ISSUE 360 | 18 FEBRUARY 2015 thereport Contents 05 Beyond music: / 06 Pinboard: Stats, deals, startups and more Seoul music 08 Country profile: Brazil

Korea and K-pop’s remarkable rise 2 t is estimated as being a $3bn industry ISSUE 360 and Time has called it “Korea’s greatest 18.02.15 COVER FEATURE export”, now K-pop is going through its imperial period – growing sharply and Iexporting into whole new markets outside Se ul music of Asia that were previously oblivious to the genre. A recent survey in the country found that Korea and K-pop’s remarkable rise 21% of pre-teens in South Korea want to be Psy might be consigned to the heap marked One-Hit Wonder but he has helped kick open the doors for K-pop stars, by far the single biggest career ambition. Its dominance in the local market K-pop internationally. Local production companies, which launch upwards of 30 new acts a year, are thinking is staggering – jumping from around a 50% globally now, especially as the cost of developing a K-pop act can spiral into the tens of millions. There share a decade ago to 83% in 2014. is also a profound knock-on effect in terms of how the major labels in the country are looking to reinvent A report by the National Tax Service themselves. The West is now shifting to grab a piece of this boom with both Kanye West and Louis Vuitton in South Korea found that the average annual income earned by K-pop stars making strategic investments here recently. That said, while K-pop is expanding internationally, neither Western rose 72% between 2010 and 2013 – where musicians nor Western digital services are going to find it easy to have any impact in this market that has they make 46.74m won (£27k), up from reached a fascinating point of maturity without their involvement. 26.97m won (£16k). To put that in context, the average income for salaried workers in the country is 30m won. And, for the biggest acts, there are considerable sums being generated. Super Junior made Boys Republic 31.4bn won (£18.5m) in the first six months of 2014, Girls’ Generation made 30.3bn won (£17.8m), Big Bang made 29.4bn won (£17.3m) and 2NE1 made 27.5bn won ($16.2m). Girls Generation and Super Junior report the 3 Now the international labels are doubling down here and looking to change the ISSUE 360 way they do business in the country, no longer just relying on the independent From left – SM Entertainment, 18.02.15 COVER FEATURE production houses to source and develop acts they can partner with” YG Entertainment and JYP Entertainment The cost of entry, however, into the market is phenomenal. It is estimated that it can cost up to $3m to develop each member of a K-pop group (and many have five or more members). They are often signed up by management companies/production houses – notably SM Entertainment, YG Entertainment and JYP Entertainment – at the age of 9 and put through what is ostensibly a K-pop boot camp where they learn to sing, recently, electronic dance music – with early 2000s had moved into Japan. This as part of this drive. dance, do interviews and also have lessons an indigenous leaning. Beom-Joon Yang, was partly down to the Asian financial There is now an accepted three-step to become fluent in multiple languages the CEO of Universal Music South Korea, crisis in 1997 where local labels had to process for the exporting of Korean music – including Japanese, Mandarin and, describes K-pop as “a globalised music” start to seriously think internationally in (under the “Cultural Technology” concept increasingly, English. These production and the “Koreanisation of international their signings and find ways to break into developed by Lee Soo-man who set up SM houses have an A-Z policy where they music”, suggesting an inherently hybrid new markets. Entertainment): cover everything from talent spotting right form that draws on other countries’ music The genre now gets a great deal through to TV promotion – operating like and then starts to export it back to them, of backing from the South Korean exporting cultural products by bringing super-charged cottage industries. much as The Beatles and The Rolling government because of its accelerating 1 Korean singers to other markets; The rewards here, if you get it right, Stones did with R&B to Sixties America. export power. The Ministry Of Culture & seeking out international are considerable. SM Entertainment, for K-pop started to be exported in East Tourism, for example, has set up multiple 2collaborations to boost local acts’ example, has a market cap of $660m. This Asia at the end of the 1990s and by the Korean Cultural Centres around the world profiles overseas; is only going to grow as the world comes globalising the music by working with round to this most particular of genres. acts from other countries to make the Seo Taiji 3 & Boys music multicultural. ORIGINS OF K-POP India is another territory in the sights of The international success of Psy’s many K-pop acts and companies, with ‘Gangnam Style’, a huge hit and by far N-Sonic being the first group to play there YouTube’s most watched video, helped (in 2014) and the first K-pop tour of the throw a spotlight on both Korea and country happening this January. K-pop, but this is a genre with a long and fascinating history. IMPORT AND EXPORT The arrival of Seo Taiji & Boys in 1992 is commonly regarded as the start of It is not just one-way traffic here, with local modern K-pop, causing a massive change acts being developed to sell at home and in in how the South Korean record industry as many international markets as possible. was structured and how domestic acts Kanye West Creative Team, for example,

report were subsequently developed. announced it was going to set up a JV in The style was a fusion of many Western Korea by the end of January. genres – such as pop, rock, hip-hop and, Known as 10-Jones, it is the company’s the 4 Mel-On

