book publisher Hachette and Amazon as they negotiated new distribution terms with some hardball tactics. Certainly on the part of Amazon, which saw ditched discounts and longer restocking times for key Hachette titles.

But the row quickly blew up into something more: the kind of angst from authors over Amazon’s dominant role in the books industry that we’re seeing from musicians over Spotify’s streaming payouts, even if the latter still isn’t quite as meaty an industry gorilla as Apple. :)

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ISSUE 35610.12.14 TOOLS Pinboard » Deals

Connected audio company Sonos has raised $130m in new funding. This brings its total funding to date to $455m.

Spotify is offering US users three months of access to its Premium tier for $0.99 a month (thereafter they will, unless they cancel, convert to paying $9.99 a month).

Indian streaming music service Saavn has partnered with Twitter to create a tweet-powered request radio offering for its users.

Beep, a company that turns traditional speakers into wireless-enabled ones, has raised $4m in its recent funding round. It previously raised $1.6m back in June.

SONOS

BEEP SAMSUNG MUSIC HUB

MIXRADIO

Having been closed earlier this year in other territories, Samsung is pulling the plug on its Music Hub service in Australia (the last market it was standing in) on 31st December.

@rosiedimont I think my Spotify account’s been hacked

again, someone played Ed Sheeran at 3am last night...

@LisaDavisMusic Musicians educate yourself about the business

side of music. How can you pick a legitimate manager without it.

@alexhern I want to set up two identical retail firms, but base one

of them in San Francisco, give it an over-designed website, and see what happens.

Follow Music Ally on Twitter...twitter.com/musically

Tweets#MusicAllySPOTIFY

Now a standalone company, MixRadio will be pre-loaded on the Adidas miCoach Smart Run smartwatch, giving users access to its playlists.

SAAVN

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ISSUE 35610.12.14 TOOLS

What is it?A name that does what it says on the tin, if we ever saw one. Music Royalty Co (MRC) has backing from independent group Cooking Vinyl, and is aiming to help music companies – labels and publishers initially – stay on top of the mass of data and payments coming out of streaming companies.

It’ll be handling audits, US mechanicals, PPL registrations and full accountancy services, but with an emphasis on the new world of streaming. “The explosion in data analysis caused by streaming means there’s never been a more important time for companies to get their royalty processes straight,” said its boss, Ray Bush. With Kobalt pushing a similar message of transparent accountancy for its songwriter and label-services clients, this has the makings of a mini-trend.

AUSTRALIAN PIRACY AND DIGITAL CONSUMPTION

RHAPSODY USERS AND MOBILE STREAMING

CHILD INTERNET USE: YOUTUBE VERSUS DOWNLOADING/STREAMING

Illegal downloaderswho also pay

for digital music

Source: Rhapsody

11%

5%

Source: Choice Australia

Users streaming from computer and/or mobile

Users only streaming on mobile

Use YouTubeonce a week

Download/streammusic once a week

Source: Ofcom

Generalpopulation who pay fordigital music

People who neverillegally download

who pay fordigital music

29%

16%12%

9%6%

29%

18%

56%53%

3-4 years old 5-7 years old 8-11 years old 12-15 years old

Pinboard » Stats

NEW SERVICE MUSIC ROYALTY CO

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Africa kenyaAlthough the Kenyan music market is clearly challenging, the potential is very interesting indeed – particularly for those seeking to make a bigger play in Africa.

The lack of an established trade body for the Kenyan recorded music industry makes it hard to measure the exact size of the market or understand how the different business models compare. However, industry insiders claim that incumbent local operator Safaricom could be generating approximately KSH 300m ($3.4m) in ringback tones (RBT) per month and that the RBT market totals approximately $54.4m in face value per year.

The local consensus is that if Kenya is to move away from RBT towards fully-fledged digital music services, getting the mobile companies on board will be crucial. This is not only because of the role they can play in subsidising services, data and handsets, but

also because of how they are increasingly ingrained in consumers’ habits and culture.

