the REPORTIssue 345 | 25 June 2014

The UK singles chart will contain streaming data from next month, bringing it in line with markets like Sweden and the US where the very architecture of their charts have changed. The UK can expect tracks to take longer to get into the charts but, once there, to hang around. This will change both A&R and marketing, with new techniques deployed to get chart placings. With download sales now in decline, the biggest change to the UK chart since its inception could not be more timely.

New entryStreaming crashes into UK chart

Also in this issue:

PAGE 5: Beyond music: Unconsole yourselves »

PAGE 6: Pinboard: Stats, deals, startups and more »

PAGE 7: Country profile: Japan »

Contents:

PAGE 6: Beyond music: Best in Glass? »

PAGE 7: Pinboard: Stats, deals, startups and more »

PAGE 8: Country profile: United Kingdom »

Streaming finally counts towards the UK charts from next month. And not before time given that the floor is starting to fall away from under the feet of downloads – the very format that a decade ago brought the singles market back to glorious life.

A streaming chart is, however, not new as there was a standalone chart launched in May 2012 that had echoes of the 2004 chart that initially isolated download sales before they were fully folded into the singles (and then albums) chart in 2005.

But rolling downloads into the UK chart was not such a big stretch no matter how slowly and tentatively the Official Charts Company (OCC) did it. Buying a download was not that different from buying a CD single or a cassette.

Streaming, however, marks something very, very different. It symbolises the start of the end for the unit-based obsession that has dominated the British record business and, hence, the chart for over 60 years. Labels didn’t really care how often a consumer played a song in their lifetime – they just cared that they bought it. One play or 20,000 plays – it was all the same to them as they’d got paid upfront.

Now, however, it is all about the long game. It’s all about repeat plays as both the revenue model and (slowly) the chart wrap their collective head around access versus ownership. This issue of weighting was one that delayed the inclusion of streaming into the full chart. Just how many streams were the equivalent of a sale? We have

COVER FEATURE the REPORT | 25 June 2014 | Page 2

continued...

reason for this is that it was worked out initially in value terms – namely how many streams would be needed to generate the same value to a label as a standard download. As more people in Sweden pay for Spotify (and, in its home market, it really is the only game in town for the industry) that has made the average stream go up in value with the net result being that fewer streams now equate, in value terms, to a single download.

An anonymous source Music Ally spoke to about this said, “We have had to change it over time to make it more relevant because the market has changed. And it will continue to change.” So, as streaming grows in the UK, we can expect a similar recalibration.

As with the UK, it is only data from dedicated and licensed subscription and ad-supported services that count in Sweden. So, for now, that means YouTube streams do not count. There is no indication of when or if they could to bring

the markets in line with the US (more of which below), which does include YouTube data.

The most notable impact on the Swedish chart appears to have been the elimination of singles zipping up the chart on week of release and tumbling back down again just as swiftly. The chart dynamic is now a lot slower and a lot steadier.

“For the singles chart, it takes time to chart well,” explains Andreas Ahlenius, commercial director at Universal Music Sweden. “It is very different from the UK chart where you build a certain level of hype, you hold everything back and then release the single so the first week is very important – and then it usually drops from there. Whereas in Sweden it takes time to build up the number of streams that are needed to chart well as it’s about listening rather than purchases. So it takes more time.”

The most pronounced impact has been on the singles chart but it is still early days for streaming impacting on the album chart in Sweden. In September last year, streams started to count towards album chart positions but what is happening there is, for now, distinct from what is happening for singles.

“To be honest it is all Spotify figures that make up the singles chart whereas the album chart is [a mix of] physical and Spotify,” explains Ahlenius. “Physical on a big release is maybe 50% of the value in the chart whereas in the singles chart it is all Spotify. So that is more dynamic and it changes more quickly.”

But the UK is nowhere near as far down the road as Sweden. Last year, streaming accounted for just shy of 10% of UK label income according to the BPI. Downloads and CDs might be faltering, but they make up the lion’s share of the British record business revenue so that is why streaming is only tentatively counting now.

So, given that streaming is finally in the mixing bowl, what can the UK – a country where consumers are arguably most interested in who is #1, if only just at Christmas – expect to happen to its beloved chart? We spoke to industry executives in the US and Sweden to ask them how their charts have changed and what it is the UK must prepare itself for now.

