thereport ISSUE 357 | 07 JANUARY 2015

2015: what’s next?The trends that will define digital musicover the next 12 months

Contents05 Beyond music: The Interview06 Pinboard: Stats, deals, startups and more 08 Country profile: Ireland

2th

ere

port

ISSUE 35707.01.15

Happy New Year and all that, but will 2015 be joyful for the music industry? It’s shaping up as a crucial period for many reasons – from identifying the long-term winners in the streaming market to understanding which non-music companies will be genuinely significant to the industry’s growth. Many of our predictions are necessarily, well, predictable: Apple relaunching Beats; managers asserting themselves over royalties; Facebook giving YouTube some proper competition in online video. But these trends and more are key to understanding why 2015 might be the most interesting year in digital music since 2003 and the launch of the iTunes Store

COVER FEATURE

What’s next?

COVER FEATURE

The trends that will define digital music over the next 12 months

Beats finally makes gloBal wavesApple’s proper move into streaming music didn’t come with the launch of iTunes Radio – or even with its $3bn acquisition of Beats. It’s the upcoming relaunch of Beats Music that will really show us Apple’s ambitions to dominate the transition from downloads to streams.

Veteran Apple watchers will have been smiling at the strategic leaks in recent months of the company’s plans – from its desire to lower the price of a monthly streaming subscription to as little as $5 to its negotiations with artists for exclusive deals on big albums.

Apple has the clout to trigger a streaming-music price war as well as a wallet-laden battle for exclusives – it comfortably has the biggest wallet, obviously – as well as the device footprint to push a free trial of Beats to hundreds of millions of phones, tablets and computers worldwide. Beats Music reportedly ended 2014 with 300k subscribers; place your bets now on what multiple of that it’ll have by the end of 2015.

managers on the march

Yes, there’ll be plenty of debate about what streaming’s growth and downloads’ decline means for overall industry revenues in 2015. But the debate that will come increasingly to the fore – even more so than in 2014 – is the argument about how those revenues are

being divided. Managers will be crucial to the debate.

Those who spoke out last year about the need for transparency – Brian Message in the UK, for example – have already signified their intentions to not just continue agitating publicly in 2015, but to organise their peers and take that stance to the negotiating table with rightsholders and digital services.

Watch closely, too, for the impact in the US of Maverick, the company launched last October as a supergroup of management firms led by Madonna and U2’s manager Guy Oseary (in partnership with Live Nation), who is determined to take a lead in striking digital deals for its clients.

sale or iPo for sPotify, soundcloud and shazam

Post-Beats, what will be the next big exit for the digital music market? We suspect there’ll be two in 2015, and perhaps even three: Spotify, SoundCloud and Shazam. In the first two cases, how those exits pan out will tell us a great deal about the balance between short-term profit and long-term strategy in this space.

For all of Daniel Ek’s protestations that

an IPO is not Spotify’s priority, it will surely come in 2015 unless someone swoops in with an offer the company truly can’t refuse.

A hugely enriching moment for shareholders – labels included – but also potentially a hugely divisive moment amid the artist royalties debate.

SoundCloud? While an IPO isn’t out of the question, it looks much more swoopable than Spotify, especially if it manages to strike more deals (it currently only has Warner Music in the bag) to remove the threat of rightsholder lawsuits. Take your pick for suitors from the usual big-tech firms.

And Shazam? It should still be an acquisition target, sitting between television, advertising and music. But who will buy? And if the answer is “nobody”, does the company have the business to go for an IPO?

3th

ere

port

ISSUE 35707.01.15 COVER FEATURE

survival strategies for PurePlaysWhether funded by device sales, advertising or venture capital, the big guns of the streaming music world this year will hog most of the headlines. Amid the heat of the Apple versus Google/YouTube versus Spotify battle, what chance for smaller pureplay digital music services? Actually, there’s plenty of room for optimism: the 900lb gorillas will require nimbleness from their underdog rivals.

