Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
The Music Industry in the 21st Century
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Source: REPORTS PORTAL
Facing the digital challenge Jürgen Preiser and Armin Vogel
ma non troppo
" " *
screendigest Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
The music industry in the 21st century
The music industry in the 21st century: Facing the digital challenge
screendigest
Published May 2002 by Screen Digest Limited
Screen Digest Limited Lymehouse Studios 38 Georgiana Street London NW1 0EB telephone +44/20 7424 2820 fax +44/20 7580 0060 e-mail
[email protected] website www.screendigest.com
Authors Jürgen Preiser, Armin Vogel Editorial Mark Smith Editorial/design David Fisher
Jürgen Preiser has 15 years’ experience in music and film entertainment sectors with the major multi-media companies Time Warner, Polygram and Universal. He has held national and international positions with these companies as Director Business Development, Director Strategic Planning and Director Market Research. Over the past seven years he worked on various international projects, particularly in new media. More recently, as Venture Director, Media at venture capitalist Venturepark Incubator he was responsible for advising portfolio companies on their strategy and its implementation, directing deal evaluation, and performing due diligence. Armin Vogel is co-founder and managing director of the independent e-business consulting and business development firm Tivona Partners. Prior to that he worked several years as consultant and equity analyst for US and German banks, and as senior research analyst for Roland Berger Strategy Consultants. Most recently he held a position as head of research in the venture capital industry. He has long experience with business research and analysis, having worked on benchmark and due diligence projects, industry and company reports, and numerous business plan evaluations.
All rights reserved. No part of this publication may be reproduced, transmitted, or stored in a retrieval system, in any form or by any means without the prior written permission of the publisher, nor be otherwise circulated in any form of cover or binding other than that in which is it published and without a similar condition (including this condition) being imposed on the subsequent publisher. Copyright © Screen Digest 2002 2
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Contents
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Source: REPORTS PORTAL
7
List of tables and charts
11
Introduction
19
1 Executive summary 15
16
17
18
Traditional record industry has low growth perspective. Internet users and music purchasers have very similar sociodemographic profiles. Music will be consumed anytime and anywhere. Non-physical distribution of music will help to increase catalogue sales. Artists will strengthen their position in the record industry value chain. E-commerce will replace traditional record clubs and mail order. A handful of mega music destination sites will emerge. Streamed subscription services will prove to be the dominant way of delivering music. The record industry needs ASP based business models. There will be no absolute protection against piracy. Standardisation is a prerequisite for mass adoption of online music. Huge investments in content warehouses will be required. Online delivery of music will see a divergence rather than convergence of devices.
20
Only with mass adoption of broadband and new devices will online music delivery take off. Major record companies will continue to play an important role. Record companies will become better at marketing artists. The main currency of the record industry will be the song instead of the album. Legal framework for prospering online music market is largely in place. 2 The global music market
21 21 22 24 25 27 31 31 33 34
The value chain The economics Who does what in the music industry The global market Repertoire Distribution channels A publishers five main sources of income Music publishing How music publishers can benefit from the Internet The traditional music industrys prospects Population Music spend per capita Pricing Volume increases Shift from analogue to digital Geographic expansion
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
!
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
The music industry in the 21st century
3 The new music consumer 39
General consumer trends The music consumer
41 46
49
Reach and buying intensity Music consumption in the context of entertainment media in general Reasons not to buy more records Sources of awareness Purchase motives and behaviour Behaviour at POS
70 74 77 80 85 86 89 89 90
The Internet user
93
52 53 55
Reach and usage intensity Socio-demographics Music-related behaviour and motives
96 97 98 98 99
57
4 Online business models
99
Online business modelsB2C 59 61 63 64 65 66 68 68 68 "
Digital downloads Challenges for the music industry Obstacles for digital downloads Initial target groups Subscription Cable TV economics Change of existing music consumption patterns Penetration of CD-R and MP3 players Metered Internet access in Europe
File sharing (P2P networks) Music destination sites/Affinity portals Online record labels Internet radio Obstacles currently preventing Internet radio becoming a mass market Challenges for traditional radio broadcasting and radio prospects E-commerce E-commerce music market Characteristics of preferred online products Challenges to music retailersthe changing structure of retail Music e-commerce prospects Digital kiosks Consumer awareness and usage Obstacles Potential utilisation in the music industry Strategy and prospects Online business modelsB2B
101 101 101 102 102 103 103
Shopping aids Recommendation engines and agents Example: Recommendation engine: Gigabeat Example: Recommendation engine: Hifind Shopping bots Example: Agent: CyMON (developed by Agentscape) Example: Shopping bots: books.com screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Report title here
104 105
Music licensing platforms Prospects
120
5 The legal framework 107
109 111
112
Copyright The Berne Convention The Rome Convention Trade Related Aspects of Intellectual Property (TRIPS) Agreement World Intellectual Property Organisation (WIPO) treaties Case law MP3 vs the record industry Napster vs the record industry New legislation Digital Millennium Copyright Act (DMCA) European directives on Copyright in the Information Society and Ecommerce The EU Directive on E-commerce The role of collection societies 6 Copyright protection and digital rights management