The Swedish situation: tracks will become slow builders and marketing will have to evolve

It makes most sense to look at Sweden first as it is the most advanced market for streaming and one that adapted its singles chart four years ago to incorporate streaming data.

When asked how they weighted streaming, IFPI Sweden said that they cannot make this

public due to European competition law but it is understood that currently 100 streams “equal” a sale for tabulation purposes. What is perhaps more interesting is the fact that this number has changed (and fallen) a number of times since 2010. The

an answer now. It’s 100. But, as we shall see, this is a number that is likely to change as streaming becomes more mainstream.

The UK lags behind the other markets in terms of modernising here. The US chart has historically been a complex cocktail of sales and airplay anyway whereas the UK chart was defiantly sales-only. In March 2012, streaming went into the US singles chart and by February 2013 YouTube streams were also counting. It might be the biggest music streaming service out there but it’s not counting towards the UK chart. Yet.

Nor is YouTube counting towards the Swedish charts. For now. It is fitting that Sweden – the birthplace of Spotify, the service that arguably most forced the hands of assorted national charts to jump into the streaming age – was an early adopter of streaming into its charts. Back in October 2010, streaming started to count towards the singles chart and in September 2013 streaming went into the album chart. This is only fitting given that streaming accounted for 70% of label revenue in Sweden last year. It would be ludicrous to not have streaming count in a market shaped thus.

100 streams = one download for tabulation purposes

UK chart rules for streaming

30 seconds = length a track must be played for to qualify

10 plays = cap on number of specific track plays by streamers

COVER FEATURE the REPORT | 25 June 2014 | Page 3

continued...

The feeling in Sweden now is that the charts are much more reflective of how consumers access and listen to music. “It is a more accurate list,” says Lisa Cronstedt of IFPI Sweden. “The chart is very relevant for the music business and everyone involved in it.”

Certain genres of music were, for a while, charting high in the album charts there, notably forms of Swedish schlager music popular with older consumers. That was because those consumers still bought CDs and a small number of sales, before streaming data was woven in here, were all that was needed to get to #1. That has all changed and the new charts are commonly agreed on to better reflect what the entire population listens to and what is most popular.

The other big impact, and related to the points raised above, is that international acts are now performing better in the album charts because of the recent changes.

“You might have an R&B or dance act where the fans don’t buy physically but they are listening to it on Spotify which means these acts are now able to chart,” says Ahlenius. “A few years ago it would have been very hard for an act like Rihanna, who has an audience that is young and urban, [to get high in the charts]. In a market like Sweden it is difficult to sell CDs – even for a huge artist like Rihanna. So for her and her chart performance, it is very important that streaming is included.”

Streaming, particularly in the singles sector, is also changing how A&Rs find and develop acts. Ahlenius says Universal is now signing acts based on singles as streams of them are proving the primary currency in the market. “Everything has changed,” he says. “It is not what people buy that matters – it’s what people listen to. When it comes to what audience to reach, we used to target people with money but what is now more important is to target people with time. It is their time we are after, not their money.”

The wider changes have been profound and both radio and the live sector have had to readjust. “It is super-important for radio and it is also very important for live,” he asserts. “We would go to radio with the argument that they should play a certain song if it is at #5 on Spotify, has 150,000 streams a day and is huge with certain demographics. We use all this data and our chart positions as arguments to get on radio.

The booking agents for live do the same.”

The US situation: where YouTube is more important that Spotify

Sweden in an outlier in terms of just how far streaming has come on but the US is closer to the UK in terms of how the market is carved up by format and revenue source; plus it is under greater pressure to get streaming to a more mainstream position given that the single track download market there slumped by 5.7% last year – with sales of 1.26bn compared to 1.34b in 2012. (Album sales dropped just 0.1% in the same period, from 117.7m to 117.6m.)

The US has also included radio plays alongside sales so the inclusion of streaming into the charts was not such a philosophical conundrum. Streaming’s inclusion appeared to be something of a leveller and helped open the doors for some acts previously locked out.

“What happened immediately was a few records entered the chart for the very first time which hadn’t had that opportunity as the result of airplay,” explains Steve Savoca, head of content at Spotify US. “Streaming drove a few records onto the chart and was the first indicator that

streaming would have a significant impact on the chart.”

