thereport ISSUE 348 | 20 AUGUST 2014

Game faceMusic and gaming’s next levels

Contents06 Beyond music:

The kids are alright (at coding)07 Pinboard: Stats, deals, startups and more

09 Country profile: Japan

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Seven yearS ago there waS a gold ruSh in muSic and gaming aS rock Band and guitar hero offered a Bright Spot in a dark time of tumBling cd SaleS. it waS a Short-lived golden period and gaming moved on – to moBile and Social media – and waSn’t that fuSSed aBout taking muSic with it. now new developmentS with Steam, twitch and oculuS rift might juSt put muSic Back in the game.

In 2007, music and gaming hit a crescendo – with Guitar Hero, Rock Band and SingStar all at the peak of their powers and impacting on the mainstream of

console gaming. Alongside the cost of the games (several times the cost of an album), there were cash cows to be found in the peripherals market, selling instrument-shaped controllers and overall generating tens of millions of dollars. Exploiting the motion-sensors on the Xbox 360 and Wii, a generation of dance games extended the footprint and brought in a whole generation of consumers who had previously never

regarded themselves as gamers.

Labels and publishers got huge windfalls as a new type

COVER FEATURE

Game faceCOVER FEATURE

Music and gaming’s next levels

of synchronisation entered the industry lexicon. Most surprisingly, The Beatles – a year before they licensed to iTunes – jumped in with their own edition of Rock Band. The sector even branched into dance music (in some ways a precursor to the EDM boom in the US) with DJ Hero.

Just as soon as they appeared, however, the wheels fell off the market. Games producer Harmonix ran into trouble and was sold on by Viacom in 2010, the company having bought it in 2006. Apps and social media ended up stealing a large percentage of their casual consumer base, with them leaving the console in droves for Farmville, Angry Birds, Candy Crush and Minecraft – none of which had music as a core part of what they did. The music industry’s great gaming payday looked to have dried up.

Things are, however, bubbling up again for music and gaming – but it is not going to be quite the gold rush of seven years ago. That said, enough is happening for it not to be dismissed as a light breeze in a teacup. Here is what is happening and why it could matter for music.

The new plaTforms: TwiTch and sTeam

The music industry is well versed in the platform wars between Xbox, Playstation and Wii, which - for a brief period - meant that they were able to push high-ticket price games built around music. In the time since, two new platforms have started to exert their influence and are already testing the water with music.

Twitch launched in 2011 as a spin off from Justin.tv, focused on playthroughs of games and the broadcast of e-sports

competitions. It, however, grabbed music-centric headlines in the past few weeks relating to issues of music content and how it is filtered out in UGC uploads (a big part of its community draw for gamers keen to show off their skill and knowledge).

The company announced it was taking the proactive step of muting sections of user-uploaded videos if they contained unlicensed music (either as part of the game or playing in the background) – drawing on Audible Magic technology to automate the process. Sound familiar? It’s similar to how YouTube’s Content ID has been treating music used in its UGC uploads for years.

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There was immediate outcry from the Twitch community and the company had to quickly add an “appeal” button for users believing their video has been wrongly flagged for music infringement.

Twitch has, however, been courting the music business and hoping to position itself as a marketing platform rather than a hotbed of infringement. The Mad Decent

Top: Twitch has been courting the music business despite a run-in with UGC. Above: Steam dates back to 2003 but development of the Steam Machine console and the forthcoming controller (right) is pushing it to the fore

label recently set up its own channel on the platform, Steve Aoki live-streamed his set from Ibiza at the end of July on there and Porter Robinson created his own channel on Twitch as part of the promotion of his latest album, Worlds, where he talked about how gaming influenced his music and showed off his gaming set up at home.

And therein lie both the power and the limitations of Twitch for music marketing. It arguably suits certain genres more than others (dance/electronica/EDM seems to dominate at the moment) and for artists to really impact here (and be taken seriously by the community) they have to be dedicated gamers. Arrivistes will be quickly sniffed out.

But there are other plans afoot here that could push the dynamics a little more towards one of music’s comfort zones – namely YouTube. Back in July, Google paid a reported $1bn to buy Twitch and said it plans to weave it in more closely with its video-sharing platform. If one looks, however, at the leading channels on YouTube, there is something of a separation between music-centric ones and gaming–centric ones, with very little formal crossover between the two. Given Twitch’s moves to mute unlicensed content, it seems its plans are to have music there – but on its own terms, making this (for now) an interesting but niche springboard for music.