117 118 119
The problem Traditional approaches of copyright protection online Example: New revenue source
123 123 125 125 126 128
133
Online copyright protection technologies and methods Watermarking Encryption Fingerprinting Spoofing Digital rights management Secure Digital Music Initiative (SDMI ) DRM technologies and applications Fundamental security approaches DRM commerce platforms DRM business models Prevention models Marketplace model Advertising-supported model Conclusion
135
7 Digital music and new technologies
136 138
Compression formats Short guide to MPEG codecs and proprietary compression formats Storage media Flash memory DVD-A and SACD Broadband access Wireless Internet access Wireless data transfer and network generations WAP (Wireless Application Protocol) Services and applications Barriers
139 142 145 148 149 149
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
#
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
The music industry in the 21st century
150
152 153 154 155 155
Examples of music-related services i-mode Location-based service Ringing tone downloads Song recognition Wireless Internet radio Digital Audio Broadcasting (DAB) iTV New consumer electronics Portable digital compressed audio player Other devices 8 Winners and losers
160 161 163 164
Ability to secure financing Alliances and partnerships Strength of the business model Positioning of companies 9 Company profiles
168 171 173 175 177 178 180 182
$
Amazon AOL Time Warner Time Warner Music Group ArtistDirect Bertelsmann AG BMG Entertainment CDnow EMI Group
183 185 187 189 190 191 193 197 199 201 205 207 209 210 212 214 215 218
EMusic.com InterTrust Launch Media Liquid Audio Listen.com Loudeye Microsoft MP3.com Napster NTT DoCoMo RealNetworks Sony Music Entertainment Viacom MTVi Group Vitaminic Vivendi Universal Universal Music Group Yahoo 10 Market forecasts: North America and Europe
223 223
E-commerce Digital downloads and subscription Appendices
227 231 235
Highlights of record industry history Useful contacts Glossary
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
List of tables and charts
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Source: REPORTS PORTAL
21 24 25 25 26 26 28 28 28 29 30 31 32 34 35 35 36
42 42
2 The global music market
43
Structure of the music industry: traditional and online Recoupment of advances Global music market value by region 2001 Comparison of price development for different leisure goods Global music market unit sales by region 2001 Repertoire categories Share of distribution channels of global music market 2000 Top retailers with a global presence 2000 Global music market shares Major acquisitions of the Big 5 record companies Top independent record companies 2000 Music publishers global market shares Global music publishing revenues Music spend per capita by region 2000 Population growth by age group Music market growth by age group Music spend per capita vs GNP
44
57
3 The new music consumer
59 60
World population and music market shares compared Market growth through increase of music spending per capita
45 47 47 48 49 50 52 52 53 54 54 54 55
Distribution of consumer types in the global music market Key determinants of the global music market by age Music preferences by age group Simultaneous entertainment media use Leisure preferences by age Importance of marketing measures on the purchasing decision Distribution of consumer types in the global music market Distribution of behaviour among consumers visiting a record shop Reasons to access the Internet Music reach, CD player and Internet penetration in selected countries PC and Internet penetration in selected countries Internet users by region Distribution of Internet user types Reasons prohibiting the use of the Internet Top activities at music-oriented sites 4 Online business models
62 65
Structure of the music industry: traditional and online Download times Structure of the digital download business Acceptable constraints to keep prices low Subscription services that consumers are willing to pay for
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
%
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
The music industry in the 21st century
65 70 71 72 75 77 78 79 80 81 82 83 83 84 85 85 85 85 86 87 88 88 88 88 &
Top features that would convince consumers to pay for subscription Napster schema Cross visitation Napster usage Portals, affinity portals and niche sites Structure of the online music industry Online/offline A&R comparison Positioning of players US radio stations website features Arbitron US webcast networks ratings report January 2001 Number of radio stations on the Web Radio networks/stations strengths and weaknesses vs online consumer preferences US Internet vs Internet radio and broadband growth Demographics of US population vs Internet users and streaming media users US: types of programming audio streaming users listen to Return rate to radio stations websites Time spent on radio websites Use of standalone multimedia players US: growth of streaming advertising Wireless Internet radio evolution Online spending music users vs average online users Top music-related websites visited in past month by type US online shoppers as percentage of population Leading online music retailers
89 90 90 90 91 92 92 92 93 93 93 94 95 97 97 97
Potential advantage of music online retail to consumers US online retail sales by selected category 2000 Motivators for online shoppers Top five online categories Characteristics of online/offline products and value to customers US and European music e-tailers: price comparison May 2001 What inspires music purchase? Brand awareness is critical success factor Characteristics of online/offline products and value to customers Germany: books/music/video purchasing in Germany Motivators for non-shoppers Online selling-related strengths and weaknesses of different retailer types Convergence of content formats and platforms Activities consumers use kiosks for Activities consumers would like to use kiosks for Forecast digital kiosk market in Europe 5 The legal framework
112 114 114 115 116
Top 10 collecting societies Piracy percentages Production capacity Forms of piracy Copyright piracy: music, video, business software, entertainment software and books 2000 screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Report title here
6 Copyright protection and digital rights management 118 118 120 126 127 128 128 128 130 130 131