Can Deezer crack the US through hardware partnerships? Will high-definition services like Pono Music, Deezer Elite and

Tidal make breakthroughs? Will genre-focused streaming services – country or metal, anyone? – find their niches? Can MixRadio take the Pandora model global as part of Japanese social giant Line? All questions that will make 2015 extremely interesting, although there are sure to be high-profile casualties along the way.

the race to truly understand music fans

Like the Beats relaunch, this is a trend presaged by a high-profile acquisition in

2014 – in this case, Spotify buying The Echo Nest. Digital music folk (us included) have been pontificating about “music discovery” for years now, but 2015 is the year it will finally – really – mean something.

Yes, there may be a streaming price war. And yes, distribution and marketing will be a huge factor in driving takeup (in trials at least) of various services. But don’t underestimate something bubbling away once people start using these services: their

SoundCloud looks much more swoopable than Spotify, especially

if it manages to strike more deals to remove the threat of rightsholder lawsuits”

ability to truly understand their listeners.There are two separate strands to this.

First, how do the likes of Spotify use their mammoth data archives to retain their long-term users in the face of growing competition? If someone’s been listening to Spotify for two, three or more years, what features will keep them listening and how will their data drive that? The Echo Nest is about as good a team of people as we can think of to answer that question.

But the other strand is how digital services hit the ground running with new users: grasping their tastes as quickly as possible and using that to drive retention too.

off-youtuBe Players make video moves

YouTube ended 2014 as (once again) the world’s biggest digital music service. That won’t change in 2015, although we’ll also see whether the initial trial of YouTube Music Key turns into a sustainable and paid streaming service, or

4th

ere

port

ISSUE 35707.01.15

terms, smartwatches will remain a novelty rather than a game-changer: just a fun new way to control playback on a smartphone.

More impact will come from other kinds of connected devices: cars – more fruits from partnerships between automotive firms and streaming services – as well as from connected hi-fis and other audio-streaming devices designed for the living room.

We also expect big things from some new players in the familiar device category of smartphones. Well, new to the West, anyway: Chinese smartphone makers like Xiaomi and Huawei will be on a global expansion drive – the former company recently raised $1.1bn for exactly that – with content (music included) part of their picture.

The failure of Samsung’s Music Hub remains a cautionary tale for any device maker who thinks selling lots of handsets is a guaranteed base for digital music success. Still, the Chinese firms’ expansion – into India as well – will be an important trend to watch in 2015.

messaging aPPs as ‘the new social media’We won’t claim the credit for that line: VC exec Fred Wilson bagged it in his end-of-2014 blog post. “Messaging is the new social media,” he wrote. “Families use WhatsApp groups instead of Facebook. Kids use Snapchat instead of Instagram.” The growth of messaging apps was an important and hardly-unremarked-upon trend in 2014, and

it’s why music:)ally wrote so regularly about these and other companies

in the space.In 2015, their ambitions

to become media portals rather than just messaging conduits will be a big deal. Snapchat’s plans to add videos, music and news have

already leaked out; plus it is starting the year with a $485m

injection of new funding, some of which will be used to further

those plans. Line is buying MixRadio and launching a separate music service in Japan, while the likes of WeChat, Tango and KakaoTalk (left) mull their

media options. Messaging apps as the new social media?

simply an ad-supported one.Meanwhile, watch closely to see if

Irving Azoff follows through on his threats to sue YouTube over songwriting royalties.

But just as interesting a trend for 2015 is the fact that YouTube is finally going to get some serious competition in the online video market. At scale, that will come from Facebook, which is already driving huge numbers of video views on its platform – 1bn daily views by the end of 2014. Right at the end of 2014 came an individual illustration: Apple’s holiday video ad was watched 3m times on YouTube and 20m times on Facebook.