ISSUE 360 COVER FEATURE 18.02.15 If Apple was to bring an iTunes track-only download service into the market, it would not work. A Spotify

JJCC streaming-only service could work, but it would not be able to compete [easily] with the local players”

company is concentrating on developing dominant revenue format in Korea for its own domestic acts with a view to record companies and, by 2014, digital was growing its share of the K-pop market. It making up 60% of the market, according to is also moving deeper into live and artist IFPI numbers. management, indicating a significant “It is not like five years ago where we structural change at the company in would focus on getting an article in a month) and more towards a pure access- recent years. newspaper or magazine,” says Yang on based approach. “Because of the high- first move into Asia. It is designed to help how the marketing and promotion of acts speed internet in Korea, everyone can break its own acts (notably Iggy Azalea COMPETITION AND has had to change. “We are focusing on stream tracks,” explains Yang, meaning and Drake) in the country but also to spot STANDING OUT mobile and online promotion as well as the technological advances are making and develop Korean acts for crossover in music platform side.” streaming seem more attractive and other markets. It will have brand, agency “The Korean market is totally dominated He says that 90% of Koreans now viable. and entertainment arms and there are also by K-pop – which includes lots of boy own a smartphone and this has caused a With local services having such a plans for a fashion division. groups and girl groups,” says Yang. “There fundamental shift in marketing. “It is no dominance in the country, it will mean the Actor and film director Jackie Chan are over 200 groups in the market right longer mobile-first in Korea,” he says. “It is likes of Spotify and (depending on Apple’s has interests here, helping to launch now and they are attracting lots of fans mobile-only.” plans) Beats will have a serious challenge JJCC there in 2014, a hip-hop boy ground from high schools and universities.” Neither iTunes nor Spotify are in the on their hands to break into the market. managed by Jackie Chan Group Korea. He estimates that around 30 new Korean market yet, which means that “Korean players are strong enough with Even Vuitton Moet Hennessy, Louis groups are looking to enter the market everything leans towards local services. the big mobile carriers,” says Yang. “If Vuitton’s company, has also made an each year. All of them will have been in MelOn, developed by SK Telecom, is the Apple was to bring an iTunes track-only $80m investment in YG Entertainment. development for several years and have leading digital music platform, followed download service into the market, it would Now the international labels are had millions of dollars poured into them – by KT Music, part of Korea Telecom. “The not work. A Spotify streaming-only service doubling down here and looking to change so the stakes are incredibly high. mobile carriers’ promotions have been could work, but it would not be able to the way they do business in the country, “Every week there are new groups very successful in the music industry,” compete [easily] with the local players.” no longer just relying on the independent coming in and the market is full of idol Yang says, noting that the country has 5m He also notes that, while YouTube was production houses to source and develop stars right now,” he says. “But there is paying music subscribers, which is equal key in breaking Psy internationally, it is acts they can partner with. Universal supply based on the demand. There is still to 10% of the total population. actually Facebook that now dominates in Music South Korea, for example, set up its some room for new acts, The model is, Korea for short-form video content. own development arm several years ago but it is not like it was however, changing Korea has been exporting its music and Boys Republic were the first fruits of five years ago.” as the leading across Asia for over two decades and that shift, having been in development players slowly now has the West firmly in its sights. The for two years, before putting out music DIGITAL AND THE move from a West, however, is going to find it difficult in 2013. Several other acts are being STRATEGY OF subscription bundle to get a foothold into the country – in developed by Universal in this way. MOBILE-ONLY business (offering terms of its music and also in terms of its

report “We have been here more than 20 years a set number of digital music services. That is the profound and are focusing on being a 360-degree In 2006, digital overtook downloads along tension at the very heart of this most rights company,” explains Yang. The physical to be the with streaming each singular of markets. :) the KT Music 5