He adds, “Since then, what I have noticed – and this is largely anecdotal – is that a lot of the records that are performing very well for us are rocketing up the Billboard Hot 100 chart and having an opportunity to dislodge some very heavyweight competition. In the Hot 100 now you’ll see a good mix of young and new artists whose records are performing incredibly well on streaming now having the opportunity to chart.”

Unlike the slow build of tracks that Ahlenius is identifying in Sweden, things in the US are, fittingly, a little more brash and upfront it appears. But, as in Sweden, once they go into the charts, they are staying there, which is an important distinction between the dynamics in the two markets.

“I am seeing records move up the chart very quickly,” says Savoca. “Records are going to #1 and they are sitting there for weeks. Iggy Azalea was a huge performer for us – massive amounts of streaming for us, massive amounts of airplay and it is frozen at the top of the charts, sat there for weeks. Lorde sat there for weeks. These are very big records for us. It is much harder to dislodge a record because the streams sustain for a long period of time.”

The introduction last year of YouTube data was fascinating – if only for the timing of when it launched as that exposed just how new dynamics could turn the chart on its head. YouTube data’s inclusion coincided with the absolute apex of people posting their version of ‘Harlem Shake’ and, as these thousands of UGC

Chart facts (UK)

30m – 2003 single sales in the UK (25.4m/82.3% of them CD singles).

47.8m – 2005 single sales in the UK (55.1% of them downloads).

183.3m – 2012 single sales in the UK (97.2% of them were single track downloads).

3.7bn – audio streams delivered in the UK in 2012.

182m – 2013 single sales in the UK (96.4% of them were single track downloads).

7.4bn – audio streams delivered in the UK in 2013.

£77.1m – market retail value of streaming in 2012 (7.1% of the total market value).

£105.8m – market retail value of streaming in 2013 (9.7% of the total market value).

continued…

COVER FEATURE the REPORT | 25 June 2014 | Page 4

videos all used the same audio source, there was a cumulative effect and the track itself zoomed to the top of the Billboard Hot 100. It was hard not to see this as a revolutionary moment, a symbolic changing of the guard. But it was perhaps an extreme example of what could happen in the charts rather than an omen for what would happen week in, week out.

“There are certainly some high volumes of streams coming from YouTube,” accepts Savoca before explicitly fighting Spotify’s corner. “What I will say, to put a feather in our cap, is that there are quite a few records that we out-stream on that platform. Some of the regular hits are streaming serious tonnage on YouTube but, pound for pound and given our scale compared to YouTube’s, we have a pretty heavy influence.”

Where the streaming dynamic is at its most interesting is on the album level in the US, not just meaning that good albums become slow burners that hang around but also that more leftfield or unknown acts (in the US, at least) are being handed new opportunities as the consumption model moves away from ownership and goes deeper into access.

“If you think about the way streaming works, you get a lot of records in the charts and because of repeat listens they become incumbents,” argues Savoca. “But a sales-based chart is quite ephemeral – people purchase and then there is decay. On Spotify you see records building. If you look at our top albums in the US right now, you’ll see Drake on there with an album that has been out for a long, long time. Then you’ll see a record like Lana Del Rey at #5 but it will probably chart at #1 this week in the sales-based chart. Chances are, in further weeks, Lana Del Rey will probably grow and climb the [Spotify] charts, but from a sales perspective it will decay. There is an inverse dynamic there.”

He gives the example of Arctic Monkeys’ AM album as something that is bubbling on

streaming services but not elsewhere meaning that, if streaming counted towards the album chart, this would be one example of an act making an appearance that wouldn’t have otherwise. “If you look on the sales chart, you won’t see it; but it’s a record that is performing hugely well for us,” he says. “It’s great to see.”

While these dynamics are confined to just Spotify itself, when album streams finally count towards the album charts, the US will experience its next great leap forward.

Savoca is firm in his belief that this could happen later this year and feels its inclusion is essential. “We think that’s a much better way to reflect what is happening in terms of consumption of artists,” he says.

Percy Dickins at the NME calls round 52 record shops to create the first UK chart.

The first UK official chart arrives in 1969, where, commissioned by Record Retailer and the BBC, the British Market Research Bureau processes postal data from 250 record shops.

UK download chart launches as a standalone chart.

Downloads rolled into the main UK chart.

‘Crazy’ by Gnarls Barkley is the first single to go to #1 on download sales alone.

Standalone UK streaming chart launched.

1952 1969 09.2004 04.2005 04.2006 05.2012Streaming added to singles chart.