For 2015, that spells more music marketers uploading videos directly to Facebook and likely some more rumours about a fully-fledged Facebook music videos feature. But watch too for smaller players like Vessel, which is trying to create a new off-YouTube (and off-Vevo) premium

window for music videos.

new devices making an imPact

Numerous tech blogs are hailing 2015 as the year of wearable devices, not least because of the debut of the Apple Watch. Yet in music

Snapchat’s plans to add videos, mu-sic and news have already leaked out; plus it is starting the year with a $485m of new funding”

COVER FEATURE

They’re also the new media – and what that means for music will become much clearer in 2015.

diy continues its steady growth

Suggesting that direct-to-consumer distribution is a trend of 2015 is a bit of a reach: it’s a much more slow-burning trend that’s run throughout the history of digital music.

Even so, 2015 does feel like a new frontier: the culmination of recent progress, from Patreon to Bandcamp, PledgeMusic to BitTorrent, BandPage to Kickstarter, not to mention the expansion of pretty much every digital distribution firm’s remit to YouTube monetisation alongside sales and streams.

All of this will continue in 2015: yes, there’ll be some more high-profile case studies in the Amanda Palmer/Thom Yorke

5th

ere

port

ISSUE 35707.01.15

the second digital transition’s key year

The first digital music transition – from physical to digital – never quite… transitioned. Some major music markets – hello, Japan and Germany – remain CD-heavy, while others were less successful than expected in the pace at which they took downloads beyond the early adopters.

This is why there are so many dry mouths right now about the second

digital transition: from sales to streams – because it’s those early adopters, the big spenders on downloads, who’ve switched first.

2015 is a key year for the mainstreaming of streaming (an awful phrase, admittedly) but that’s going to take some risky, long-term thinking from digital services, rightsholders and artists alike. If ever there was a time for labels and digital services to prove they’re not just hanging on for Big Exit payouts, it’s this year. :)

tradition, but it’s more about a groundswell of artists making meaningful (and still largely unmeasured by the traditional industry) revenues.

To return to a familiar recent music:)ally theme, though, 2015 needs to be the year that stronger links are forged between streaming services and D2C firms: from more ways to take streaming fans of an artist to their D2C activities, to perhaps even building crowdfunding into streaming services. If YouTube can do it, why not Spotify or Beats?

2015 does feel like a new frontier: the culmination of recent progress, from Patreon to Bandcamp, PledgeMusic to BitTorrent, BandPage to Kickstarter, not to mention the expansion of pretty much every digital distribution firm’s remit to YouTube monetisation alongside sales and streams”

COVER FEATURE

2015 needs to be the year that stronger links are forged be-tween streaming services and D2C firms:... if You-Tube can do it, why not Spotify or Beats?”

a movie clip went online showing the leader being blown up in a helicopter and all hell broke loose after that.

Sony Pictures found itself at the mercy of cyber attacks by a group claiming to be Guardians Of The Peace where all manner of embarrassing things were leaked, including emails between executives speaking a little too frankly about major stars. The hacks may or may not have been done (or have been commissioned) by the North Korean government. The film was pulled, theatres

said they were too scared to screen it, and the US president got involved, imposing new sanctions on North Korea and its envoys.

The latest twist (this week), however, is that an ex-employee with a grudge was behind the hacks. No matter. The wider issue is about how the film eventually got released. The idea of no release was quickly sidelined in favour of a limited number of theatres showing it and it being put online to buy or rent. The US news media spun it as a freedom of speech issue and vox pops with people standing in

6th

ere

port

ISSUE 35707.01.15

Building a “pre-presence” online for movies is nothing new. The release of Blair Witch Project in 1999 was regarded as a bold vision (well, back

then) of the future, where clues and threads were planted online ahead of its release to give the film a sense of verisimilitude, intentionally blurring the lines between fact and fiction in order to get discussions to go “viral” before anyone really knew what viral marketing was.

The net result was that this soon became a hackneyed approach to whipping up public interest and it followed that the audience became increasingly cynical about being spoon-fed and manipulated in this way. Today, anything that breaks from the norm is instantly proclaimed as contrived (on social media, anyway) and any pre-release controversy is proclaimed to have been carefully stage-managed.

