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Streaming Music in 2015: A Rapidly Growing, Maturing and Consolidating Marketplace

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Deck for an investor webinar presented to Coleman Research Group clientele regarding the streaming music industry on June 30, 2015

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Streaming Music in 2015: A Rapidly Growing, Maturing and Consolidating Marketplace

  1. 1. Streaming Music in 2015: A rapidly growing, maturing and consolidating marketplace Dr. Aram Sinnreich Associate Professor American University June 30, 2015 Aram Sinnreich 2015
  2. 2. Introduction Aram Sinnreich, Ph.D. Currently: • Associate Professor, American University SOC • Author of 2 books: • Mashed Up (2010) • The Piracy Crusade (2013) Previously: • Assistant Professor, Rutgers University SC&I • Co-Founder, Managing Partner, Radar Research • Director, OMD Ignition Factory • Visiting Professor, NYU Media & Culture • Journalist, Wired, MediaPost, Billboard, NY Times • Senior Analyst, Jupiter Research Aram Sinnreich 2015
  3. 3. Traditional Music and Copyright Artists/Labels “Masters Rights” Composers & Publishers “Publishing Rights” Retail Radio • Retailers pay wholesale to labels • Labels pay royalties to artists • Retailers pay wholesale to labels • Labels pay “mechanical” royalties to publishers • Publishers pay composers • Broadcasters do NOT pay performance royalties on masters • Promotion and “payola” • Broadcasters pay royalties to PROs (e.g. BMI) • PROs pay publishers and composers Aram Sinnreich 2015
  4. 4. Traditional Retail: Value Chain Aram Sinnreich 2015
  5. 5. Traditional Retail: Revenue Distribution Aram Sinnreich 2015
  6. 6. Traditional Radio: Value Chain Aram Sinnreich 2015
  7. 7. Traditional Radio: Revenue Distribution Aram Sinnreich 2015
  8. 8. New Tech is Blurring the Lines Programmed (Radio) On-Demand (Retail) Compulsory ?????????????????? Contractual Aram Sinnreich 2015
  9. 9. Subscriptions Have Been Inevitable Since The Turn of the Century Aram Sinnreich 2015
  10. 10. But the Industry Can Move Slowly Aram Sinnreich 2015
  11. 11. Analysts are Still Bullish Today Aram Sinnreich 2015
  12. 12. And They Have Good Reason demand streaming services (such as YouTube, Vevo, free versions of Spotify, and others). Figure 4 Altho down grow that 3.2% accou (note Sales indiv 5% 7% 9% 15% 21% 27% 2009 2010 2011 2012 2013 2014 Proportion of Total US Music Industry Revenues From Streaming Source: RIAA $ $Milli Aram Sinnreich 2015
  13. 13. 2. Digital Music Revenue Distribution
  14. 14. Boilerplate MP3 Economics Consumers Retailers (30%) Labels (60%) Artists Publishers (10%) Composers $1 per song $0.60 per song (Global: $3.6B in 2014) $0.08 per song $0.10 per song $0.05 per song Aram Sinnreich 2015
  15. 15. Webcasting Economics ConsumersWebcasters LabelsArtists Publishers Composers Ads ($5-10 CPM) & subscriptions ($3/month) PROs (e.g. ASCAP) SoundExchange US: $773M in 2014* $348mm $348mm Roughly 4-5% of revenues *Per-Stream Rates: • Webcaster: $0.0023 • Broadcaster: $0.0025 • Subscription: 15% revs Aram Sinnreich 2015
  16. 16. Boilerplate Subscription Economics Consumers Retailers (30%) Labels (60%) Artists Publishers (10%) Composers 10.5% of revenues Consumers generate revenue both through ads and subscriptions ($5-10/month) Pro rata or ~$0.007 per stream (Global: $1.6B to labels in 2014) $0.60 per 1,000 streams EXCEPTIONS: - Recoupmen t - “Breakage” 5% of revenues PROs (e.g. ASCAP) OR5-7% of revenues Aram Sinnreich 2015
  17. 17. The Creators’ Cuts Aram Sinnreich 2015
  18. 18. Take This “Artists’ Rights” Advocate With a Big Grain of Salt Aram Sinnreich 2015
  19. 19. 3. Major Players in Streaming Subscriptions