The other notably new platform is Steam – a multi-player, distribution and social networking platform which dates back to 2003 but has made a very pronounced play this year to get into the broader

Twitch has, however, been courting the music business and hoping to position itself as a marketing platform rather than a hotbed of infringement”

can deliver a huge installed userbase that is almost double the size of market-leading Spotify’s footprint.

The new hardware: oculus rifT, anTVr and amazon fire TVOculus Rift is one of the biggest tech stories of the year given that Facebook closed on its $2bn acquisition of its parent company, Oculus VR, in July. The virtual reality (VR) device didn’t come out of nowhere, having raised $2.4m on Kickstarter in 2012 and another $91m from VCs the following year.

The music business is perhaps cynical of VR, especially with platforms like Second Life failing to deliver on the wild promises made on their behalf. But Facebook has much broader ambitions for Oculus Rift – with suggestions earlier this month the social network was meeting with Hollywood studios to develop movies with it in mind.

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ISSUE 34820.08.14 COVER FEATURE

Music could follow, but perhaps initially with only a handful of acts having the creative vision to do something genuinely interesting and creative with it – think Björk’s Biophilia iPad app supercharged for a VR experience. Entry costs and initial developmental spend would be high but Facebook is not short of cash and would want to show off the full extent of what this technology can do so that could mean – possibly – working with musicians and shouldering some (all?) of the costs to give its users something to consume.

Oculus Rift would not be an outlier, either. ANTVR is an “all-in-one universal virtual reality kit” being developed in China, which raised its funding target of $260k on Kickstarter in June and is

expected to go on sale in the US in September. It claims to be compatible with any gaming console as well as mobile devices – which gives it a significant advantage over Oculus Rift, which requires games to be developed specifically for its platform.

Anchored more explicitly in the real world is Amazon Fire TV, launched in April this year and which places gaming alongside the ability to stream entertainment content to the living room TV.

For all of these devices, gaming will be the priority, with film/TV content likely to come second in the pecking order. Does that mean music will be the poor relation? Not necessarily as this could be a side door for music into the highly anticipated world of smart TVs.

Having said that, recent sales figures show the PlayStation 4 has sold 10m units and Xbox One has sold 5m units; and both have music streaming compatibility because of their parent companies’ broader entertainment offerings – Sony Music Unlimited and Xbox Music respectively. Neither of them have seen a huge spike in subscribers as a result of these device sales so games hardware is not necessarily a failsafe opportunity for digital music. Perhaps it could be that Sony and Microsoft are struggling to cross-promote their offerings to their users but the combination of a service-agnostic platform and an established streaming service could break through where others have failed.

mobile and handheld games

Music and mobile gaming has been a mixed bag to date – for every Tap Tap Revenge there has been a Zya (where users create music and try and ascend a leader board)

entertainment content business, driven in part by the development of the Steam Machine console and controller (the launch of which has been pushed back to 2015).

At the start of this year, Steam stated it was looking to add music, TV content and films to its bespoke SteamOS operating system. In February, this was followed up with the news that it was already testing the water with music – namely launching the beta version of Steam Music that allows users to play music from their local libraries as they concurrently play games.

It takes a 30% cut of games sales so it’s not a huge leap for it to launch its own download store or hook up with an existing one and take an affiliate cut of sales. But as the music download market starts to shrink or plateau in developed markets, is selling music this way a viable strategy for Steam?

A more sensible route would be to add music on a streaming basis – letting users connect their music subscription accounts to their Steam profile or striking a direct deal with one subscription service to be its exclusive partner. So Steam could be less about synchronisation within games and more about acting as an acquisition funnel for music subscriptions. Given it has 75m accounts across 185 countries, it

Left: the Oculus Rift VR device. Right: ANTVR raised $260,000 on Kickstarter earlier this summer

Amazon Fire TV places gaming alongside content-streaming

Steam could be less about synchronisation within games and more about acting as an acquisition funnel for music subscriptions”

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ISSUE 34820.08.14 COVER FEATURE

how well players get through the game, its songs build up in layers. In a hands-across-the-platforms move, it also partnered with Twitch to stream the musical score used in the game.

Finally, TourStar comes in the wake of Band Stars and Music Inc. (developed by UK Music) where, like fantasy football leagues, players have to navigate their way through the music industry – gunning for success but always one step away from failure. Where it attempts to mark itself out as different is that players can win real prizes – such as downloads, merchandise, tickets and even meet & greets with acts.