So the massive hoo-hah around the release (or non-release, or, more correctly, the partial release) of The Interview marks the start of something new, something very different. A quick synopsis: the film is a comedy about two American tabloid TV journalists who land an interview with the North Korean leader and are quickly put under pressure by US government agents to assassinate him. The North Korean government and media voiced their outrage,

BEYOND MUSIC

The InterviewNothing sells like something you’re not supposed to see or hear...

midnight queues to see it at the cinema took on a hugely patriotic bent – namely that they were going to see it precisely because another country (possibly) said they shouldn’t be allowed to see it.

It was released online on Christmas Eve in America and, by the first week of January, had generated $31m in streaming revenues, making it Sony’s biggest online release of a film to date. (It has been rented or purchased 4.3m times in the US in that period.) The inevitable DVD release will help boost its fortunes further and the narrative around it has changed from being, according to early reviews, a weak comedy that deserved to be ignored to becoming the must-see film of both 2014 and 2015.

Cynics have already suggested that this “windowing” (out of necessity rather than strategy) is going to save a film that could have died at the box office under normal circumstances. There are echoes here with music in the 1980s and 1990s in the wake of the Parents’ Music Resource Centre putting advisory stickers on albums that meant no one worth their salt in hip-hop or rock could dare put out an album that didn’t have such a sticker.

Nothing sells like something you’re not supposed to see or hear. The phenomenal book sales in 1960/1961 of Lady Chatterley’s Lover attest to that. Let’s pray, however, that a thousand storms are not whipped up in a thousand teacups this year by rattled marketing teams tasked with making a terrible film, or a terrible album, a success. :)

There are echoes here with music in the 1980s and 1990s in the wake of the Parents’ Music Resource

Centre putting advisory stickers on albums”

7th

ere

port

ISSUE 35707.01.15 TOOLS Pinboard » Deals

Japanese messaging service Line has acquired MixRadio after it was spun out from Nokia (following Microsoft’s purchasing of the Finnish company’s devices and services arm).

Messaging app Snapchat has raised $485.6m in new funding, bringing its total funding to date to $648m and giving the company a valuation of $10bn.

Deezer has partnered with LyricFind to offer its users synchronised

lyrics as they stream music (or they can choose to have the complete lyrics displayed instead).

7digital has become the first UK download service to adopt Meridian’s new high-resolution MQA format, which delivers high quality audio music without hogging bandwidth.

MIXRADIO

7DIGITAL APPLE iTUNES

GOOGLE

As part of a move to comply with EU retail regulations, Apple is allowing iTunes customers to “return” purchases within 14 days and receive a full refund.

@jherskowitz 2015: the year I’ve been waiting 10 years for…. the year

streaming music finally goes mass market.

@popjustice Of course the main lesson of Frozen is this: if your sister’s

having a party, don’t try to upstage her by announcing your engagement.

@seaninsound Big prediction for 2015: Real time enragement

and hatertainment to get far worse before it gets better. #2015 #predictions2015 #hashtag

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

Tweets#2015SNAPCHAT

In a similar vein, Google has started offering lyric transcriptions and will push them up related search results.

DEEZER/LYRICFIND

8th

ere

port

ISSUE 35707.01.15 TOOLS

UK MUSIC SALES

UK MUSIC SALES

1,047 1,030

US MUSIC SALES (units)

SIN

GLES

172m

Digital albums

106m

151m

106bn

164bn

116m

Physical albums Streams

(retail value, £ millions)

773

168

106

713

142

175

2013 2014

2013

2014

Albums

Singles

Streams

(millions of units)

15.6

18.2

20132014

PHYS

ICAL

ALBU

MS

DIGI

TAL

ALBU

MS

32.6

29.7

57.2

61.4

US BEST SELLERS OF 2014

BEST-SELLING ALBUM1989 (Taylor Swift), 3.66m COPIES

BEST-SELLING SINGLEHappy (Pharrell Williams), 6.4m COPIES

Source: Nielsen SoundScan, January 2015 Source: BPI, January 2015

Pinboard » Stats

NEW SERVICE VESSEL

What is it?YouTube has such a grip on online video that it would be a fool’s errand to try and topple it. Right? Maybe not. Facebook will aggressively push towards native video this year and Twitter is planning something similar.

