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the REPORT Issue 308 | 19 December 2012

Contents:

PAGE 2: Artists versus digital services »

PAGE 3: Fans as the fulcrum » PAGE 4: Labels in 2012 » PAGE 5: Tech giants » PAGE 6: New services » PAGES 7 – 9: Rewind: 2012 In Review Startups » PAGE 10: Digital marketing » PAGE 11: Social » PAGE 12: Measurements » PAGE 13: Piracy battles » PAGES 14 & 15: Country profiles » REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 2

Artists versus digital services It’s become a cliché in recent be portrayed as a greedy Goliath itself by digital ecosystem. prominent songwriters. High-profile years to suggest that the were withheld from There were many negative aspects to these streaming services, connection between artists debates in 2012, with name-calling, willful often to the barely- and fans is the fulcrum of misunderstanding and a concerning lack concealed frustration of transparency making for an unhealthy the music industry, with of their labels. mixture. everyone else a middleman Yet artists were Yet a more positive take on 2012 would be to pushing the who needs to justify their mark the importance of having artists and boundaries too, position in the value chain. songwriters take a more prominent role in the seeking new models. debates around new digital music business Usually it’s labels fielding the most criticism Whether it’s Cazzette models. under that line of argument, but in 2012 the launching their career spotlight turned to the current generation of As FAC co-CEO Crispin Hunt noted in Music on , DJ Shadow streaming music services, with Spotify and Ally’s end-of-year debate: “As the digital releasing a BitTorrent Pandora taking the brunt of the attacks. environment opens up, it’s got to become bundle, Snoop Dogg more transparent: the way that these new jumping on every Artists can make wonderful musical curators Nobody questions that these services are deals are done […] Artists have to be included new social app to see what works, or the at a time when curation is once again being exposing artists’ music to millions of people; in that, or we won’t be able to make art any umpteen artists figuring out best practice on hailed as the next big step forward for music but they still – rightly or wrongly – weren’t more.” Kickstarter, and other D2C sites. recommendations. They can play a crucial seen as strengthening the bonds between role in leading fans to new digital services in artists and fans. It’s not anti-creator to point out the fact that Meanwhile, that familiar middlemen a time of technological transition. artists and songwriters don’t speak with one argument was given a twist by the many Instead – and we’ve made this point several voice (nor should they), but also that some of examples of innovative and effective digital And while lots of artists will still prefer to times in 2012 – they were viewed as giant those voices may be misinformed. marketing campaigns whose success relied focus on the music (maaan!) rather than online jukeboxes, judged purely on their on the enthusiasm of smart people within the digital hubbub around it, the fact that payouts. That’s often down to that transparency failure labels, and the engagement of artists who we have lots of others who are adding their on the part of the industry, not to mention Spotify, which pays out 70% of its revenues took this part of their job seriously, rather voices to the debates around the new music questionable contracts, and the media’s to rightsholders, was painted as a nefarious than seeing it as a chore. industry should be seen as a positive force, tendency to splash on any creator complaint artist-starving pawn of The Man, while not a negative one. without digging too deep into its context. As 2012 ended, though, it was clear that the Pandora lost control of its traditional “David message had sunk in for the big digital music We hate to turn back towards conference versus Goliath” narrative in fighting for lower Still, 2012 was the year when artists – and services. Spotify has upped its efforts to clichés, but 2012 provided a salutary royalty rates against SoundExchange, to their managers – stepped up as players in the be – and just as importantly, be perceived to reminder of the importance of listening to be – artist-friendly. Deezer is planning its own artists, and listening to their fans. “As the digital environment opens up, it’s got to artist-focused initiative, and Rdio is cracking become more transparent” on with its Artist Program. REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 3