It’s a common journalistic and analyst trend to see three things happening at the same time and to loudly proclaim them as a trend. While music:)ally is not so crass and

There is a land grab happening right now with labels trying to build up playlist followers as quick as they can now that chart influence is finally here”❚ Kieron Donoghue, Playlists.net

This is an area still at the experimental and path-finding stage rather than a copper-bottomed template for enormous commercial impact”

hyperbolic as to do that, if there is not a full-blown trend happening just now then there are certainly the mild stirrings of one. And that is the ultimate point here – it is less a seismic shift and more a noticeable undulating.

neiTher banqueTs nor crumbs: whaT This could mean for musicThere is a long history of failed games that wanted to put music at the core of what they are doing but equally there have also been some significant successes. As it stands, this is an area still at the experimental and path-finding stage rather than a copper-bottomed template for enormous commercial impact. So it must be approached as such. It is extremely unlikely we will see the hysteria of Rock Band/Guitar Hero/SingStar again for music and gaming, but there are lots of interesting things nibbling away at the periphery here. Perhaps as standalone products, they will only get so far, but if used as part of a wider marketing and sales push, they have the potential to get in front of an audience that is very difficult to reach normally. It is doubtful that, on their own, these recent gaming developments will deliver immediate banquets for the music industry; but neither will they cast down desultory crumbs. :)

that was incredibly hyped at launch but has failed to deliver on its promises.

But some interesting things have been happening recently that suggests a collective attempt to have another stab at this particular platform and expand the nature of mobile gaming beyond Angry Birds and Candy Crush.

First, there is Poplings that has a very explicit music connection as it was developed by FOAM Entertainment who are based in Sony Music’s London office. It is an iOS-based educational game aimed at two-to-four-year-olds and launched with pre-cleared music from acts such as Calvin Harris, Little Mix, JLS, Cheryl Cole and Avicii (so not all, you will note, Sony acts).

It is part of a growing trend in the music-as-education space, alongside others such as Israeli startup JoyTunes, whose games like Piano Dust Buster teach gamers the basics of playing an instrument. The company recently raised $5m in new funding to expand its offerings and this is sure to be an area that will grow, especially as new companies enter and regard music as key to what they do.

Then there is Hohokum for the PlayStation Vita (as well as the PS3 and PS 4), created by independent developer Honeyslug.

The object is to steer a snakelike creature round multiple worlds but this week it took on a more music-centric thrust with the signing of a deal with the Ghostly International label so that, depending on

Poplings launched with pre-cleared music including Little Mix, JLS and Avicii

Hohokum has taken on a more music-centric thrust this week

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Children have been learning programming skills since the early 1980s, when languages like BASIC and Logo were popular on the new-

fangled ‘home computers’ of the time. Kids played games on them – but many also coded their own.

Over the last two decades, however, children have gravitated towards games consoles and handhelds, as well as mobile devices. Still great for playing games on, but with less potential to dive into programming.

Technology companies and governments alike now agree that this is a bit of a problem, because it has created a skills gap: lots of vacancies for programmers but not enough people to fill them.

This is why so many people have been banging on about encouraging children to code in the last couple of years. The theory is that if they start young, more of them will opt to study programming in their teens and beyond, plugging that skills gap a few years down the line.

This year, the UK is in the unaccustomed position of being a tech trailblazer on this front. From September, programming will be part of the national curriculum for both primary and secondary school pupils, meaning kids as young as six and seven will be coding in class.

That in itself is spurring frenetic activity from technology companies – startups and

giants alike – to train teachers and enthuse parents about helping children take their first steps in programming.

Examples? Google and Microsoft are both funding initiatives to train teachers, as is online education startup Codecademy, which started as a series of courses for adults to polish (or develop from scratch) their coding skills but has gradually expanded its focus to include children.

There’s a flurry of learn-to-code apps aimed at children, including Hopscotch

HD, ScratchJr, Tynker and Hakitzu Elite. These use colourful characters – from cute animals to giant robots – to introduce children to algorithmic thinking, all with the aim of being a gateway to ‘proper’ programming later.

Another startup, ThoughtSTEM, is using the Minecraft video game – a big craze among children of all ages – as a way into programming. Its $30 LearnToMod software will be released in October, teaching children to create their own “mods” for Minecraft while practising coding.

What, you may be thinking, does this have to do with music? Well, it’s more about thinking forward a few years – not just in the UK, but elsewhere too – to the prospect of a generation of teenagers who’ll quite likely have five or more years of coding experience (in some form) under their belts.