Now enter Vessel, steered by former Hulu executives and with an estimated $75m in funding for its two-tiered offering (subscription and ad-supported) covering music along with comedy, gaming and other short-form content. But its first big play was at the end of December following a deal with Warner Music Group and claims it would pay royalties that far eclipse that of rivals. Warner, of course, has not licensed to the Sony- and Universal-backed Vevo, suggesting a splintered future for music videos online. Empty vessels, according to the maxim, make the most noise. But Vessel will only make serious noise when it’s jam-packed with a dizzying range of videos from all corners.

9th

ere

port

ISSUE 35707.01.15

According to the IFPI, recorded music sales in Ireland totalled $39.3m in 2013 – down 6% from 2012. Despite growing 25.9% to $20.9m, digital

sales failed to make up for the decline in physical formats, which saw sales fall 27% to $18.4m. The market was thus predominantly digital for the first time in 2013, with a 53/47 split over physical sales.

Although neither the international organisation nor the local trade body IRMA

have yet published figures for 2014, music:)ally understands that last year looked significantly more optimistic for the domestic industry. Local industry experts concur that the market saw a return to growth, fuelled not only by streaming on the digital side, but also by a 4.2% increase in album sales to just under 3m units.

Of particular interest is the fact that album sales grew as a result of a 15% increase in physical product: CD and vinyl sales grew

13.8% to 2.14m units and 104.3% to 47k units, respectively. In talks with music:)ally, Mark Crossingham (MD of Universal Music Ireland) highlighted that Black Friday proved to be a very successful catalyst for sales, growing the traditionally busy Christmas period.

The positive news regarding the comeback of physical product is the result of HMV’s return to Ireland under the ownership of Hilco Capital, with a number of new and re-opened stores alongside DVD/games rental chain Xtra-vision (also owned by Hilco). On the digital side, however, album sales fell 18% to 790k units. Likewise, singles fell 27.5% to just over 4m units.

In line with the global trends, downloads in Ireland are clearly on the way out as streaming takes over. Streaming revenues grew by 120% year-on-year in the first half of

MARKET PROFILE Ireland

The Irish recording industry is finally experiencing a comeback, driven by the return of HMV, very promising growth in streaming revenues and a healthier economy

STATS

f Population 4.8md GDP per capita US$41,300h Internet users 3.8mc Broadband households 1mj Mobile subscriptions 5.3mi Smartphone users 3.3mSources: IFPI, CIA World Factbook

IRELAND

2009 2010 2011 2012 2013

Downloads

Subscriptions

Ad-supported

Mobile

Other digital

11.0 12.414.4

14.8

17.1

20

15

10

5

0 1.81.71.51.8

Ireland: recorded music digital sales (US$ millions, trade value, historical exchange rates) Source: IFPI

10th

ere

port

ISSUE 35707.01.15

2014, seeing further acceleration in the subsequent months. It is widely agreed that Spotify has been the key driver, following its launch in Ireland in November 2012, which was strengthened a year later through a bundling partnership with Vodafone; a very positive note, given the experience previously seen in the country by local telco Eircom with its failed MusicHub service.

In talks with music:)ally, Annette Donnelly (MD of Sony Music Entertainment Ireland) stressed, “Streaming is currently growing faster in Ireland than it is in the UK.” Arguably this is also due to the fact that Ireland is catching up in the streaming game; but, in any case, the future is certainly looking much brighter for the Irish industry. “We’re still waiting to see the impact of Christmas, which will fuel growth as a new wave of smartphones and tablets get to the hands of consumers,” added Donnelly. “In the mid-

term, I expect streaming in Ireland to be where it currently is in the Netherlands.”

Donnelly added (in this new scenario), “We are focusing our resources in a different way. Very little of our marketing spend now goes to TV and we are increasingly working with playlists. At the same time, radio is still very important in Ireland. Listenership is enormous – more so than in other EU territories.”