European broadband penetration of households Broadband access drives audio/video content usage Watermarking process Example: How the InterTrust Digital Rights Management system works Example: How the Verance ConfirMedia monitoring system works DRM prevention models DRM marketplace model DRM advertising-supported model Positioning of major DRM players Selected major DRM vendors focusing on the music industry Partnerships 7 Digital music and new technologies
135 136 137 138 140 140
Western European Internet forecasts Data reduction by compression format Adoption of digital music Short guide to MPEG codecs and proprietary compression formats Global DVD-A disc replication forecast compared with other formats Hardware brands for SACS & DVDA
141 142 143
Music labels supporting each format Selected broadband technology Forecast broadband penetration of households in Europe 143 DSL vs cable modem subscribers in Europe 143 Broadband impact on Internet activities 145 Mobile subscriber growth 145 Mobile penetration 2000 146 Worldwide SMS traffic forecast 147 Short primer on next-generation networks 148 How WAP works 149 Download time for a five-minute music track 149 Limiting factors to mobile commerce 150 Forecast US mobile revenues 151 Forecast mobile entertainment revenues in Europe to 2005 153 Forecast US iTV revenues to 2005 156/7 Representative new storage media, connected and music playback devices 8 Winners and losers 159 160 161 162
Global investment Twelve months of business closures Venture capital comparison US/EU Corporate lay-offs
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
'
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
The music industry in the 21st century
9 Company profiles 168 169 171 172 172 173 178 179 181
Amazon: unique visitors per month Amazons US activities and launch dates AOL Time Warner: overview of fundamental business areas AOL Time Warner: Revenue breakdown by segment AOL Time Warner: EBITDA breakdown by segment TIme Warner: selected operations BMG Entertainment: sales by region 2000 BMG Entertainment operations and artists CDnows US activities and launch dates
182 203 204 208 209 216 220
EMI labels and artists I-mode access and menu site categories I-mode development strategy Sony Music labels and artists Viacom sales 2000 Universal Music Group (UMG) operations, labels and artists Yahoo: selected service categories 10 Market forecasts: North America and Europe
224 226
Music industry revenue forecasts: North America Music industry revenue forecasts: Europe
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Introduction
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Source: REPORTS PORTAL
The record industry, after more than a decade of comfortable growth from the early 1980s to the late 1990s, must now adapt to sales increases that are more or less in line with global economic growth. Since its conception the music industrys main growth driver has been technological changes of the content carrier, which delivered music to the consumer. The evolution from vinyl LP to eight-track, then to the music cassette (MC) and finally to the compact disc (CD) brought along with it a huge boost in revenues for the industry. These technology changes stimulated consumer interest and led to huge sales gains, as music listeners replaced huge parts of their existing collections by re-purchasing music recordings on the new carrier. Admittedly, each technology change brought with it significant quality improvements over those of the replaced carriers. The introduction of DVD Audio (DVD-A) or Super Audio CD (SACD) appears to be just another step in this evolution. But we believe that neither of the two new carriers offers the consumer enough added value, compared with the CD, to lead to a new wave of replacement purchases and significantly boost sales for the record industry. In the long term, we are convinced that Flash memory card players will be the new physical carrier for music and that credit card size recordings have the potential to create a revenue boom similar to that caused by CDs. However, there is still a long time to go before prices of these new carriers come
down to acceptable levels leading to massmarket consumer purchases. The advent of the Internet, however, is another story. Digital technologies create a host of new business opportunities. The parallel evolution of three distinct technologies is driving the increase in the number of business models available today. These are: n access technologyeg, Internet, broadband, mobile telecommunications n software developmenteg, compression, encryption, player formats n hardwareeg, flash memory, PDA. All three developments will have a profound effect on the music industry because it completely changes the industrys entire value chain. They both allow and influence business models such as virtual record labels, online radio, digital downloads, streaming and music destination sites. Not all the business models being developed today will prove successfulie, be profitable. And others will most likely be adopted by the masses much later than todays forecasters may want us to believe. Still it seems there is no doubt that the future consumer will have much more choice of how he wants to consume music than his counterpart has today. Whereas in the past the industry could more or less passively ride out changes to the music carrier, with the coming of Internet Age, industry companies must actively drive changes if they are to prosper.
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
11
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
The Internet offers music creators and performers the opportunity to take a more prominent role in the industrys value chain than they could in the past. Prince, Chuck D and David Bowie have all shown that the Internet gives them, for the first time, the chance to control the marketing and distribution of their music. Although several functions of the music industrys traditional value chain, such as A&R, marketing and promotion lend themselves easily to migrate online, others eg, manufacturing and physical distribution will begin to be replaced by a virtual market of digital downloads, file sharing and subscription services. The Internet will probably change the manner in which record labels execute their core functions of A&R and marketing/promotion, but the labels should still retain control over these functions. More and more music-content channelseg, music TV, digital radio, mobile phones, etcare continually emerging through which fans can consume music. The Internet is another, albeit more important, one of these channels.
