November 2012

MUSIC: PERMANENT DISRUPTION OR TEMPORARY INTERRUPTION?

THE RECORDED MUSIC SLUMP Deflation: Market has declined from $28.6 bn at peak in 1999 to $16.7 bn in

2011 Per capita music purchases were $4.8 in 1999 and $2.4 bn in 2011

– 50% decline Meanwhile music consumption has increased and the live music

market is near its peak

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1999 2001 2003 2005 2007 2009 2011

4.8 4.5

3.9 3.7

3.2

2.7 2.4

US

$

Year

Per Capita Music Consumption

0

5

10

15

20

25

30

1999 2001 2003 2005 2007 2009 2011

28.6 27.7

24.3 23.5 21.2

18.3 16.7

US

$

Year

Recorded Music

THE RECORDED MUSIC SLUMP

Key Factors Causing Deflation: Unbundling of the album to single tracks Collapse of offline distribution and retail Digital enabling easy piracy Reduction in quality formats (vinyl → CD → MP3) Some signs of stabilization now, as digital is overtaking physical

THE RECORDED MUSIC SLUMP 'Soft Factors‘ Commoditization of the music Overabundance Discovery

?

Digital (downloads and streaming) is overtaking digital Overall market appears to be stabilizing Strong anti-piracy momentum New retail models tailored for mobile that improve monetization Rebuilding of distribution, also in emerging markets (Itunes, Deezer

etc) Future shocks in the distribution system still likely, especially in

markets with majority physical business.

Format Change re-invigorating the recorded music industry?

IS THIS THE LIGHT AT THE END OF THE TUNNEL OR A TRAIN COMING?

EMERGING MARKETS? Recorded music industry focus traditionally on Western Europe, North America and

Japan. Limited focus on emerging markets Some very promising trends:

Some of the highest internet engagement (facebook etc) Rapid growth of smartphone penetration – key instrument for monetization High economic growth and substantial middle classes

Digital distribution has been limited so far. Amazon, Itunes and streaming platforms reach limited (Itunes only launched in South America this year, no service yet in Russia, China, Turkey etc)

We are excited about seeing Apple and new players like Deezer enticing these markets

167.6

60.7 60.5 50.5

39.4 33.2 31.4 29.9 25.3 25

Facebook users mm

WHAT DO WE NEED TO DO? Continue to battle piracy Establish new digital distribution infrastructure worldwide Counter commoditization Re-engage listeners

Roentgenzenidat Social

Music Engages!

WHAT IS ACCESS INDUSTRIES DOING?

Significant investment in content → Warner Music Group acquisition. Continue to develop new music, and not only pop/EDM

Development and stimulation of new digital formats Active participation in increasing the quality of consumption

(Neil Young's Pono Hi-Def project and others) Re-building of distribution (investments in Spotify and Deezer) Active engagement in developing digital distribution in emerging

markets (Deezer and Itunes) Other Music related investments that are aimed at improving

consumer engagement (Songkick, Crowdsurge, 8Tracks etc)

WHAT CAN YOU DO?

It is not anymore about disrupting the value chain. Napster was Internet 1.0

Consumers are looking for engagement, quality, discovery and ease – of – use. Free music is on YouTube

It is about re-engaging listeners with music in the digital ages: Discovery – where to browse and get advice Curation – where are today's John Peel's Identification Social Engagement The deflation has happened, now it is time to rebuild in a digital

world.

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