Echoing Donnelly’s views, Crossingham said that UMG has “a big focus on playlists”, adding that “a lot of advertising is now geared towards streaming services”. He also feels that Ireland is currently going through a very good period with regards to music talent. “We’ve been signing some great new acts and several have also been signed to UK labels,” he said. “It’s a good time for Irish music.”

Given the amount of technology companies now based in Ireland, as well as the growing relevance of events such

as the Dublin Web Summit, the country is increasingly seen as a tech hub in Europe (tax controversies aside). In this context, we have seen local music startups such as FanFootage and Soundwave emerge and, although it has been somewhat quiet of late, it will be worth keeping an eye on this sector.

With regards to how things are looking ahead, the state of the Irish economy is still far from ideal. However, the Central Statistics Office recently revealed that GDP grew by 4.9% in the first nine months of 2014, while GNP (which strips out multinational profit flows) rose by 3.5%.

Crossingham says that there is still a lot of room for streaming to grow but that, at the same time, some areas of the country still need improvements in digital infrastructure. Both he and Donnelly expect Ireland’s recorded music business to see a single-digit growth in 2015. :)

MARKET PROFILE Ireland continued...

2009 2010 2011 2012 2013

25.260.9 45.4 34.8 18.4

12.9 13.5 17.6 20.916.6

TOTAL73.8

TOTAL58.9

TOTAL41.8

TOTAL39.3

TOTAL52.4

Physical

Digital

Ireland: recorded music sales (millions of units) Data sourced by Music Ally

We’ve been signing some great new acts and several have also been signed to UK labels. It’s a good time for Irish music.”

Mark Crossingham,

Managing director,

Universal Music Ireland

Ireland recorded music sales (US$ millions, trade value, historical exchange rates) Source: IFPI

2013 2014

Singles

Digital albums

CDs

0.971.88

5.60

0.79

2.14

4.06

11th

ere

port

ISSUE 35707.01.15

Music Ally is a music business information and strategy company. We focus on the change taking place in the industry and provide information and insight into every aspect of the business, consumer research analysing the changing behaviour and trends in the industry, consultancy services to companies ranging from blue chip retailers and telecoms companies to start-ups; and training around methods to digitally market your artists and maximise the effectiveness of digital campaigns. We also work with a number of high profile music events around the world, from Bogota to Berlin and Brighton, bringing the industry together to have a good commonsense debate and get some consensus on how to move forward.

Music Ally is an example of perceptive journalism at its best, with unrivalled coverage of the digital music sector”

Andrew Fisher, CEO, Shazam

Entertainment

Our clients include:

Business developmentanthony@musically.com

ANTHONY CHURCHMAN

EAMONN FORDE

LEO TOYAMA

STEVE MAYALL

Data & insights managerleo@musically.com

Reports editoreamonn.forde@me.com

Director & foundersteve.mayall@musically.com

CLAIRE MAS

KARIM FANOUS

PAUL BRINDLEY

STUART DREDGE

Training & developmentclaire@musically.com

Head of researchkarim@musically.com

CEO & founderpaul.brindley@musically.com

Editor at largestuart@musically.com

Contact:music:)allyStudio 11, Holborn Studios, 49-50 Eagle Wharf Rd, London N1 7EDTel: +44 (0)20 7250 3637b www.MusicAlly.com e mail@MusicAlly.com

Registered company number: 04525243VAT number: 858212321

© Music Ally Ltd. For the purposes of personal, private use the subscriber may print this publication or move it to a storage medium; however, this publication is intended for subscribers only and as such may not be redistributed without permission. Subscribers agree to terms and conditions set up on the Music Ally website, except where a separate contract takes precedence. Music Ally has taken all reasonable endeavours to ensure the validity of all items reported within this document. We do not assume, and hereby disclaim, any liability for loss or damage caused by errors or omissions. In particular the content is not intended to be relied upon in making (or refraining from making) investments or other decisions. We cannot be held responsible for the contents of any linked sites.

ISSUE 35707.01.15