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
The music industry in the 21st century
More channels mean not only increased music consumption but also additional opportunities for the industry to convert listeners into commercial consumersie, music buyers. The record industry has known for a long time that there are twice as many listeners as purchasers of music. In the world of physical carriers the record companies have in the past tried with some success to stimulate commercial consumption of musicie, purchasesby opening up new distribution channels. The industry used more non-traditional outlets such as petrol stations, fast food chains, newsagents, etc, to stimulate the consumer with the opportunity to buy music recordings any time and any place. The Internet offers not only more possibilities for music to reach the consumer but also allows the music industry to learn more about the consumer and to establish direct links with him. The Internet has the potential to increase significantly the demand for paid music consumption. It will deliver on this potential provided that reasonable rules of operation 12
are established on the Internet under a legal framework that is fair to both the industry and the consumer. If this is not done, then music piracy will continue to flourish both on- and off-line. The Internet provides the record industry with more than just an additional distribution mode for incremental sales but, more importantly, a marketing and communication platform to increase overall interest in music. Through proper online marketing techniques the industry can mold communities of like-minded consumers, which are the basis for purchases. Music is one of the top interests for consumers on the Internet and today the different music offerings reach around 50 per cent of all Internet users. Whilst consumer interest is there to listen to music via the Internet, the question still remains of how to turn this interest into purchases of music and thereby create a viable and profitable business model. Predictions of the future of music retail vary wildly, ranging from the doom of record labels to projecting a huge boom in music industry sales. There are claims that digital distribution (eg, downloads via the PC and future devices, streaming technologies and file sharing) will completely replace the physical distribution of prerecorded plastic discs. If this were to happen then both online and offline music stores that built their business on physical distribution would be cut out of the record industrys value chain. If, as some predict, all music ever recorded is available free on the Internet with person-to-person (P2P) models like Napster, then there would be dire consequences for the industry. On the other hand, predictions of a doubling in size over the next 10 years as music listeners completely switch to online music subscription services and abandon their CD archives, would be like music to the industrys ears. Such a consumer migration would give the music industry a push in sales similar to what happened with the advent of CD technology. The reason for these differing predictions is the massive uncertainty about the viability and adoption rate of online business models. screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
In recent years a number of new channels for music consumption have been introduced and there have been quite a few attempts to improve the business processes of the traditional record industry to make them more effective as well. These changes and improvements were initiated by a number of young and creative entrepreneurs and new players in the market rather than by the business development staffs of the large companies. Despite the majors prestige and big money on the line they did not act or react to market developments. It was the new entrants to the market that had the initiative to try out new business models and to experiment with new approaches using the latest technology. It was newcomers who were driving innovation in their attempts to carve out a niche in the new value chain that they saw on the digital horizon. The major record companies are embracing the Internet slowly and cautiously, and some say reluctantly. Over recent years the traditional industry companies went through different phases in their approach to the Internet. At the same time that the traditionals were foundering some of the new entrepreneurs reached critical mass and became the industrys new patrons, offering fans a multitude of music-content portals, e-tailers and online radio sites. It is the few successful newcomers that are in a prime position to benefit when the Internet starts to be a real moneymaking business. Most of them only just survived the euphoric hype phase and are now running out of cash as their business models prove too weak to guarantee their backers a reasonable return on investment. The losers paid dearly, as noted by the large number of bankruptcy cases, for their mistakes and experiments. But every small entrepreneur who experimented with a new digital process or innovation in an attempt to shape the record business of the 21st century helped to drive the music industry a bit closer to the business models that will finally succeed.
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Introduction
The early prediction that the rise of the Internet would lead to the demise of traditional record companies is proving to be wrong. The failure of most entrants who tried to carve a business out of the change in
the value chain shows this. So does the little success that artists have had trying to take over record companies traditional roles such as marketing and distribution. Artists and start-ups alike soon realised that having one single product offering, be it the artists own works or a single site with little-known artists, did not provide them a vehicle strong enough to draw millions of consumers. The consumer, whether he is on or offline demands a strong blend of content and brandsie, artists. That is what he is looking for when he enters a music shop or accesses the Internet, and only the big record companies can provide this by licensing their assets. Only after the tremendous success of industry rebels like Napster pure-plays were successful in gaining the pole position for online music sales. This did stir the industry into action. The companies initial move was litigation. They had to stop the bleeding and fast if they were to survive. Once their position had stabilised they began their own offensive using digital distribution. For the big record companies it had become evident that they had to find and try new business models pro-actively before these new entrantsoften able to command vast amounts of cash through their IPOs became legal and solidified their positions even further. The major record labels have only just now begun to sell directly to consumers in order to win back revenue they had lost by ignoring the Internet and leaving it to upstart competitors. The Internet poses two crucial questions for the music industry: one centered on sales, the other on distribution. The first is whether online music retail and music on new carriers will generate incremental revenues or merely replace offline sales. The second is whether the industry can come up with a digital distribution business model to recoup revenues lost to illegal digital distribution of music online. For the IFPI the 1.3 per cent decline of global recorded music sales in 2000 was the first evidence of the impact that digital distribution and electronic piracy (eg, Napster, CD-burners, and MP3) have had on industry revenues. This has deepened with a five per cent decline in sales value in 2001.
