BREAKTHROUGH TRENDSIN THE NEW MUSIC BUSINESS

CONDUCTORJay Frank Founder/CEO DigSin

PLAYERSBryan Calhoun VP New Media & External Affairs, SoundexchangeRuss Crupnick SVP & Senior Industry Analyst, NPDJosh Friedlander VP Strategic Data Analysis, RIAAGregory Mead Co-Founder, MusicmetricChris Muratore VP Merchant Services and Emerging Growth, Nielsen EntertainmentAlex White Co-Founder/CEO, Next Big Sound

ALBUMS EARN LESSSONGS EARN MORE

Adele “Rolling In The Deep” sold over 11 Million units in 2011, the most of any single song in the Soundscan era

New distribution geared towards revenues of singles (YouTube/Vevo, Subscription, Licensing, etc.)

Singles Take Longer To Break

• CARLY RAE JEPSEN– Released September ‘11, Peak June ’12

• GOTYE– Released July ‘11, Peak May ‘12

• FUN– Released September ‘11, Peak March ’12

• ONE DIRECTION– Released August ‘11, Peak April ’12

• FOSTER THE PEOPLE– Released February ‘10, Peak August ‘11

Industry Shift – Half of Revenues Digital in 2011

1%

50%

99%

50%

0%

20%

40%

60%

80%

100%

2004 2005 2006 2007 2008 2009 2010 2011

Physical

Digital

Source: RIAA

Source: RIAA

Source: RIAA

2011TRANSACTION &

PERFORMANCE

TOTALSOverall Music Consumption is at an All-Time High!

Nielsen will capture more than30 BILLION

Streams & Transactions in 2012

Music Streaming & Download Activity• Through the first 5+ months of 2012, Nielsen has capture more than 14.1Billion audio and video streams and 622 million digital track downloads.

(Note: video streams is missing a large portion of YouTube activity)

• When looking at the 14.1Billion total streams Nielsen has captured so far in 2012, more than 11.2 Billion are audio streams through services like Spotify, Slacker, Rhapsody, Cricket, Rdio and MOG.

• Since November of 2011, weekly streaming activity has gone from 400 million per week to 660 million per week in the most current week. • After an 8% growth year in 2011, digital track sales in 2012 are up 6% so far in 2012.

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0120

100

200

300

400

500

600

700 Total Streams Audio Streams Digital Track Sales

-Projected track sales for year end 2012 is 1,350,000,000 – record year.- Streaming activity will increase by more than 33% in 2012.

Mill

ions

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2012 Proj

- 200,000,000 400,000,000 600,000,000 800,000,000 1,000,000,000 1,200,000,000 1,400,000,000

19,000,000

143,000,000

353,000,000

582,000,000

844,000,000

1,069,000,000

1,196,000,000

1,172,000,000

1,271,000,000

622,000,000 1,370,000,000

Digital Track Sales By Year• Digital track sales reached another record high in 2011 w/ nearly 1.27 Billion sales. • YTD 2012 digital track sales are on record pace again and projecting to be around 1.37 Billion.

Note: 2012 is year to date sales through June 10th .

199519961997199819992000200120022003200420052006200720082009201020112012

2012 Proj

- 100,000,000 200,000,000 300,000,000 400,000,000 500,000,000 600,000,000 700,000,000 800,000,000

368,000,000

448,000,000

505,000,000

580,000,000

648,000,000

706,000,000

712,000,000

649,000,000

636,000,000

651,000,000

599,000,000

553,000,000

449,000,000

360,000,000

301,400,000

237,000,000

223,500,000

80,663,000

200,000,000

CD Album Sales By Year

CD Album Sales By Year

• CD album sales peaked in 2001 with 712 million CD albums sold and in 2012 still account for the majority of albums sold: 61%.

Note: 2012 is year to date sales through June 10th .

2004

2005

2006

2007

2008

2009

2010

2011

2012

2012 Proj.

- 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000

5,500,000

16,200,000

32,600,000

50,000,000

65,000,000

78,400,000

86,300,000

103,100,000

50,346,000

117,500,000

Digital Album Sales By Year

Digital Album Sales By Year

• Digital album sales continue to grow each year and YTD 2012 account for 38% of all album sold.

Note: 2012 is year to date sales through June 10th .

- Up 14% YTD over 2011.

Music Consumption Song & Album Facts There were 8 million different songs downloaded at least once in 2011.

Note: 94% (7.5 million songs) were downloaded less than 100 times each and 30% were downloaded only 1 or 2 times.

Other interesting digital song facts: Top 200 downloaded songs = 20% of digital song sales (263m) Top 3,300 downloaded songs = 50% of digital song sales (635m) Top 10,000 downloaded songs = 65% of digital song sales (830m)

There were 77,000 new album releases in 2011 that sold at least one unit that produced 113.2 million album sales.

Less than 1% of all new album releases (350 titles) accounted for 70% of all new album release sales.

94% of all new releases in 2011 sold less than 1,000 units each (72,000) and 80% sold less than 100 units.

Music File Sharing - Today

• 1 million active music torrents• 200 million individuals tracked• 2 billion music ‘file trades’ in 2012 (so far)• 10% of American BitTorrent users use an

anonymous VPN• USA makes up 22% of music file sharing• 60% of downloads made by top 40% of users

Gregory.mead@musicmetric.com

Music file sharing - Trends

11/18/10 2/26/11 6/6/11 9/14/11 12/23/11 4/1/12 7/10/120

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Music Torrents Created per DayThis year

Gregory.mead@musicmetric.com

Music file sharing - Trends

12/23/11

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New torrents per day

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Illegal Downloaders per day - USA

Gregory.mead@musicmetric.com

Music File Sharing - Conclusion

What does torrent data show?

• Downloads in the USA are reducing• Availability is not correlated to downloads• Downloads are correlated to sales

• Using file sharing data, sales can be predicted

Gregory.mead@musicmetric.com

2007 2008 2009 2010 2011$0

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$143

$169

$205

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$377

$36

$100

$155

$249

$292

$11

$12 $17 $18 $20

Total Collections (in millions)Total Distributions (in millions)Administration Costs (in millions)

*

*

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Organizational Efficiency

(* pre audit)

70% of Americans aged 12 or older now have a broadband connection.Up from 13% in 2002.

44% of Americans have smartphones. Up from 14% in 2010

17% of Americans listened to online radio in their cars by connecting their mobile phones, up from 6% in 2010

Revenue per user

23

'2-5 '6-8 '9-11 '12-140

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iPod touchAndroid SmartphoneiPhoneiPad

Ages:

For “Connected Kids” iPad gets attention, but Touch gets usage, especially as kids become “tweens”

Music apps as important to connected tweens as social networking, but…

24

GamesMusic

Socia

l Netw

orking

Silly/

Fun

Books

77%

50% 49% 46%25%

Apps Used: 12-14 Yr. Olds

Music apps as important to connected tweens as social networking, but…

25

GamesMusic

Socia

l Netw

orking

Silly/

Fun

Books

77%

50% 49% 46%25%

Apps Used: 12-14 Yr. Olds84% of music app

users only have freeapps

Saving the next generation…

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• Establish value proposition• Create commerce platforms• Integrated experience• Rethink social media• Licensing deals

As kids… CDs account for half of the entertainment content they own…games, movies, books