Streaming added to album chart.

Billboard/Nielsen SoundScan launches an on-demand chart.

YouTube streams added to Billboard Hot 100 (‘Harlem Shake’ goes straight to #1).

10.2010 09.2013 03.2012 02.2013

Chart timeline – UK Sweden USA

continued…

COVER FEATURE the REPORT | 25 June 2014 | Page 5

Why has it taken until now to add streaming when it has been in the Swedish charts since 2010 and the US charts since 2012?

Different markets evolve at different rates. It took until the end of last year for streaming to get to such volumes that we thought this was something we should start actively make happen. The Official Singles Chart in the UK has a cultural heritage and position in the global music industry which is very different for the charts in, with all due respect, Sweden, the Netherlands, Norway and Finland. And unlike in the US where they have always mixed sales with other things like airplay and jukebox plays. For all of those reasons it was a bigger decision here than I think it was in other markets.

There is a broader range of stakeholders here too. That is the one thing that slowed it down. We wanted to make sure it was fully supported by the music industry and that people felt it was the right way to go. We obviously had to work through what the ratio was. The market has moved at such a pace that that hasn’t been the most straightforward thing. The conversion rate of 100 is something all the labels, retailers and managers we have spoken to have bought into as well. The other key fact to it as well is that we have seen such a surge in streaming in the past 12 months that this time a year ago it wasn’t something that was necessarily essential and it wasn’t something we necessarily needed to be doing in the immediate future. But now it is. We feel very strongly that the time is right now.

Currently 100 streams = a sale. Will this be recalibrated as streaming’s market share grows?

We will continue to look at it. The most common formula around the world, and the one that is supported by the IFPI and others, is the trade value of a stream as compared to the trade value, broadly, of a single. That is what it is based on. We had to take into account that we wanted one blended rate to apply across ad-supported and premium streams so we have had to do a fair amount of research to get an understanding of what the broad range of royalties are for the different types of streams. Then we had to weight that according to the market – and the market in 2013 was such that 24% of all streams were ad-funded and 76% were premium, so we had to take that into account.

We came up with a figure around the 100 mark and it felt logical to go with 100 as a number because it’s broadly right in terms of value and it’s an easy number to understand. Because this has always been a sales-based chart where the #1

has sold more than the #2, which has sold more than the #3, we wanted it, from a public-facing perspective, to be simple to understand.

The value issue needs to be reflected and that there is a difference between an audio stream and a download. In the singles market we will count a 29p download from certain retailers as being the same as an £8 7-inch single on Record Store Day. In the singles market there is an elasticity of price that is pretty broad. We wanted to make sure we had a number that was broadly in the right place. We do know that it will evolve and that the proportion of ad-funded versus premium will change over time.

We also know that, as the market gets bigger, economies of scale come into play and royalties potentially can change across ad-funded and premium. It is something we will be keeping an eye on. I suppose it won’t be long after we launch it that we’ll probably be going back again to check it’s all right. At the moment we feel it’s right.

From your testing, how much will streaming contribute to the chart?

One of the things we have been tracking is the proportion of streams within the singles market. If you take 100 streams as being worth a single, you can extrapolate from that. We are looking at streams as being around 40% in terms of percentage of the total singles market. When you get to that point, you can’t turn the other way. You have to take that on and ensure the chart maintains its position as the definitive count of

the most popular music in the UK. In a lot of ways, we’d be cheating music fans and cheating the chart if we didn’t do that. We have to move with the times.

Is streaming’s inclusion made all the more pressing as UK download sales fell last year?

They did and they are continuing to decline this year. That is also part of the equation. There is a danger with a story like this is that all the stuff you are used to is seen as dying and no longer relevant. That couldn’t be further from the truth. Even though single sales declined last year for the first time in 10 years, it was still the second biggest year on record for singles. Pre-digital, the two biggest years for singles were 1978 and 1979 when we saw about 89m singles sold in each of those years. There were 182m singles last year. There is a big story here about streaming growing and it is growing. But people are still buying physical product [and downloads].

Will you include YouTube streams as they do in the US?

We are currently only including audio streaming services. We are keeping a watchful brief [on YouTube’s inclusion]. We have never counted video downloads so there is no reasons to particularly count video streams into the charts.

When will streaming count towards the album chart?

It is something we are looking at and we are trying to work out the methodology for that.

