Digital Crossroads: Time for Digital Music’s Plan B?

Agenda

1. Just how far have we come?2. Assessing the impact of streaming3. Innovation and the iPad Analogue

Mark Mulligan – September 2012

music industry blog

music

technology

business

Digital Crossroads: Time for Digital Music’s Plan B?

Agenda

1. Just how far have we come?2. Assessing the impact of streaming3. Innovation and the iPad Analogue

Mark Mulligan – September 2012

music industry blog

music

technology

business

Janus was the god of

transitions and

beginningsStreaming

music services have one eye

on the past and one on the

future

Mark Mulligan – September 2012

music industry blog

music

technology

business

Streaming Services are Reaching a Tipping Point

58%Streaming users listen to more music because of streaming47%Streaming users that are aged under 24 (59% are male)

12%Consumers discover new artists via streaming services11 Years

The time it took Rhapsody to gain 1m paying subscribers

7 QuartersThe time it took Spotify to gain 1m paying subscribers

Sources: Industry sources, company numbers and EMI Insights Survey 2011 (UK Only)

Mark Mulligan – September 2012

music industry blog

music

technology

business

Mark Mulligan – September 2012

music industry blog

music

technology

business

Streaming Music is Breaking Out of a Young Male Early Adopter Skew

13 to 1516 to 2021 to 2416 to 2425 to 3435 to 4445 to 5455 to 64 Average0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

38%

47% 45% 46%

39%

35%

31%

23%

32%

Male Female0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

35%

29%

Streaming Music Penetration by Age

Penetration by Gender

% o

f all c

on

su

mers

Source: EMI Insight Data, 2011

Mark Mulligan – September 2012

music industry blog

music

technology

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Spai

n

Fran

ce

Denm

ark

UK

Aver

age

Canad

a

Japa

n

Swed

en

Norway US

Aver

age

0%

20%

40%

60%

80%

100%

26%17%

34%22% 22% 18%

11%

27% 28%

11%22%

26%

22%

22%

19% 20%19%

14%

17% 17%

23%

20%

36%

47%29%

41% 40% 44%

54%

33% 33%41%

40%

12% 13% 15% 17% 19% 19% 22% 22% 22% 25%19%

Don't know Less About the same More

Across Most Markets More Consumers are Streaming Less Than They Did a Year Prior

Question Asks: Would you say you do the following more or less compared to 12 months ago? (Q25 - Asked from all)

59%

Source: EMI Insight Data, 2011

Mark Mulligan – September 2012

music industry blog

music

technology

business

Making an Impact: Streaming’s Role in Digital Music

Data source: all data is FY 2011 from the IFPI Recording Industry in Numbers 2012

Mark Mulligan – September 2012

music industry blog

music

technology

business

music industry blog

music

technology

business

Facebook Has Been an Adrenaline Injection for Spotify

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-

12 -

5.0

10.0

15.0

20.0

25.0

30.0

Total Spotify Users

Millio

n u

sers

22.3 Million

Mark Mulligan – September 2012

music industry blog

music

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business

Spotify’s US Paid Subscriber Base is Growing Strongly

Millio

n p

ayin

g u

sers

Aug-

11

Sep-

11

Oct-1

1

Nov-1

1

Dec-1

1

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

120.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

USRoW

1 million paying US subscribers by October?

Mark Mulligan – September 2012

music industry blog

music

technology

business

c. 0.9m

c. 3.6 m

Spotify’s Total Users Growth Is Solid But Only Average for Streaming Music Services

Source: Company reported numbers

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 420

5

10

15

20

25

30

35

Spotify

Pandora

imeem

Last.FM

Millio

n u

sers

Months from launch of service

Mark Mulligan – September 2012

music industry blog

music

technology

business

Spotify Relies Upon a Wide Marketing Funnel to Drive Paid Conversions

21%

53%

26%

Source: Spotify, Facebook, Music Industry Blog estimates

Mark Mulligan – September 2012

music industry blog

music

technology

business

(Millions)

Digital Crossroads: Time for Digital Music’s Plan B?

Agenda

1. Just how far have we come?2. Assessing the impact of streaming3. Innovation and the iPad Analogue

Mark Mulligan – September 2012

music industry blog

music

technology

business

iPad Created An Entire New Product Category by Disrupting Evolutionary PC Product Strategy

• The iPad succeeded because it identified & met untapped consumer demand.• It focused on combining what people did on a PC but wanted to be able do on a portable device, crucially doing it better than a smartphone.

• It recognized that the incumbent product (the Netbook) did not achieve this.

• The iPad went one better though, it actually did some laptop activities (games, magazines etc.) better than on a PC.Mark Mulligan – September

2012music industry

blog

music

technology

business

The Music Format Bill Of Rights

Mark Mulligan – September 2012

music industry blog

music

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Future Music Formats Must Be:Dynamic Interactive Social Curated

Mark Mulligan – September 2012

music industry blog

music

technology

business

This is not a strategy….

Conclusions

• Accelerating physical decline, slowing digital growth and over-concentration of spending is setting the scene for a perfect storm of industry crisis.

• Streaming is showing positive early signs. It is too early though to make conclusive judgements about impact on sales or piracy, though albums may need to watch their backs from downloads more than streaming.

• Music industry product strategy needs to findits ‘iPad moment’, and quickly so.

Mark Mulligan – September 2012

music industry blog

music

technology

business