AmericasbrazilBrazil’s music industry continues to be a challenging one, with music sales falling in 2013 after a short period of growth. Digital formats failed to make up for the decline in CD purchases and online file-sharing remains rampant. The entry of new players brings hope to the on-demand streaming market while the live music sector is as buoyant as ever.

In 2013, following two years of consecutive growth, Brazil’s recorded music industry saw a disappointing decline of 4.2% in annual revenues, which totalled BRL 431.4m ($194.2m) in trade value as per global industry trade body IFPI. The biggest development this year for the digital music business in the country has been the rollout of Spotify, something

which we understand has ranked amongst the most explosive launches in the company’s history in terms of growth.

mexico

The second largest market in Latin America, Mexico is often the first in which big international music services test the waters in the region. First iTunes and now Spotify show encouraging developments towards stabilising music sales. According to local trade body Amprofon, the first half of 2014 saw streaming revenues grow 130% to MXN 175m ($12.9m). Digital sales grew 13.9% year-on-year to MXN 428m ($31.6m), while physical income totalled MXN 296.8m ($21.9m).

The three most important factors about 2014’s half-year results are: that digital growth made up for the physical decline (total revenues grew 0.1% year-on-year); that this performance might lead to 2014 being the first full year in which the market is predominantly digital; and that streaming is quickly becoming a key driver behind these transformations.

uS

As the world’s most influential music market, and the largest together with Japan, the US is undergoing its second digital transformation. Downloads have been showing signs of retreat before effectively replacing CDs – still a significant revenue stream – while access models are not yet making up for it.

According to IFPI, recorded music sales in the US totalled $4.02bn in 2013, an annual

setback of 2.7%. Digital revenues grew only 2.7% to $2.7bn, while physical sales fell 11.9% to $1.35bn. Music Ally noticed a very impressive growth in the use of Spotify in the country in 2013 and all eyes will be on how Apple incorporates Beats Music into its range of music services.

In addition to the growth of on-demand streaming services – whose data is now factored into the Billboard Hot 100 chart (as are YouTube streams) – Pandora and Sirius XM are increasingly established in the US. In April 2013, the former announced it had 70m active listeners in the US, while the latter ended 2013 with 25.6m subscribers.

Asia PacificauStraliaAfter experiencing a return to growth in 2012, the Australian recording industry saw a significant decline in 2013, struggling between a weaker calendar of releases and a market that is not transitioning quickly enough to digital formats. According to local trade body ARIA, recorded music sales in Australia fell 11.7% in 2013 to AU $351.6m in wholesale value ($325.8m). Physical sales saw a staggering drop of 25.5% to AU $159.3m, while digital formats grew only 4.3% to AU $192.2m.

Advertising and particularly subscriptions were the key drivers of digital growth last year, with wholesale values totalling AU $12.3m (a 34.7% annual increase) and AU $8.6m (+308%) respectively. Both revenue streams are clearly way behind downloads, but the movements in the market seen last year herald the shape of things to come.

MARKET PROFILE 2014 review Here we pick a selection of insights and facts from some of the most interesting markets we have covered this year, including updates on the most relevant figures.

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JapanThe Japanese record industry went through a tough period in 2013, facing sharp sales declines, a lack of concrete developments on the digital front and an apparent reluctance from local labels towards international streaming services.

In the last five years alone, digital revenue in Japan has fallen 54.3%, mainly as the country has not managed to replace its very own mobile format, chaku-uta. Although online download revenues have been growing, driven by iTunes (surpassing chaku-uta income for the first time last year), this is clearly not enough to take digital back to its heyday.