ISSUE 360 18.02.15 BEYOND MUSIC

When creators Peter Molyneux’s Kickstarter disaster go direct to fans through something like Kickstarter, Veteran gamer boss late for those fans find £500k-funded development themselves in s first questions in a press interview the traditionally go, “Do you think that you’re a exasperated role pathological liar?” takes some of the publisher” beating. Yet that was the opening Asalvo in a recent interview with veteran games and being late for half a million developer Peter Molyneux by the Rock, Paper, pounds that gamers gave you?” Shotgun website. And there’s the lesson. Molyneux has the kind of reputation Think of the traditional that should set him above this kind dynamic of a band pushing of question – and the just-as-hard back against a label’s demands interrogation that followed. that they finish their album; In the 1980s and 1990s, games like or an author railing against , , Theme Park and a publisher’s desire to cut made his name, while their flights of verbal fancy; the 2000s brought titles like the Black & or, indeed, a game developer White and Fable series that set out his stall wildly underestimating the as a creatively ambitious auteur of the time and overestimating the games industry. cost of a project and then What went wrong for Molyneux? In a asking a publisher to word: Kickstarter. And his fate is a lesson indulge them. for creators of all kinds, musicians included, solo campaign. Meanwhile, the ‘winner’ of Walker gave Molyneux both barrels in Traditionally, many fans’ sympathies would rather than just his fellow games developers. Molyneux’s previous mobile game Curiosity, the interview over his string of broken be with the creator in those situations. Yet In 2012, Molyneux’s studio raised 18-year-old gamer Bryan Henderson, promises to the gamers who backed when those creators go direct to fans through just over £526k on Kickstarter for a game would be anointed “God of Gods” in , 22cans on Kickstarter. something like Kickstarter, those fans find called Godus – “a delightful reinvention” of the including getting a share of the game’s “Why are you beating me up on these themselves in the traditionally exasperated god games that brought him his original fame. revenues during their reign. dates things? You sound like a publisher,” said role of the publisher. Players would oversee a pocket-sized Fast forward to 2015. The PC and Mac Molyneux at one point in the interview, which Crowdfunding seems like a marvellous world, sculpting the landscape for their version of Godus was only released in early- was published as a verbatim Q&A. idea for many creators, but bringing down the tribe, and waging war on other gods and access form; the version is missing “It’s three years later! People gave you barriers to your audience – as Peter Molyneux their followers. It would be available for in action, as is the multiplayer mode; and half a million pounds and you’ve taken their has found – can backfire considerably.

report Mac, PC and mobile devices – a stretch goal Henderson hasn’t seen a penny from his prize. money,” replied Walker, before returning Their expectations that you deliver on your later added Linux – with the promise of a Appropriately enough, given the site’s to the theme later. “Do you not see the promises aren’t so different from those of the multiplayer mode to go alongside its rich name, Rock, Paper, Shotgun’s journalist John difference between being late for a publisher old middlemen. :) the 6

ISSUE 360 18.02.15 TOOLS Pinboard » Deals Tweets

SAMSUNG MILK MUSIC DEEZER ELITE #Zane Samsung has launched After launching in the its Milk Music service in US last year, Deezer @garydbales Australia – the only other has brought Deezer But Zane’s country outside of the US Elite, its high-definition move to iTunes that has both Pandora and premium streaming radio... that’s iTunes Radio. Samsung service, to 150 markets. It will allow Deezer one to watch folded its Music Hub subscribers with a Sonos system to upgrade to and inevitable there would service last year. the high-audio version for no extra cost. be a first

@jukevox TIDAL TUNEGO Expect more In a similar move, DJ and talent Tidal (whose parent “defections” company Aspiro was from broadcast recently acquired by radio/TV to tech Project Panther, a companies. But expect the TuneGo, a platform aimed at discovering company headed up by Jay Z) is launching in 22 graft to fail often emerging acts, has raised $1.3m in new funding. countries in Q1 this year, bringing its total market It has also signed deals with Spotify, Slacker and footprint to 30. @DavidEmery: APM Music as distribution partners. I for one am looking forward LINE NICHE to reading “secure Zane Messaging service Line Twitter has bought Niche, Hottest Record on Apple has raised €37m in a a company that links Beats” on every album new funding round. celebrities to brands marketing plan... This comes after a and major advertisers, deal with Sony Music for a rumoured $30m. It Entertainment and Avex will be focused around the Twitter-owned Vine Digital to develop a new Follow Music Ally report platform. music streaming service. on Twitter... twitter.com/musically the 7 » Stats ISSUE 360 18.02.15 TOOLS Pinboard WMG FINANCIALS 4Q-2014 815 829 FINANCIAL RESULTS (US$ millions) REVENUES (US$ millions) NEW SERVICE QTRAX Source (both graphs): Warner Music Group, 293 February 2015 273 272 256