What will their expectations be of digital entertainment and the marketing around it? In the latter case, how might music marketing campaigns tap into (more) teenagers’ interest in creating through code? “Hashtag your Instagram selfie to win a prize,” may not cut the mustard any more.

Another angle: think of the new bands coming through, fluent in – or, perhaps more importantly, not scared of – developers and coding. What will their expectations be of the digital products created on their behalf?

Young teenagers now get many labels: the YouTube generation, the Snapchat generation, the Minecraft generation and more. In five years’ time we may be able to talk about the Coding Generation. That should be an exciting prospect for music as well as for other creative industries. :)

BEYOND MUSIC

The kids are alright (at coding)Classroom Coding will forCe digital musiC to stay one step ahead

Scratching the coding itch: ScratchJr is an iPad app that aims to help young children

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ISSUE 34820.08.14 TOOLS Pinboard » Deals

BandPage has partnered with Spotify to provide D2C options for artists on the streaming service. This replaces Spotify’s deal with Topspin, which was acquired by Beats Music (and then both were absorbed into Apple).

Merlin has signed a direct deal with Pandora in the US on behalf of the independent labels it represents. While this is the first direct label deal for the service, it did sign a direct

deal with Universal Music Publishing in December.

Rhapsody has acquired both music discovery platform Ex.fm as well as Schematic Labs, the parent company of SoundTracking.

Indian streaming service Saavn has raised $4m in a Series B round of funding and also added

800k new tracks to its catalogue after striking licensing deals with EMI and Warner Music.

All Def Digital has raised $5m in Series A funding

and will use this to fund its cross-platform expansion and also to invest in original programming in music,

poetry, comedy and news.

BANDPAGE

RHAPSODY

ALL DEF DIGITAL ZVOOQ

SAAVN

Russian music service Zvooq has closed a $20m Series A funding round for its streaming and download offering that straddles ad-supported

and subscription. It currently has 2.7m registered users with 10% of them being subscribers.

@DavidEmery Can we make all our pop stars watch this Taylor

Swift thing in full and pass a test on it before they’re allowed to put out more music?

@helienne I imagine the brief for Taylor Swift’s new single and

video was: ‘Happy sung by Avril Lavigne’

@PopjusticeLook has the Taylor Swift single got TARDIS sound

effects in it or what?

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

Tweets#TaylorSwiftMERLIN

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What is it?Spotify has its artist-in-residence, DA Wallach. PonoMusic has its CEO, Neil Young. Beats Music has its chief creative officer, Trent Reznor, not to mention co-founder, Dr Dre. And new startup Uprise.fm now has its own musical luminary as part of the team: producer Daniel Lanois (pictured).

Not that the service is live yet: it’s launching next year as a streaming service focusing on “rare, unique and live recordings owned by artists that aren’t available on commercial streaming sites”. The Spotify Of Bootlegs, if you will. It’s not the first company with this focus: Nugs has worked with various bands on selling live recordings, while a few startups have floated the idea of single-artist subscriptions for a regular flow of rarities. But how Uprise.fm makes this work with streaming economics remains to be seen: much will depend on which artists it can sign up before launch.

80%

Total Hispanics

US Hispanic: listening by platform

92%

Source: ComScore, August 2014

Mobile Desktop

20%8%

Hispanic 25% Non-Hispanic 75%

US Hispanic: monthly unique visitors

666.0 656.0

446.4 430.3

50.528.5

131.3 122.0

53.7 53.1

H1 - 2013 H1 - 2014

OtherSubscriptions and advertising

DownloadsCDs

Source: BVMI, August 2014

GERMANY: RECORDED MUSIC SALES

(trade value, € millions)

US: SINGLES DECLINEPharrell Williams' ‘Happy’ • #1 track in 2013 with 5.9m units sold • +30.5% sales than 2012's #1 (Robin Thicke's ‘Blurred Lines’) • only track to outsell its chart counterpart of 2012

-13%Year-on-year decline of aggregated sales of the top 200 singles

-12.8%Year-on-year decline of total single sales

Source: Nielsen SoundScan, August 2014

(June 2014)

(June

201

4)

19m

57.4m

NEW SERVICE UPRISE.FM

Pinboard » Stats

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According to the IFPI, recorded music sales in Japan totalled $2.91bn in trade value in 2013 – a staggering 37.5% decline from

the $4.28bn reported by the trade body in 2012. It is worth highlighting, however, that the results were exacerbated by a strong depreciation of the Yen: in the local currency, the decline was by 16.8% – a fall from ¥341.8bn in 2012 to ¥284.5bn in 2013.