Martin Talbot, chief executive of Official Charts Company, on the changes in the UK

BEYOND MUSIC the REPORT | 25 June 2014 | Page 6

phone, back when most people laughed at them too (and couldn’t afford them).

Critics? There are lots of them. Some poke fun at some of the less useful initial applications for Glass: for example, questioning whether tweeting by talking to your glasses is an achievement for humankind to be proud of. Many see Glass as the latest bragtoy for white, rich, male

aggressive company exploring augmented eyewear, even if it’s not alone.

So far, it’s sometimes been hard to divine what’s meaningful about Glass and what’s pure novelty. There are a number of evangelists who believe Glass is spearheading an important new category of wearable technology, comparing its current status to the earliest days of the mobile

Best in Glass?Silicon Valley geeks, even coining the term

“glassholes” to describe them.

Others have more serious reservations about privacy as well as the social

cost of this kind of device – how people react to the wearers, especially if they fear Glass as a way to shoot covert recordings of them in public spaces. Some bars have banned the device already on these grounds.

Still, it is very early days: Google’s big bet is that whatever Glass becomes in 10 or 20 years may be a mainstream product – and, yes, that’s likely to bring with it even more opportunity to understand people’s digital (and physical, for that matter) activities, monetising them with ads.

Music, though? Well, music and Glass remains something of a novelty affair. Shazam launched a Glass app in the UK this week, allowing wearers to say “OK Google, what’s that song?” to tag something playing in the real world.

Glass already ties in to the Google Play Music service, while London startup SongDrop has shown off a Glass app that helps fans explore historic music locations (think Abbey Road) – a neat new spin on location-based music discovery.

Like we said, early days. But a sign that if Glass is in need of apps providing a convincing reason to use it, inventive music developers may be one of the sources.

Good news for Brits with £1,000 burning a hole in their pocket and a desire to explore the bleeding edge of augmented eyewear. Google Glass is crossing the Atlantic.Google announced this week that its ‘smart glasses’ can now be bought by anyone in the UK, making it the first country after the US to get the device – a set of glasses with an embedded screen, camera, wireless connectivity and the ability to run apps and recognise voice commands.

“We know there’s a pent-up demand for Glass from all over the world,” said Google’s head of Glass, Ivy Ross, as the UK launch was announced, hinting at more countries to follow. It’s estimated that several thousand people already have Glass in the US, where it’s been gradually rolled out as part of an invite-only ‘Explorer’ programme.

Glass is one of Google’s so-called “moon shots” – bold bets on new technology sitting alongside the company’s research into self-driving cars and its Project Loon initiative to beam internet access to the emerging world via giant balloons floating in the stratosphere.

How big a deal is Google Glass? And what might it mean for music? On the first question, Google is certainly the most

TOOLS the REPORT | 25 June 2014 | Page 7

Pinboard:Deals...Amazon Prime Music has launched in the US, offering Prime subscribers free streaming access to a catalogue of 1m tracks. At launch, Universal Music had not licensed its content to the service.

Fan-funding platform Patreon has raised $15m in Series A funding, led by Index Ventures. Last year it raised $2.1m in seed funding and 25,000 creators are currently using the service.

BBC’s Playlister service will now let users export their playlists to iTunes for purchase. They were previously able to export them to Spotify, Deezer and YouTube. The BBC will not take an affiliate retailer cut of any sales it drives.

7digital will power ROK Mobile’s new subscription service that launches in the US on 4th July, with international roll out to follow.

Sub Pop is the latest label to offer a Drip.fm-powered subscription service, with users charged $10 a month to access a variety of content and community benefits.

New service...

YouTube clip... SoundCloud track...

Tweets...

PopShack isn’t a new startup as such, but its app is brand new. The

British MCN specialises in pop, with a roster of young artists trying to

forge careers on YouTube, iTunes and beyond. It has just launched

its iPhone app, pitching it as “THE way to get closer to awesome

pop talent from our network and PopShackTV” – the latter being its

umbrella channel on YouTube. It shows how MCNs try to deepen the

relationship between YouTubers and fans – many of whom are

a) young and b) hugely active on smartphones. Daily videos, ticket

offers and meet & greet opportunities aim to keep fans checking in

daily, with the company rolling out a standalone app for its biggest

star, Daniel J, who has more than 426,000 YouTube subscribers.

