Universal Music OECD
Digital Music Distribution OECD Working Party of the Information Economy Digital Broadband Content Panel Paris, 3rd June 2004
Barney Wragg Vice President eLabs Universal Music International Universal Music Group
z The worlds largest record company, labels include - Interscope, Geffen, A&M, Island, Polydor, Def jam, Motown, Decca, Mercury and many others
z We represent a vast number of artists new and old - U2, Elton John, Eminem, The Who, 50 Cent……….
z Truly international catalogue - US, European, Latin, Chinese, Japanese - Operate in 63 countries world wide
Page 1 May 2004 The Role of a Record Company
z Universal invests in artists to develop the and market their works - Large upfront cash investment to the artist - Large upfront cash investment in marketing the artists work - Investment bring risk - Investment in unknown artists brings large risks
z A record company is doing extremely well if 1 in 10 of the artists invested in is profitable
z A record company funds new artists from profits new releases and catalogue sales
z Record companies represent recordings – concerts, t-shirts and merchandizing are typically owned and controlled by the artist
Page 2 May 2004 The Economic Model
z The investment / return model is balanced on supply and demand - Supply from the record company to meet users demand - The Record Company will use marketing to stimulate demand to optimize price of a work
z The model is broken if the label can not invest in new artists - The first artist to suffer will be new high risk unproven artists
z Piracy break the supply and demand model for a record company
z Can not create ROI against infinite supply at zero cost - P2P is infinite supply at zero cost
Page 3 May 2004 Universal’s On-Line Strategy
z License widely and create many new and exciting opportunities for the consumers to “purchase” and enjoy music - Wide licensing to many service - Bring new players into the value chain - Support new business models
z Make the unlicensed and unauthorized use of music as poor experience as possible - All possible anti-piracy measures - Legal action against infringing companies and individuals
z Objective : Balance the Supply and Demand forces
Page 4 May 2004 Example On-Line services ex-US
Services active during 2003 Launching in 2004
z UK: z France: z Germany: - Freeserve - E-Compil - T-Online - HMV - Fnac - AOL Wanadoo.fr - MSN.co.uk - z Italy: - MyCokeMusic z Switzerland: - Telecom Italia DirectMedia - Tiscali.co.uk - z The Netherlands: - Virgin Megastores z The Netherlands: - NordzeeMSN - Planet Internet z Germany: z Australia: - Tiscali.nl - Popfile - nineMSN - Karstadt z Denmark: - Telstra - TDC - kontor.cc z China: - Mediamarkt z Belgium: - Rock Records (hotvision.de) - Belgacom (Skynet) - Tiscali.de z Taiwan: - iMusic
Page 5 May 2004 Consumers can purchase music in a number of different ways
z Three possible types of purchase: - Stream – one play of a track, with no permanent copy of the song stored on the consumer’s computer (only available on OD2) - Download – a track is transferred to the consumer’s computer and can be played any number of times for a set period or while the consumer is a subscriber. Can not be copied, burnt to CD or transferred to a portable player (only available on OD2) - Burn – a track is transferred to the consumer’s computer and can be copied, burnt to CD or transferred to a secure portable player (available on all three services)
z Alternative payment options: - Subscription – regular monthly payments or one-off pre-payments giving access to a set amount of content (OD2 uses a credit-based system while E-Compil is based on a set number of burns) - A La Carte – able to purchase single tracks, without subscribing or pre-paying (available for burns on all three services)
Page 6 May 2004 Licensing Conditions
z Agreement on Commercial Terms
z Good technology platform - Sensible DRM approach - Easy to use system
z Valid Marketing Plan
Page 7 May 2004 Major promotional activity helped drive sales in the UK and Germany
z “Shady Weekend” promotion by Polydor UK (April 2004) z “Win Music” campaign by Coke UK (March- April 2004): - 20m winning cans z Musicload.de (T-Online) 30-second TV adverts featuring Limp Bizkit (April 2004)
Page 8 May 2004 New methods of distribution (and revenue generation) are also appearing
Musicbrigade online video-on- demand subscription service – secure streaming to PC
O2 mobile music download service – secure tethered downloads to player via mobile phone
Page 9 May 2004 Summary
z Music is an art form with intrinsic value – it is not a commodity
z Many companies want to drive short term sales by making access to music free - Eg - Buy broadband get free music faster
z This will damage the music and the 3rd party company
z The value of catalogue will be destroyed – new music will not be available
z The value chain will not be able to support new members - Isn’t being part of the music sale better than being a commodity where music is given away?
z Co-operation on DRM technologies and anti-piracy actions can create a valuable market place for many members
Page 10 May 2004