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
13
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
The dramatic collapse of physically and digitally distributed CD single sales in a world where music has become more and more pervasive is extremely alarming to the industry. On the positive side, results of industry surveys of music fans vary a bit but generally indicate that Internet users who listen to music online do not necessarily buy less music. The majority of Internet consumers interviewed, approximately 60 per cent, believe that their purchasing behavior did not change, 30 per cent report or expect increased purchases, and only 10 per cent report or expect a decrease.
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
The music industry in the 21st century
There are some uncomfortable questions to be askedparticularly to the major record companieswhy they did not act proactively. n Why did the industry wait for so long before offering consumers a legal music
14
service comparable to Napster or MP3.com? n Did it really need to take a Napster with its huge success and 50m annual users to shake up the industry? n What internal workings prevented the industry from offering legal Internet music services of comparable value to customers eg, Pressplay and MusicNetsooner? (Both of which finally demonstrate that the record industry is getting ready to join the online party.) n Was the litigation of pure-plays a waste of time in a vain effort to preserve traditional structures or a brilliant tactical maneuver to gain time? n Would a more pro-active approach exploiting the opportunities the Internet provides have reduced the piracy problem earlier and thereby made it easier to convince consumers that they have to pay for music on the Internet ?
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
3
General consumer trends
The new music consumer
A number of consumer trends have become apparent over the last couple of years that will shake up the record industry and determine the role the Internet in the life of the modern consumer. Individualism Born out of the increasing number of singleparent households and the demise of the community/family, the consumer now strives to be different. The individual seeks to achieve a unique identity, one that separates him from the anonymous masses. The lack of global trends in both fashion and music is a clear indication of the drive toward individualism. The proliferation of niches in all markets is another. The resulting increased number of market segments has prompted the need to communicate effectively to small groups, thus the emergence of fractal marketing. The Internet is a medium particularly suited towards this development. Globalisation This phenomenon was spawned by the increasing availability of instant worldwide communication and the rise of the new media (telephone, mobile telephones, TV, video conferencing, Internet). Consumer proximity within the younger generation in particular has radically increased, facilitated by cheaper forms of transport. Recent consumer research showed that young consumers have greater proximity to young consumers of other nationalities than
to older consumers of the same nationality, particularly in Europe. Again, the Internet enhances this trend. Critical consumer Higher levels of education and greater availability of information have made the consumer increasingly critical when making a product choice. This trend has developed as the number of alternatives, within the same product category as well as replacement products from other categories, offers the consumer an almost infinite range to choose from. The availability of information over the Internet has made the consumer ever more critical, and thus more powerful, particularly with respect to product pricing. Convenience New distribution channels, such as petrol stations, offering a wider range of products and new media, such as direct response TV, the Internet, home shopping TV and mail order, allow the consumer to buy at his convenience. He can do this from the comfort of his home, office, or hotel room 24 hours a day, seven days a week, without losing time travelling. This developing convenience behaviour applies particularly to the purchase of goods for which shopping is not a pleasure. Enhanced shopping experience Whilst the consumer values convenience when shopping for low-involvement
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
39
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
products, he still expects to be entertained while leaving the comfort of home for shopping. Many retailers have already responded to this trend by offering consumers far more than more shelf space. Shopping malls and record shops in the USA provide live gigs and even chances to meet film, TV or other entertainment stars while shopping. Youth orientation Open media access and both parents being employed , turns children into adults much earlier today than in previous generations. This trend is demonstrated by statistics on sexual awareness, crime and consumption of drugs. At the same time older consumers try to appear young and activeeg, increased
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
The music industry in the 21st Century
40
sales of cosmetics and use of plastic surgery. This movement is furthered by the idealisation of youth through the media. Social differences The gap in western societies between rich and poor is widening and an increasing part of economic wealth is owned by a decreasing number of people. Although information as the currency for economic wealth is available to everyone the access barrier is getting steeper. Unfortunately, the Internet will increase this trend globally, as access to it requires a computer, a reliable telecommunication network, and the knowledge to use them effectively.
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email 3 The new music consumer
Reach and buying intensity The global market size of the record industry is determined by two factors: 1 the reach of music among the populationie, the percentage of the total population buying records; 2 average music spend per buyer composed of n the number of records bought by each buying consumer; n the average amount spent by each consumer per record bought. The reach of music among the population is relatively stable within a country but differs between countries. This difference correlates vaguely with the countrys level of economical development (see also table of music spending vs GNI, page 36). The reach is also influenced by other determinants such as lifestyle, consumer attitudes and, obviously, the penetration of playback devices in the domestic market. There are also indications that circumventing certain barriers could increase the reach. Some of these barriers could be avoided through effective use of Internet (see section on Sleepers, below). Even in the most developed countries, the reach of music does not exceed 60 per cent of the total population.