Fans as the fulcrum

It’s fitting that Myspace the ultimate point is that acts who work it finalist, Janet Devlin, turn her correctly can get the fans on their side and back on the SyCo machine should choose to come learn from them. back because everything it and choose to go it alone. For a decade there was lip service paid And, oh the irony, Kate Nash promised (or people promised to “reconnecting with fans” which never (seen as having “broken” on its behalf) is starting to seemed to transpire much beyond that in on Myspace in 2005) went become realised this year. the major label sphere. A few retweets and through the Universal system replies on do not a revolution make. and finally, properly went DIY This is the (conditional) age of the DIY Palmer was building up to this for years. Her in November with her Pledge artist. Yes, there were acts like Marillion and one-off projects like selling T-shirts merely a campaign. Radiohead blazing a trail, but they built their warm up for the main event. own platforms and operated within their own Naysayers will point out that orbits. The self-serve platforms out there are As Malcolm Gladwell says, outliers need to all of these acts had a profile maturing and coming of age – but only for put in their 10,000 hours. Palmer, tornado that record labels or TV talent certain acts. This is still only a partial panacea of social media, may not have quite clocked shows gave them. That’s, not for those who don’t want to go the traditional up the 10,000 hours, but she sure as hell is for now anyway, the real point. label route (whose response has been to coming close. You have to give and engage Yes, name artists will be the ones that have the fastest crank up the volume for 360 deals), but a big (really engage, not “marketing speak” The one to really watch here will be Detour, ascent as there is a greater narrative there change is underway. engage) with fans online and find them were a side-project from Kickstarter that has for the press, blogs and social media to latch they are. Then and only then can you turn snowballed in the few weeks that it has been Of course, the poster child for all of this is onto (thereby accelerating the rise); but it’s that fan capital into DIY capital. That’s the big open. While helping acts find the means to Amanda Palmer whose Kickstarter campaign what happens next that will be the real litmus lesson here. DIY does not and cannot happen tour, it also starts to push Songkick towards took on a life of its own and she raised $1.2m test. These platforms have proven their in a vacuum. It needs to be nurtured. Those the role of promoter and agent – which could in her campaign period. Those willing her to worth for acts with profiles, so can they do it 10,000 hours will not clock themselves up. be massively disruptive for the incumbents fail crowed when she signed a distribution from scratch with a completely unknown act? deal with Cooking Vinyl (see – she does need Everything else in DIY was overshadowed by of the live industry. Services like Topspin a label!) and also when she made the PR The Palmer Effect but that does not mean it is Just like the DIY acts themselves, Kickstarter have scratched the service but what happens gaffe of not paying guest musicians (none any less significant. What is happening here and Pledge and the others need to put in next with Detour could prove to be the of whom really wanted paying anyway). is not just about one artist and one platform, their 10,000 hours – to figure out what works, biggest digital DIY upheaval yet – not just in True, she did need a label, but that need was but the arrival of Kickstarter in the UK at the what doesn’t, what gets the best results and live but in music overall. defined on her terms. Labels still serve a role. end of 2012 fired the starting pistol for lots of what hurtles you into disaster. When they do What has gone is the ability to monopolise British acts to start doing what they need to that, the potential will be vertiginous. that role. do to keep this top spinning. Palmer, of course, defined it in typically Of course, Pledge Music has been quietly and “Topspin has scratched the service but what theatrical and hyperbolic terms about her confidently building its roster and tucking happens next with Songkick Detour could prove misfit fans rising up as one to carry her to away successes, the biggest being Ginger the next level. So far, so Lady Gaga. But Wildheart. But it also saw its first X Factor to be the biggest digital DIY upheaval yet” REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 4