International streaming services have been finding it hard to bring local labels on board. An industry insider told Music Ally that music companies in Japan find Spotify’s payments formula esoteric and its payouts low, exacerbated by some weariness in dealing with a foreign service. The reluctance of local labels to bring their catalogue to the likes of Spotify would be of particular concern to any access-based service looking to launch in Japan, especially given that domestic repertoire is by far the most consumed in the country.

india

According to the IFPI, India saw its recorded music market fall by 23.3% in trade value to $102.6m in 2013. Digital sales fell 23.8% to $67.4m, while physical revenues also saw a decline of 22.5% to $35.2m. The enduring popularity of RBTs is typical of an Indian digital music market that is dominated by mobiles. This is being

fuelled by enormous growth in smartphone sales, from 20m units in 2013 to 70m in 2014, with an estimated 150m handset sales in 2015; driven in part by Google’s rollout of sub-$100 Android One smartphones.

India, then, is a music market very much in transition; one that has its problems and its quirks. It also has considerable opportunities: local sources expect the music industry to grow by 12-15% annually for the next two-to- three years.

EuropegermanyBacked by the vitality of its CD market, the German recording industry continues to experience a period of relative stability as it figures out how to sustain physical sales whilst migrating audiences from downloads to streaming services.

According to local trade body BVMI, recorded music sales in Germany grew 1.2% in 2013, totalling €1.45bn in trade value and making it the largest market in Europe, riding on a combination of strong physical sales and an expanding digital market. Totalling €1.12bn, physical revenues fell only 1.5% from 2012; this was made up for by digital formats growing 11.6% to €328m. This confirms the sustained strength of CD sales in Germany, while on the digital side downloads are clearly plateauing as consumers move to streaming services.

netherlandS

A poster child for the recorded music industry, the Netherlands bucked the trend in 2013 by riding on the strong growth of streaming revenues, making up for the

decline in both physical and download sales. According to local trade body NVPI, recorded music sales totalled €130.2m in 2013. Digital revenues grew 56.4% to €54.1m, making up for the 19.2% physical decline to €76.1m. Streaming was the key driver, seeing an impressive increase of 113.5% to €38m (including subscriptions and advertising), while downloads fell 5.5% to €15.5m.

Regardless of the repertoire consumed, the general consensus is that the Dutch market is inevitably (and quickly) moving towards access models. While Spotify may currently be leading the pack, the fact that the market is in a state of flux leaves a lot of room for disruption. Beyond pure audio streaming services and much like in the rest of the world, YouTube and Vevo are also regarded as key digital partners in the Netherlands, bringing not only significant revenues but also a must-have layer of marketing.

Spain

Following more than a decade of steep decline, the challenging Spanish market finally saw a return to growth this year. Streaming consumption appears to be growing rapidly, but with subscription conversion rates seemingly low, doubts remain regarding long-term prospects.

Local trade body Promusicae announced that in the first six months of 2014, revenues increased by 6.2% compared with the same period in 2013, reaching €58.1m. Physical sales grew 6.5% to €32.1m, while digital revenues saw a 5.9% increase to €26.1m. Advertising and subscription revenues grew 14% to €18.8m, accounting for 72.8% of all

digital income, while download sales fell 9% to €6.3m.

While this year’s performance so far brings a breath of fresh air to the Spanish market, the reality is still rather harsh. Local sources concur that the growth is attributable to a stronger than usual release calendar, coupled with how low the market had fallen in the first place. Given the damaged state of the local economy however, growth news is certainly welcomed in the industry.

Sweden

After years of consecutive growth driven by streaming, Sweden is now showing signs of slowing down.

The music industry hopes that the introduction of higher value services will bring new life to the market.

With the country having become such a success story for the music industry (and, more specifically, for Spotify), alarm bells rang earlier this year when IFPI Sweden announced a year-on-year decline in sales in the first half of 2014.

Indeed, recorded music income totalled SEK 486.9m ($68.2m) between January and June this year, falling 2.54% from the same period in 2013.

With Sweden being a mature streaming market with a high average disposable income, there are arguments for the country to have an untapped potential for new types of services and tiers (specialised ones, premium audio, lyrics add-ons, etc.). This is still far from being demonstrated, however in the meantime perhaps the recent introduction of Spotify’s new family plan will expand the service’s mainstream audience. :)

MARKET PROFILE 2014 review continued...

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ISSUE 35610.12.14

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