OK Go are back, Back, BACK! with another intriguing video. http://tinyurl.com/lhvmhas

Holy Ghost celebrate Katy Perry’s ‘Birthday’ with a remix.

http://tinyurl.com/phq5gxp

@davidemery To get this streaming/charts thing in perspective: the biggest tracks this year have done 1.5m streams/week which is the equiv of 15k sales

@helienne Clearly the charts should include streaming. The real question is the value of a stream – and if services that don’t pay should be included

@kierondonoghue We all knew that streaming counting towards the charts was coming but it’s exciting to see it finally happen. Playlisting now very important

Stats YouTube: top global channels (millions of plays, May 2014)

50 100 150 200 250 300 350

PewDiePie

Katy PerryVEVO

ShakiraVEVO

DisneyCollectorBR

stampylonghead

latenight

311.116%

13%

16%

4%

4%

5%

eurovision

SpinninRec

Britain’sGotTalent09

PitbullVEVO

211.7

206.6

200.8

165

155.9

148

143

141.1

138.4 Source: Tubefilter, June 2014

$89m

$44.5m

May 2012 –Apr 2013

May 2013 –Apr 2014

Merlin Network: revenues

Bandcamp

$3.1m Users’ total monthly expenditure on the platform

$70m Users’ total expenditure on the platform to date

160k No. of artists who sold one or more items on the platform in 2013

< 25% Online video share of digital revenues for 84% of Merlin members.

≈ 30% Increase in streaming consumption of Merlin members’ repertoire on paid tiers over free ad-funded tiers.

$160mProjected audio streaming payouts to members for May 2014 to April 2015.

Source: Merlin, June 2014

Source: Bandcamp, June 2014

MARKET PROFILE the REPORT | 25 June 2014 | Page 8

UK stats Population:

63.4mGDP per capita:

US $37,300Internet users:

55.9mBroadband households:

21mMobile subscriptions:

84.5mSmartphone users:

53.2mSources: CIA World Factbook, IFPI

United KingdomWith an encouraging transition happening towards access models and a discreet return to growth in 2013, the UK has some interesting prospects on its plate, especially with consumption neatly splitting across physical and digital formats.According to the BPI, recorded music sales in the UK totalled £730.5m in trade value in 2013, revealing a slight 1.9% annual increase in revenues. Last year digital income grew 11.9% to £365.1m, more than making up for the 6.4% decline in physical sales to £365.4m. In 2013 the market was thus virtually split 50/50 between physical and digital formats.

Last year the biggest acceleration in digital sales was seen in streaming, where income grew 41.3% to £76.7m: subscription and advertising revenues grew 37.4% to £54.7m and 31% to £19m respectively. Cloud locker revenues accounted for the remaining £3m. On the other hand, download sales grew only 7% to £282.2m: digital album downloads grew 17.8% to £160.5m while single track downloads fell 4.5% to £121.7m.

Talking with several industry executives, Music Ally understands that in the last 12 months the transition of downloads to streaming has accelerated, with some major content owners seeing annual declines in the former. Contrasting with the weary regards for streaming from some players not long ago, the industry is now approaching this evolution with

eyes about embracing streaming at the start of a campaign on release date.”

While the growth of access models in the UK is certainly a cause for celebration, the developments in this segment were somewhat marred by the recent demise of the London-based start-up Bloom.fm (see Music Ally Bulletin 01/05/2014), whose innovative proposition was considered to be a promising mid-tier approach to cater to the masses of consumers who did not buy into the standard £10/month on-demand streaming model.

“Bloom had a good product and certainly

spent a good bit of money in advertising, but nowadays you need some deep pockets if you want to keep playing that game,” commented Wheeler. “We can’t say that because of what happened to Bloom that pricing option doesn’t work, but it’s always going to be a challenge to get people to sign up for something. It’s almost as hard, if not just as hard, to get people to sign up for the £1/month option as it is to get them to sign up for the £5 or £10 options. And I think that’s what Bloom found – trying to get people over the payment threshold is the biggest challenge that anyone has. And it doesn’t look like just cheap pricing is the solution, contrary to

Source: BPI

(more) open arms.