-441 -445 -293 -296 -117 -129 -36 -41 (intersegment eliminations in each quarter: US$4m)

Revenues 128 Net 119 Other loss expenses 84 76 78 73 Selling & general Cost expenses of revenue

Recorded Recorded Artist Licensing Music 4Q-2013 4Q-2014 What is it? music: music: services & publishing physical digital expanded rights Yep, Qtrax. One of the biggest flops in a digital music industry that’s hardly been short of failures down the years. It’s back, with claims of “paradigm shifts” and FINLAND: RECORDED MUSIC SALES REALNETWORKS 2014: the suggestion that “to revolutionise the industry, all (€ millions) it takes is one digital music company to be the size of 2.9 GLOBALPAYING SUBSCRIBERS Downloads Facebook”. millions of users 2.0 (–29%) (Rhapsody + Napster) 2.5 2013 The industry could be forgiven for waiting to see if 11.5 2.0 Qtrax can strike licensing deals this time round, as well Streaming 13.8 (+20%) 2014 as coming up with a service as slick as established and 1.5 upcoming rivals in the streaming space. 26.8 Physical Even artists tempted by Qtrax’s promise to set aside 17.6 (–34%) 30% of its equity for musicians would do well to read 41.8 up on its history: the maths for how that 30% sits Total January June December

report alongside the slices that would be expected by major 35.9 (–14%) labels and funding providers if Qtrax has a realistic Source: IFPI, Feb. 2015 Source: RealNetworks, Feb. 2015 shot at competing remains to be seen, too. the 8

ISSUE 360 18.02.15 MARKET PROFILE Brazil

amazing new artists breaking through, such as Anitta. But we need to continue to find BRAZIL exciting emerging talent and help them to succeed in this high-speed world and thrive on an international stage. One of the great STATS tools we have in this ‘age of information’ f is increasingly sophisticated methods of Population 202m analysing snowballing amounts of data and performance metrics, so we can be sure

d we’re best promoting and marketing all of GDP per capita US$12,100 our artists – wherever they are in the world.” h music:)ally’s sources on the ground indicate that downloads were slightly Internet users 107.8m down in 2014 and that streaming was the c key driver of growth. Although specific Broadband households 22.2m figures for the formats are yet to be published, digital revenues are still led

j by iTunes, which continues to dominate Mobile subscriptions 273.6m the downloads market virtually single- i handedly. In the context of a flattening economy and a digital divide, music It comes as a bit of a surprise that Smartphone users 46.3m sales in Brazil face a challenging time, barely growing in 2014. Apple has not changed its approach since Sources: IFPI, CIA World Factbook launching its music store in Brazil towards The live sector, on the other hand, continues to be a massive business. the end of 2011: tracks are still charged for on iTunes in US dollars, requiring users ollowing a decade of virtually value grew by just under 1.2% last year to music fans engaging with digital formats. to have international credit cards. Thus non-stop growth, Brazil’s economy R$378.6m. As of today this would equate The download business is still solid and the downloads consumer segment in the is facing challenging times. The to $133.8m, falling by more than 15% in this important while streaming goes from country is almost entirely composed of country’s new finance minister currency from 2013. strength to strength thanks to the arrival of affluent Brazilian iOS users. In this regard, Frecently forecast GDP to remain almost Going into more detail, physical revenue new partners such as Spotify, Google Play it is worth bearing in mind Apple’s latest flat this year, echoing the 2014 results fell 15% to R$200.9m, which was made and Deezer. The good news is that, overall financials, in which the company revealed which saw a mere 0.15% expansion. Rising up for by digital sales growing 30% to in 2014, the market performed well. We that in Q4 2014 iPhone sales in Brazil inflation and the decline of the local R$177.6m. The market was thus split 53% experienced an increase in total industry doubled year-on-year. currency (the real) are also impacting on physical and 47% digital. revenues, which is great; but what is On the streaming side, Brazilians are spoilt consumers’ purchasing power. In talks with music:)ally, Sergio Affonso especially encouraging is that digital sales for choice. All major international on-demand The context is somewhat reflected by (president of Warner Music Brazil) said, are experiencing continuous growth.” services are now available in the country, the performance of music sales: although “The Brazilian market is continuing to He added, “The biggest opportunity including some with telco partnerships with a

report local body ABPD has not yet published its change and evolve. We’re seeing a decline and challenge is A&R. At Warner, we’ve range of extended trials, telco billing and data full figures for 2014, music:)ally understands of traditional physical sales alongside significantly invested in local A&R. This has allowance options: Deezer with TIM; Napster that the recorded music market’s trade a significant increase in the number of resulted in in an impressive roster and some with Vivo/Terra; and Rdio with Oi. Google the ISSUE 358 21.01.15

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ISSUE 360 18.02.15 MARKET PROFILE Brazil continued...