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
The music consumer
reach 45-55% 30-40% 15-25%
country UK, Germany, France, Sweden, Netherlands, Japan, USA Italy, Spain, Taiwan, Poland Mexico, Brazil
Of those consumers buying records, nearly all buy albums. However, in the markets which have strong single/maxi-single segmentseg, Japan, Germany, UK, 40-50 per cent of all record buyers purchase singles. A well developed single/maxi-single segment can significantly extend the total reach of music in general and particularly among consumers under 30 years old. It is important to realise that the record industry still has tremendous long-term growth potential in less developed countries, which it can realise if it effectively exploits the rise in economic prosperity in those countries. To do this it must promote consumption of record products ahead of
other luxury goods and even other entertainment products. The record industrys competitors are also trying to exploit the increase in wealth in these countries at the same time. 1 The average music spend per buyer is calculated by multiplying the number of records bought by the average amount spent per unit. The result, multiplied by the population of a country and the reach of music in that country, forms the market size of the domestic market. The average music spend per unit is influenced by n the mix of formats (MC vs. CD, strength of single/maxi-single segment); n the mix of price categories (budget, mid-, full-price) and n the overall price level in a country. 2 The number of records bought by those consumers reached by music does not correlate as clearly with the stage of economic development as the reach of music. The number of records sold depends on domestic price levels. This does not necessarily refer to differences in price for single productsie, internal competitive prices within the music industry, but could refer to differences in market structure. For example, the availability of cheaper budget or mid-price products, or the existence of a strong single/maxi-single market segment, would have a great effect on the number of records bought. The average number of purchases varies from four in countries where practically no singles/maxi-singles segment is available (Italy or Spain) to 8-10 in countries with a strong singles/maxi-singles segment (Japan, UK and Germany). The latter three countries account for approximately 60 per cent of the global singles/maxi-singles market segment and domestic sales in this segment account for 2040 per cent of total unit sales in those country. The average music spend per buyer can differ significantly by country. For example, music buyers in Poland spend less than $20 a year, which is due to the high share of MCs and cheap pirated product in that market. In Japan, on the other hand, music buyers spend more than six times that amount due to the very high retail prices.
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
41
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email The music industry in the 21st Century
Argentina Australia Austria Belgium Brazil Bulgaria Canada Chile China/Hong Kong Colombia Croatia Cyprus Czech Republic Denmark Ecuador Egypt Estonia Finland France Germany Greece Hungary Iceland India Indonesia Ireland Israel Italy Japan Korea Latvia
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
World population and music market shares compared % of total population
% of total music market
0.7% 0.4% 0.2% 0.2% 3.4% 0.2% 0.7% 0.3% 30.3% 0.7% 0.1% 0.0% 0.2% 0.1% 0.2% 1.3% 0.0% 0.1% 1.2% 1.8% 0.2% 0.2% 0.0% 18.8% 4.3% 0.1% 0.1% 1.3% 2.7% 1.0% 0.1%
0.5% 1.5% 0.8% 0.7% 2.0% 0.0% 2.2% 0.2% 0.5% 0.3% 0.0% 0.0% 0.1% 0.6% 0.0% 0.1% 0.0% 0.3% 4.6% 6.6% 0.2% 0.2% 0.0% 0.6% 0.3% 0.4% 0.1% 1.4% 17.7% 0.8% 0.0%
% of total population
% of total music market
0.1% 0.1% 0.4% 1.9% 0.3% 0.1% 0.1% 2.4% 0.1% 0.5% 1.4% 0.8% 0.2% 3.2% 3.7% 0.1% 0.1% 0.0% 0.8% 0.9% 0.2% 0.2% 0.5% 1.2% 1.3% 1.2% 1.1% 0.1% 5.7% 0.4% 0.2%
0.0% 0.0% 0.1% 1.8% 1.2% 0.2% 0.6% 0.0% 0.0% 0.0% 0.1% 0.4% 0.4% 0.5% 0.2% 0.1% 0.0% 0.0% 0.4% 1.5% 0.9% 0.7% 0.7% 0.3% 0.3% 7.7% 0.0% 0.0% 38.2% 0.1% 0.0%
Lebanon Lithuania Malaysia Mexico Netherlands New Zealand Norway Pakistan Paraguay Peru Philippines Poland Portugal Russia Saudia Arabia Singapore Slovakia Slovenia South Africa Spain Sweden Switzerland Taiwan Thailand Turkey UK Ukraine Uruguay USA Venezuela Zimbabwe
excl. Central America & Gulf states Source: IFPI, US Census, Screen Digest calculation
Market growth through increase of music spending per capita excl. Central America & Gulf states market size 2000 mature markets Eastern Europe Asia South America Middle East/Africa all regions
32,631.7 523.4 1,328.1 1,821.6 454.1 36,758.9
music spend per capita 2000
market size 2005
CAGR
43.8 2.1 0.6 5.3 1.5 9.3
32,631.7 1,118.5 2,062.64 2,491.32 551.0 38,855.11
0.0% 16.4% 9.2% 6.5% 3.9% 1.1%
Mature markets: North America, Western Europe, Japan, Australasia Source: IFPI, US Census, Screen Digest calculation 42 Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
3 The new music consumer
Consumers in northern European markets spend $75-$100 a year, whilst in the south European markets the music spend ranges from $35-$55 a year, the same level as in the developing markets of Mexico, Brazil or Taiwan.
