the future of music industry

music revenues are declining

Glo

bal r

even

ue (b

illio

n $U

S)

0

6

12

18

24

30

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

15.015.716.617.118.3

19.821.2

22.723.524.224.326.2

27.728.128.628.527.4

Over a decade of decline in revenuesGlobal revenue of music industry (billion $US)

Source: IFPI Recording industry in numbers 2014

but we are not listening less music

it is changed how we listen music

napster1999

With Napster Consumers began experiencing digital music for free. Record labels were not able to provide an attractive legal alternative. By then, illegal file sharing begun and consumers became accustomed to accessing music for free.

iPod in 2011 was the first widespread successful portable media player. It further encouraged appetite for digital music.

2003iTunes

iTunes provided a legal and convenient way to download music. It became the top music vendor in US in 2008 and the top music vendor in the world in 2010. The successful business model is built around a simple yet compelling value proposition: a comprehensive digital world’s music catalogue available in an convenient and simple way.

!

YouTube

YouTube is quickly becoming the most popular music streaming service. It is a free and easy way to share and access the largest collection of videos. The “free” quality of the video streaming platform has led it to gain an impressive volume of consumers, thus making it an extremely attractive platform for advertisers.

!

2005Spotify

2008Spotify is quickly becoming the most popular on-demand and download music streaming service. The key driver of its business model is similar to both the iTunes Store and Youtube: it offers a breadth of music at the touch of the fingertips, either for free supported by advertising or with added benefits available through subscription plans.

How we listen music is changedA roadmap of Innovative Music Services

Digital Music continue to riseGlobal digital revenues of music industry to $5.9 billion

Glo

bale

reve

nue

(bill

ion

$US)

0

1.2

2.4

3.6

4.8

6

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

5.95.65.1

4.64.44.02.9

2.21.2

0.4

Source: IFPI Recording industry in numbers 2014

25%

75%

Physical Digital

5%

95%

39%

61%

201320092005

Source: IFPI Digital Music Report 2014

Revenues from Digital Music account for 39% of industryGlobal revenue of music industry (billion $US)

streaming is the fastest growing media

Streaming services drive the digital growthStreaming revenues more than tripling to US$1.1 billion in the last 3 yearsG

loba

l rev

enue

(bill

ion

$US)

0

1.2

2.4

3.6

4.8

6

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1.10.70.5

0.3

4.84.94.74.34.44.02.9

2.21.2

0.4

Digital download Digital streaming

Source: IFPI Recording industry in numbers 2014

and it is changed the perceived value

revenues are challenged because of dominant methods consumers use to access music, such as Streaming, Torrents / P2P file sharing and YouTube, are either natively free

or have a free option.

“There’s a new generation of people who’ve been conditioned to expect their music for free, either

through piracy or YouTube. We’re connecting powerfully with that generation, giving them a far

superior way to enjoy music while magnetizing them by the millions. We convert their investment of time into real revenues by magnetizing the free service with advertising. Crucially we’re also seeing them move to Spotify’s paid service in their millions by

offering mobility and convenience.”

Ken Parks, Chief Content Officer, Spotify

A different monetization model

Source: Almighty Institute of Music Retail market research. Spotify doesn’t pay on a “per song stream” model, exactly: the total royalty pie is split among all rights holders based on the percentage of total streams and the company estimates that the average song generates between $0.006 and $0.0084 per stream in royalties.

Download Song

!End User Price $0.99

!Artist Royalties est. $0.60

Stream a Song

!End Price FREE

!Artist Royalties est. $0.008

Buy CD / LP

!End User Price $15.99

!Artist Royalties est. $1.90

each market is different

5,389

521

3,6164,897

Different performance across the worldRevenue by Market (million $US)

Source: IFPI Recording industry in numbers 2014

Overall music revenues declined by 3.9% in 2013, heavily influenced by - 16.7% in Japan, a market at the start of its digital transition, and

almost flat revenues in most of the other countries.

2,825

239424431956

1,3041,365

3,012

4,474

United States Japan Germany UK France Australia Canada Italy Other

North America is the biggest marketGlobal share of Sales of Recorded Music (million $US)

TOT 15,029

And digital music consumption changes by countryshare of revenues

10%

60%

30%

18%

27% 55%

6%21%

73%

11%

44%

44%

13%

34% 53%

Physical Digital Other

11%

68%

21%

business model is key to monetization

“There are two real revolutions taking place in digital music: first, value today is in ubiquitous access rather than ownership. Second, the focus of development in

the worldwide music industry is no longer as concentrated, as it used to be, on the US.”

!

Axel Dauchez, CEO, Deezer

1Easy and Free for Customers

In a world where Consumers have access to free services at the touch of their fingertips and are overwhelmed by the abundance

of choices Music services should be: !

Convenient and Easy to access !

Improved musical Experience !

Free (or “feels like free”)

Source: based on customer surveys available online

2Satisfy all the Industry with a Sustainable model

A complex challenge is for music market is to find business models that satisfy all the chain, from Artist to Publishers to

Distributors: !

Monetize asymmetric revenue streams (such as Advertising or Mobile data fees)

!Distribute revenues fairly among the players

!Enable economies of scale, to increase competition on Services

Source: based on customer surveys available online