This is also reflected in the fact that the official UK singles charts will now factor in streams into its calculations (see cover feature). In talks with Music Ally, Pete Leggatt, Sony Music Entertainment UK’s VP of sales, said, “The inclusion of streaming in the chart is timely. Streaming will certainly gain more momentum with this initiative. It means that we have to ensure that we are focused as much on our streaming strategy as we are on à la carte downloads and physical going forward”. His colleague Fred Bolza (VP of marketing services) added that the chart “makes [streaming] very real and tangible because it validates it on some level as a form of consumption, which then means that all labels, big and small, will have to strategise in terms of how we bring music to market.”

Simon Wheeler, director of strategy at Beggars Group, also told us, “Having streams in the chart will remove the nervousness in some people’s

2009 2010 2011 2012 2013

928.8

823.8782.8

716.7 730.5

188.8 225.8 278.0 326.4 365.1

504.8 390.3 365.4598.0740.0

Physical Digital

UK: recorded music sales(£ millions, trade value)

MARKET PROFILE the REPORT | 25 June 2014 | Page 9

what a number of people have been saying.”

An unnamed senior executive at a major label added, “There is room [in the UK market] for a mid-tier service. However, we prefer to use it as a stepping stone to £10/month. We would be more supportive if it is a part of a broader strategy to upgrade. There is a massive base of casual consumers in the UK for this.”

In reference to the sheer number of access-based music services now available in the UK (and in almost any developed market for that matter), our source nevertheless warned, “There could be an element of saturation. In the longer term there will be some consolidation. It is difficult to see how there will be room for other players to enter the market, unless they have a good distribution partner with scale and ease to pay.”

Music Ally understands that the streaming growth seen in the UK is attributable to some extent to the bundling partnership struck between Spotify and Vodafone. It will therefore be interesting to see how Beats Music will approach its go-to-market strategy ahead of the roll out of its streaming service in the UK, which is expected to take place sometime next year.

With regards to Beats Music, however, the fact that the service is now owned by Apple is what brings the greatest expectations – not only in terms of what this could mean for the bundling of the service with the latter’s devices but also, and perhaps more importantly, for the degree of clout that the Cupertino company brings

along and how this can help to broaden the awareness of, and interest in, access models.

“From an audience perspective, there are far more people who don’t fully understand or know what streaming is, other than vaguely knowing it exists,” warns Bolza. “These are people whose music consumption is primarily satisfied by radio, with the occasional physical purchase at the supermarket and possibly they’re transitioning to à la carte downloads because they’re now owners of smartphones. Still a big question in mind is how streaming genuinely becomes mainstream.”

The Sony executive argues that the UK music subscription market is not necessarily saturated

but that the services need to strive for greater degrees of differentiation. “If you look at more mature subscription markets, like cable and satellite TV, there is a lot more differentiation in content and exclusivity of releases,” he said. “Look at how Netflix has built itself up; it’s done it through content you can’t get elsewhere. It’s price point and content – it’s the whole value proposition for the consumer. And I think that at the moment streaming through the eyes of the consumer looks like a series of undifferentiated offerings that have 20m tracks at the same price points with some variability in the UI. I think that’s something that will need to change. Bundling into a wider package might be a way to do that.”

As the market shifts towards streaming, Bolza discusses some of the challenges that this presents to labels. “One of our biggest challenges is how to do better audience development. In a world where you see Disney buying Maker Studios, you see all these plays where content owners are trying to build resonating audiences. How do we do that from a social and digital marketing perspective? It’s a huge challenge. It’s about building audiences that accrue to the artist, so that when you have things to sell over the lifetime it becomes easier to convert those audiences into revenue.”

He adds, “In the last 12 months [Sony Music] has invested heavily in social capability – in terms of people and of partnerships.”

Beyond access models, it is worth considering Leggatt’s views when he points out, “Fortunately, the UK has not yet faced the impact of a cliff event in physical [where CDs completely disappear]. If you take the three channels [physical, downloads and streaming] as they are, physical is still the biggest.”

He continues, “The supermarkets and HMV will remain for some time. Potentially what you could see in a couple of years is streaming matching where à la carte is. [But] I’m not so convinced that we add new customers straight into the streaming model – they obviously migrate from the download or physical markets. It would be challenging for us if we were to lose the support of a physical retailer, potentially taking away some of the impulse market”.

continued…UK: recorded music digital sales

(£ millions, trade value)

2009 2010 2011 2012 2013

ALBUMS TRACKS SUBSCRIPTIONS

AD-SUPPORTED CLOUD OTHER DIGITAL

10

60

110

160

Source: BPI

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