Under a hypothetical scenario where the developing markets evolve as follows within the next five years:
A comparison of the share of the population with the share of the global record market indicates that some countries account for a higher share of the global record market than their share of the global population would suggest and gives indications of unexploited market potential. To exploit this potential fully the music industry must take specific measures, some of which are dependent on the circumstances within the individual market. The industry first needs to generate a favourable market infrastructure consisting of n the right product offeringie, singles, compilations, different price categories; n an extensive retail infrastructure including distribution; n marketing and promotion tools adapted to that market, such as charts, music TV, radio channels promoting new product, etc. The above three are interdependent and movement of any one will affect the other two. The Internet might prove to be an important help in developing markets, particularly as regards the last two points. Although lower prices might help to increase reach in some markets, it does not necessarily increase the market size. Pricing must therefore be used very carefully in market development, particularly as the consumers decision-making process in buying a record is not primarily driven by price.
Russia, Baltic states China, India, Pakistan Brazil, Chile, Argentina Other Latin American markets most advanced Eastern European markets Ukraine Saudi Arabia Bulgaria
Distribution of consumer types in the global music market records bought per year no light buyers medium buyers heavy buyers super heavy buyers Source: industry estimates
1-3 4-9 10-19 20+
average share of total buyers total sales % % 45 35 15 5
15 30 30 25
developing market
improves to level of (as it is today) Poland Indonesia Mexico Venezuela Greece Bulgaria Egypt Russia
The global record market would grow at an annual rate of around one per centwithout taking the population effect (see Chapter 2) into accountand the share of mature markets in the global market (where music spend per capita will remain stable at best in the coming years) would fall from 89 per cent to 84 per cent. Another important feature of the record industry is its dependence on a relatively small number of consumers who spend a lot of money on buying music. Only 410 per cent of all record buyers in any one market purchase 20 or more records a year, but this group represents 1535 per cent of the total market size. This dependency on super heavy buyers seems to be greater in the more developed markets than in others. On the other hand this shows that there are still a large numbers of consumers who buy little. The industrys market approach must be tailored to address both consumer groups. The heavy and super heavy buyers are predominantly male and concentrated in the 2039 age bracket. Fifty per cent of heavy/super heavy buyers are 20-39, and 35 per cent are 20-29. With such a strong dependency on relatively few consumers the record industry is understandably cautious in its management of any fundamental change coming along with the Internet. This is even more so if the Internets socio-demographic structure is similar to that of the record industrys core target group.
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
43
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
9
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Source: REPORTS PORTAL
Company profiles
Companies profiled in this section Amazon AOL Time Warner Time Warner Music Group ArtistDirect Bertelsmann AG BMG Entertainment CDnow EMI Group EMusic.com InterTrust Launch Media Liquid Audio Listen.com
F=CA 168 171 173 175 177 178 180 182 183 185 187 189 190
Loudeye Microsoft MP3.com Napster NTT DoCoMo RealNetworks Sony Music Entertainment Viacom MTVi Group Vitaminic Vivendi Universal Universal Music Group Yahoo
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
F=CA 191 193 197 199 201 205 207 209 210 212 214 215 218
167
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Amazon first began as an online bookstore, and then expanded into selling music in 1998, overtaking CDnow to become the premier online music retailer.
AMAZON.COM Headquarters 1516 Second Avenue Seattle Washington 98101 USA +1206 622 2335 URL: CEO: Employees: Ownership:
www.amazon.com Jeffrey P Bezos 9,000 Publicly traded on Nasdaq; (AMZN)
Key financials
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
1999 2000 $m $m revenues 1,639.8 2,762.0 operating income (605.8) (863.9) net income (720.0) (1,411.3) In 2000, the books/music/video segment counted for approximately 70 per cent of revenues. Company overview The Amazon.com site was launched in July 1995, one year after Jeff Bezos set up Amazon. In 1997, the company went public and today it is the leading online retailer worldwide and probably the Internets most recognised brand name. Amazons reach exceeds 20m unique visitors each month.
Amazon subsequently added DVDs, computer games, software, wireless equipment, and videos to it retail offering. Expansion continued with the acquisition of PlanetAll, the Web-based address book, calendar and reminder service and of shopping bot Junglee in August 1998. Internationally, the company acquired online booksellers Bookpages (UK) and Telebook, Inc (Germany), then re-launched them in 1999, adding music stores to each. Continuing to lead the market, Amazon.com launched a free digital download section in June 1999. In the same year, the company acquired a 50 per cent stake in Pets.com, a 46 per cent investment in drugstore.com and also launched its Amazon.com Auctions service. In 2000, Amazon Marketplace followed. Amazon improved its service in February 2001 when it added new, more convenient, download software. Amazon Commerce Network (ACN) partnerships include ToysRUs, Audible.com, Ashford.com, NextCard, Ofoto, Greenlightcom, Microsoft, Drugstore.com, and Hewlett Packard.