TOTAL TOTAL TOTAL TOTAL TOTAL 359.76 380.33 392.86 374.14 378.57 19% 35% 26% 208 60.85 111.44 347 53.96 11157% 22% 136.39 177.66 60% 133 9% 183 23% 101 Subscriptions Digital 20% 2,079 25% Mobile 305.80 319.48 Physical 8% 15% 27% Ad-supported 281.42 11% Downloads 237.75 200.92 34% 13% 33% 16% 24% Other 14% 5% 2009 2010 2011 2012 2013 2010 2011 2012 2013 2014

Brazil: recorded music sales Brazil: recorded digital music sales by format (R$ millions, trade value) Source: ABPD, Music Ally Source: IFPI Play Music also announced a six-month free which digital revenues overtake physical and will distribute 15 Xbox and PlayStation Its Tomorrowland festival will hold 180,000 bundling promotion with flagship Samsung sales in Brazil, so for a country where four games in 2015. Looking at other revenue visitors in May 2015, selling out in three Devices in September. A notable exception to out of the top 10 CD sellers in 2014 were streams we have also been growing our live hours, with 870,000 people signing up to such partnerships is Spotify, which remains from members of the religious orders business considerably.” purchase tickets in September 2014 (without standalone. We understand, however, that (Catholic priest Marcelo Rossi being the top Brazilian live promoter Time For Fun yet knowing the line-up). Last year, SFX also the company has been growing rapidly in one) it will be intriguing to see if and how (T4F) announced that, in the first nine acquired a 50% stake in Rock In Rio. Brazil since launching there in May 2014. All such features translate to the digital side. months of 2014, its revenues saw a 38.3% It remains to be seen how the new streaming services charge a standard R$14.90 An interesting aspect about the increase year-on-year to R$455m (by economic realities will impact on the live ($5.25) per month. operation of Sony Music Brazil discussed means of comparison, as aforementioned sector. In the meantime, it is clear that Discussing some of the peculiarities of by Schiavo revolves around the company recorded music sales for the whole year bringing live into the equation of music the Brazilian market, Alexandre Schiavo adapting its physical operations in a market totalled R$378.6m in trade value). Live business opportunities in Brazil is just as (president of Sony Music Entertainment that is clearly moving away from CDs. growth saw a strong push in the first half of important (or arguably more so) than whether Brazil) told us, “Although local repertoire “We acknowledged the challenges in the the year from tours by the likes of Metallica or not streaming and download services can continues to account for 70-80% of the country, but, rather than freeze, we looked and One Direction. win the hearts of music fans in the country. :) physical market, digital sales are mostly for ways to evolve,” he said. “For instance, Another sign of the vibrant live sector comprised of international catalogue.” This we are the largest physical distributor in Brazil comes from American We acknowledged the challenges again resonates with the aforementioned of music, CDs and DVDs. Our logistical media conglomerate SFX in the country, but, rather than divide around the iTunes demographic. strength and relationships with retailers Entertainment acquiring Brazilian freeze, we looked for ways to report It will be worth watching how and media have allowed us to make a move talent agency Plus Talent in 2014. consumption evolves in this regard: Schiavo into videogame distribution. We entered The latter represents several evolve” forecasts that 2015 will be the first year in this business in Brazil in 2014 with five titles local DJs and produces events in the country.

the Alexandre Schiavo, Sony Music Ent. 10 Music Ally is a music business information and strategy company. We focus on the change taking place in the Music Ally is an ISSUE 360 industry and provide information and insight into every aspect of the business, consumer research analysing 18.02.15 example of perceptive the changing behaviour and trends in the industry, consultancy services to companies ranging from blue journalism at its chip retailers and telecoms companies to start-ups; and training around methods to digitally market your best, with unrivalled artists and maximise the effectiveness of digital campaigns. We also work with a number of high profile music Andrew Fisher, events around the world, from Bogota to Berlin and Brighton, bringing the industry together to have a good CEO, Shazam coverage of the commonsense debate and get some consensus on how to move forward. Entertainment digital music sector”

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