  20. 20. Deezer Launched: 2009 Territory: 182 countries (not US) Library: 35M tracks Platforms: PC/mobile/devices Subscribers: 6M paying / 16M active monthly users Price: $9.99/month (free limited version) Features: Lyrics, curated playlists, exclusive content, HD Partnerships: T-Mobile, Bose, Samsung, Sonos, Pepsi Recent news: Acquired Stitcher Radio, 2014 Aram Sinnreich 2015
  21. 21. Rdio Launched: 2010 Territory: 85 countries Library: 32M tracks Platforms: PC/mobile/devices Subscribers: N/A Price: $9.99/month (free limited version; $3.99 lite version) Features: Curated playlists Partnerships: AXS Ticketing, LiveNation, Shazam, Bosch Recent news: Amazon Fire TV integration, 2015 Aram Sinnreich 2015
  22. 22. Rhapsody/Napster Launched: 2001 (spun off 2010) Territory: 32 countries Library: 32M tracks Platforms: PC/mobile/devices Subscribers: 2.5M Price: $9.99/month ($4.99 lite version) Features: Curated playlists, live radio Partnerships: Telefonica, SFR, Vodafone, T-Mobile Recent news: Twitter music integration, 2015 Aram Sinnreich 2015
  23. 23. Tidal Launched: 2014 Territory: 40+ countries Library: 30M tracks, 75k vids Platforms: PC/mobile/devices Subscribers: 40k Price: $9.99 ($19.99 HD) Features: HD, playlist import, exclusive content, “discovery” Partnerships: Artists, Softbank, Raumfield Recent news: High-profile defections incl. 2 CEOs in 4 mo. Aram Sinnreich 2015
  24. 24. Spotify Launched: 2008 Territory: 58 countries Library: 30M tracks Platforms: PC/mobile/devices Subscribers: 20M paid; 75M active monthly users Price: $9.99 (free ad-supported tier) Features: HQ audio, exclusive content, social integration Partnerships: Starbucks, Uber, Facebook, happn Recent news: Buying data analytics firms including Echo Nest & Seed Scientific Aram Sinnreich 2015
  25. 25. Apple Music Launched: Today (June 30, 2015) Territory: 100+ countries Library: “tens of millions” of songs Platforms: All iOS/OSX devices, PC, Android Subscribers: TBD Price: $9.99 ($14.99 for family membership); 3-month trial Features: Exclusive content, Beats 1 radio, artist connect Partnerships: Pitchfork, Rolling Stone, TBD Recent news: Launching today Aram Sinnreich 2015
  26. 26. Spotify: Strategic Position STRENGTHS • Streaming market leader • Market-defining brand • Battle-tested tech & design • Platform agnostic • Fresh cash infusion of $526M, with an $8.5B valuation WEAKNESSES • Undiversified business model • Consistent red ink (content costs) • Not much in the way of proprietary IP or protectable service features OPPORTUNITIES • Expanding into video  higher ad revenues • B2B partnerships e.g. Starbucks, Uber, Sony PS3/PS4 • Automotive integration opportunities are growing • Big data! • On track to be default agnostic platform for music streaming THREATS • Negative PR from Taylor Swift etc. • Potential market pressure to eliminate free tier • Market entry by Apple, accelerating growth from other rivals e.g. Rhapsody • Fickle consumers, rapidly evolving mobile market • Mobile bandwidth not priced for heavy streaming Aram Sinnreich 2015
  27. 27. Apple: Strategic Position STRENGTHS • World’s largest music retailer for over a decade • 800M iTunes accounts worldwide • Deep integration with OS & hardware • No profit imperative, plenty of cash WEAKNESSES • Slow, imperfect integration with Android and Windows • Late market entry • History of failed or under- performing music efforts • Few B2B partnerships • Reduced leverage compared to iTunes market entry OPPORTUNITIES • Attractive to indie & label artists due to Connect platform • Deeper integration into OS with iOS9 & OS X 10.11 (El Capitan) • Explore partnerships w/ retail, automotive, console devices • Big data w/ Semetric acquisition THREATS • Market power still contingent on post-Steve Jobs device innovation • Spotify & others undermining Apple’s source of leverage • Core download business may implode faster than streaming grows Aram Sinnreich 2015
  28. 28. 4. Q&A Let’s talk about royalties, revenues, Taylor Swift & all the rest…

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