Amazon: unique visitors per month March 2001 20
15
10
5
0 Amazon
BMG Barnes&Noble Musicservice
CDNow
unique visitors (m)
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Report title here
Columbiahouse
Source: Jupiter Media Metrix 168
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Amazon has signed other agreements for example with Yahoo!, Excite, MSN, AltaVista, AOL Time Warner, iVillage, Women.com, and Hoover´s Online. Business description Amazon.com served 29m customers in more than 160 countries in 2000. Their music content includes CDs and a free download section with weekly additions featuring independent artists and new releases as well as famous singers and bands. Tracks are available in Liquid Audio or MP3 format, and additional services feature the Liquid Audio player and the RealJukebox, both free for downloading. Aside from Bargain Music, Latin and Box Set stores, there is a Music Accessories store for items such as MP3 players and blank media. Furthermore, all CDs offered can be found and accessed by keying in a certain song title featured on them. Amazon.com´s Advantage for Music
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Chapter number and title here
Amazons US activities and launch dates Books Music DVD/Video Auctions Electronics Toys zShops Home improvement Software Video games Gifts Health and beauty Lawn and patio Furnishing Kitchen Spoken audio Cars Camera and photo E-books
July 1995 June 1998 November 1998 March 1999 July 1999 July 1999 October 1999 November 1999 November 1999 November 1999 November 1999 April 2000 (operated by Drugstore.com) April 2000 May 2000 (operated by Living.com) May 2000 May 2000 (operated by Audible.com) August 2000 (operated by Greenlight.com) October 2000 November 2000
program is a service for unsigned artists enabling them to promote and sell their CDs on the Web site. The Marketplace offers visitors the possibility to buy or sell used, collectible and rare merchandise including music-related products. Further services include auctions for buyers and sellers of a variety of merchandise and zShops for individuals or businesses offering their products to Amazon.com customers. Participants can use the convenient Amazon Payment Service, which accepts credit cards for payments. Its Associate Program enables individuals to earn a commission on titles sold on their web sites through Amazon.com. Strategy Starting with lower margin books, Amazon expanded into higher margin products such as software to entice their core, loyal consumers to buy those products as well. Internationally, the music business was launched in the UK and Germany in October 1999 and in France in August 2000. The free download of newly released music is another important feature of Amazons promotion strategy. But based on company statements, digital music distribution seems not to play an important role in Amazons current music distribution strategy. This is most likely the reason why Amazon has not signed a high-profile agreement with any of the major music players so far. Nonetheless, Amazon and AOL Time Warner recently signed a strategic alliance for joint marketing and technological initiatives for e-commerce. Starting in the 2002 holiday shopping season, the agreement will combine Amazons online retail services, such as product reviews, ratings and comparison services, as well as its search and personalisation software, with AOLs technology and shopping channels, such as Shop@AOL. Furthermore, AOL Time Warner will invest $100m into Amazon, receiving approximately 6.5m shares of Amazons common stock. It is not unlikely that the expansion of the marketing alliance of Amazon and AOL, established in 1997, will shape both companys music distribution strategy in the future. Regarding its marketing strategy, the company focuses on the excellence of
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
169
Source: REPORTS PORTAL
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
services and personalisation. Amazons convenient shopping experience, enhanced by easy to use payment features and fast 1Click technology, attracts customers as much as the number of products and variety of service features it offers. Amazons personal touch of greeting its customers by name and giving out gift certificates has won the accolades of users all over the world. Amazon Anywhere is Amazons wireless initiative that aims to provide easy access to Amazon.com from Internetenabled mobile phones and handheld Personal Digital Assistant (PDA) devices. Amazon has over 11 partnerships with Internet mobile phone manufacturers, such as Nokia and Motorola, and with several US mobile phone network operators including Sprint, PCS, Nextel and Airtouch. Amazon has created several new Web addresseseg, amazon.com/phone and amazon.com/pocketpc for mobile ecommerce. European customers can access the UK and German websites using WAP (Wireless Applications Protocol) devices.
This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Report title here
customer service centres. Realising profitable growth and reversing the decreasing repeat rate in a worsening consumer spending environment, whilst at the same time managing the restructuring programme, will be challenging, to say the least.
Key risks Although Amazon.com has expertly broadened its range horizontally, thereby creating a huge variety of products and services, its lack of high-level partnerships, especially in the field of music, limits its potential. Whilst emphasising its partnerships with booksellers, agreements with music partners are limited to Liquid Audio and, since April 2001, Launch.com. If Amazon is to hold its leading position in this sector as well as position itself properly for digital music distribution, it must build high-profile partnerships, expand partnerships with other music companies and increase the music content services. This could be crucial for future brand recognition regarding digital music, although CDs will remain the single most important revenue source in the consumer music business in the mid-term. Shareholders have been patient but they are unwilling to accept continuing losses much longer. So Amazon has to become profitable soon. Amazon has recently begun a restructuring programme, which resulted in a $155m asset write-off, a 15 per cent reduction in the workforce, and the consolidation of distribution and 170
screendigest © 2002
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
screendigest This sample is for evaluation purposes only: unauthorised use or distribution is forbidden
REPORT EXTRACT: FULL VERSION IS 236 PAGES WITH OVER 200 CHARTS AND TABLES
Source: REPORTS PORTAL
Screen Digest is the leading news and market research journal for the international media business. Read by senior executives in over 40 countries, it has an unrivaled reputation for concise, impartial reporting and comprehensive coverage of all audio-visual media. Since being founded in 1971, it has built up a remarkable database of reference material and statistics, frequently cited in business and official reports around the world. The company also undertakes private client research for major international media companies and trade associations. www.screendigest.com
R010801
Pricing and ordering | Visit the Screen Digest REPORTS portal |Send us an email