Physical revenue fell 15.3% to ¥238.4bn ($2.44bn) in 2013 while digital sales saw a 23.6% decline to ¥46.1bn ($472.2m). The

market was thus split 84/16 between, respectively, physical and digital formats. The fact that a very developed market like Japan has such an odd physical/digital ratio is due to two factors: Japan has succeeded in keeping its CD sales relatively strong in the last few years; and digital revenue continues to experience a steep decline.

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. The format, which was designed for Japan’s

cutting-edge feature phones of decades past, is now almost extinct. 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.

According to local trade body RIAJ, chaku-uta revenues totalled ¥7.7bn ($79.4m) in 2013, down 63.8% from 2012. Digital

single downloads grew 35.6% to ¥14.8bn ($152.1m), while digital album downloads saw their revenues increase by 16.6% to ¥6.9bn ($70.8m).

Despite growing 204% in 2013, subscription income remains small, totalling only ¥3bn ($35.3m), or 7.3% of all digital revenues. Sony Music Unlimited remains the only pure on-demand music streaming service in the country; Spotify and Rdio have been looking into rolling out in Japan for some time (notably the former was building up its local office last year), however there has been no news yet on that front.

music:)ally understands that international streaming services have been finding it hard to bring local labels on board. An industry insider claims that music companies in Japan find Spotify’s payments formula esoteric and its payouts low, exacerbated by some weariness of dealing with a foreign service. music:)ally understands that UMG, SME and WMG together only have a combined market share of approximately 33% in the country. The local market is quite fragmented; the biggest local music company is Avex (with some 15% of the market), followed by King, J Storm, Victor Entertainment and Toy’s Factory.

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

MARKET PROFILE Japan

the 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. early figures suggest that the market Could see a more positive performanCe in 2014.

STATS

f Population 127.1md GDP per capita US $37,100h Internet users 101.9mc Broadband households 36.3mj Mobile subscriptions 145.5mi Smartphone users 84.6mSources: CIA World Factbook, IFPI

JAPAN

An industry insider claims that music companies in Japan find Spotify’s payments formula esoteric and its payouts low, exacerbated by some weariness of dealing with a foreign service”

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by far the most consumed in the country. According to RIAJ in the first half of this year, local and international releases accounted respectively for 83% and 17% of all CD albums output.

Last year local mobile operator NTT DoCoMo launched its own subscription service – d hits – which costs ¥500 ($4.85) per month and gives access to over 100m songs from local and international catalogue. The service is operated by the powerful local aggregator Recochoku, which is owned by the major Japanese labels. It has been rumoured that the service has around 1m subscribers.

With regards to the performance of physical sales, RIAJ told music:)ally that the

decline seen in 2013 was primarily caused by two factors, the first one being a subpar year in terms of releases, without massive hit titles. Last year was the first since 2003 in which no album made it to the 1m physical sales landmark. That stands in contrast with a much stronger calendar in

2012, which saw great success in the releases of idol groups such as AKB48 as well as in compilations by popular artists Yumi Matsutoya, Tatsuro Yamashita and Keisuke Kuwata.

Linked to the weaker release calendar, the trade body also indicates that 2013 did not see significant new artists emerge and that J-pop and K-pop could be starting to

wear out. Although the genres still have strong followings, it would seem that their boom period could well be behind them.

On a more positive note, RIAJ’s figures for this year are looking more promising. According to the trade body, Q1 digital revenues remained virtually at the same value as the previous year at ¥10.9bn ($106m). Physical revenues in the first half of 2014 also looked more stable, seeing only a 4% decline year-on-year to ¥93.5bn ($910m). :)

MARKET PROFILE Japan continued...

50

45

40

3530

0 2009 2010 2011 2012 2013

25

2015

10

5

Singles Albums Music videos Ringtones

Ringback tones Chaku-uta Subscriptions Other digital

2009 2010 2011 2012 2013

281.5280.0 253.4 243.3 238.4

91.0 86.0 72.0 46.160.3

TOTAL371.0

TOTAL339.4

TOTAL341.8 TOTAL

284.5

TOTAL315.2

DigitalPhysical

Japan recorded music digital sales (trade value ¥ billions, trade value) Source: RIAJ

Japan recorded music sales (trade value ¥ billions, trade value) Source: RIAJ

Last year was the first since 2003 in which no album made it to the 1m physical sales landmark. That stands in contrast with a much stronger calendar in 2012...”

From left: Yumi Matsutoya, AKB48 and Keisuke Kuwata

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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.

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Entertainment

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