The document discusses changes in the music industry over time as revenues have declined but music consumption has increased. It attributes the revenue decline to shifts in how people access and listen to music, from physical formats to digital. New services like Napster, iTunes, YouTube and Spotify provided convenient digital access to music for free or low cost, which impacted revenue streams. Streaming services in particular have grown rapidly and now drive most digital revenue, though artist royalties per stream are much lower than from other sources. Sustainable business models are needed that satisfy customers desire for easy, free access while also generating sufficient revenue to fairly compensate all industry stakeholders.

1. the future of music industry

2. music revenues are declining

3. Global revenue (billion $US)
30
24
18
12
6
0
Over a decade of decline in revenues
15.7 15.0 17.1 16.6
Global revenue of music industry (billion $US)
18.3
19.8
21.2
23.5 22.7 24.3 24.2
26.2
27.4 28.5 28.6 28.1 27.7
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IFPI Recording industry in numbers 2014

4. but we are not listening less music

5. it is changed how we listen music

6. napster
1999
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.
iTunes
2003
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.
!
2005
Spotify
2008
Spotify 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 changed
A roadmap of Innovative Music Services

7. Digital Music continue to rise
Global digital revenues of music industry to $5.9 billion
Globale revenue (billion $US)
6
4.8
3.6
2.4
1.2
0
5.6 5.9
5.1
4.4 4.6 4.0
2.9
2.2
1.2
0.4
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IFPI Recording industry in numbers 2014

8. Revenues from Digital Music account for 39% of industry
25%
75%
Physical Digital
5%
95%
39%
61%
2005 2009 2013
Source: IFPI Digital Music Report 2014
Global revenue of music industry (billion $US)

9. streaming is the fastest growing media

10. Streaming services drive the digital growth
Streaming revenues more than tripling to US$1.1 billion in the last 3 years
Global revenue (billion $US)
6
4.8
3.6
2.4
1.2
0
0.7 1.1
0.5
Digital download Digital streaming
0.3
4.7 4.9 4.8 4.0 4.4 4.3
2.9
2.2
1.2
0.4
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IFPI Recording industry in numbers 2014

11. and it is changed the perceived value

12. 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.

13. “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

14. A different monetization model
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
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.

15. each market is different

16. Different performance across the world
5,389
4,897 3,616
521
Revenue by Market (million $US)
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.
Source: IFPI Recording industry in numbers 2014

17. North America is the biggest market
Global share of Sales of Recorded Music (million $US)
2,825
239
424
431
956
1,304
TOT
15,029
1,365
4,474
3,012
United States Japan Germany UK France Australia Canada Italy Other

18. And digital music consumption changes by country
share of revenues
10%
60%
30%
18%
27% 55%
6%
21%
73%
11%
44%
44%
13%
34% 53%
Physical Digital Other
11%
68%
21%

19. business model is key to monetization

20. “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

21. 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

22. 2 Satisfy 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