Labels in 2012 The (partial) acquisition of EMI Universal has been, let’s say, aggressive bulked up Universal means by Universal is not exclusively in its digital deals. It was the first major to, for services, partners and roughly a decade ago, announce that its digital licensing in the a digital story, but its impact on digital division was to be a profit centre in future. the digital market will be felt its own right rather than having its costs Both EMI and Universal written down to “marketing” or “R&D”. The for many years to come. have embraced open APIs, appointment of Rob Wells as president of When the world’s biggest more so than any other global digital business in 2010 was a huge swallows most of the fourth biggest, that has labels, so how that develops part of this and the company prides itself on implications right across the board and will will be interesting. As well not only doing deals, but also doing them shape not just the types of deals being done as if or when it takes a first. in the digital space but also who will and will stake in any successful not get deals. Critics argue that this is precisely the companies breaking the hot problem (Mills said the merger would lead to new service of tomorrow The independents were not united on this “the creation of an unacceptably dominant out of its API (as it said it would when Island majors in exchange for their catalogues at all, although indie figurehead Martin Mills behemoth”) – that Universal will storm in, Def Jam in the US tentatively put its toe in the were unacceptable. The fear is that such of Beggars Group found an unlikely ally hold services to ransom, swallow up most water here in February 2011). an incident would not be isolated the more in former WMG boss Edgar Bronfman Jnr of their licensing capital and demand equity powerful the majors become – especially if as they took their arguments against the A telling point to note here is that Universal stakes. It has long been accused of throwing one label owns half the market. merger to the US Senate Committee in June. has acted with the industry but has also its weight around – now it has more weight to Their actions were not entirely in vain as acted on its own (or with limited partners as But it doesn’t have to all be negative as a throw around. the regulators forced Universal to make key , with Music, shows). It has done strong major means a strong industry overall divestments. Some were not so significant What this means for Pandora (especially as deals like Monkey with Orange in the UK on at the lobbying table regarding things like but the most symbolic was the fact that artists start to attack it – see the lobbying its own as well as a variety of deals with HP copyright protection. So Universal can, if Parlophone (excluding The Beatles – the of the Music First coalition) will be hugely globally. It was also the first to sign a deal it chooses, lead from the front in a more band who took so long to get to iTunes) was interesting. Wells has been hugely critical with Virgin Media for its proposed unlimited altruistic manner in the negotiations with the not part of the deal. of the service, accusing it of “gaming” the download service. That didn’t get off the likes of Apple, , Amazon, , DMCA and not being a proper partner for ground and may be because Universal took Microsoft, governments, ISPs and more. Even so, Universal was still significantly labels. He alone cannot crush Pandora – but control of the licensing to suit its own ends. Maybe this could mean the labels get their bulked up by the parts of EMI it was allowed he can make it very difficult to survive in teeth back. As these web services gain more to acquire. And that makes the most It also faced accusations (along with Sony, a market where operational margins are power, perhaps having a more muscular powerful player at the negotiating table all Warner and EMI) of dictating terms to squeezed tighter than ever. This battle super-label to battle against means they the more powerful. eMusic that, until 2010, only focused on could be the one where we really see what a don’t run roughshod over the label sector as independent music. A number of labels, a whole. Maybe, just maybe, there may be among them Beggars Group, Merge and some benefits for all labels here. “Universal prides itself on not only doing deals, Domino, pulled their catalogue from eMusic, but also doing them first” saying the terms being imposed by the REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 5

Tech giants

Remember the days when iRadio, assuming the deals get done shortly, profile patent and will be a major story in 2013. trademark infringement music sold , making lawsuits. the music industry vitally Other technology giants were jockeying with Apple in 2012, though, with music well and Microsoft unveiled Xbox important to Apple’s business? truly in the mix for Google, Amazon, Microsoft Music as part of its big Those days are gone. and . Google’s Play Store music and Windows catalogue and improved cloud locker made a Phone 8 launch, and Nowadays it’s apps that sell iPhones and strong debut in , for example. Amazon rolled its Kindle iPads. Although Apple is always keen to talk Yet the tale of 2012 for Google was one of Fire tablets out around up its commitment to artists and the music the world with its MP3 industry, music is just part of the media mix all-too-frequent clashes with entertainment industry bodies over its anti-piracy efforts. store and cloud locker that’s fuelling billion of dollars of device sales tightly integrated. in 2012. After years of pressure to downgrade piracy sites in its search-engine rankings, Google Nokia’s Mix Radio was a Apple still makes waves in the digital music promised to do exactly that, only to find itself key feature of its Lumia ecosystem, though. Its iTunes Match service attacked several months later for being slow Windows Phones, too. There are no public figures for iTunes (along with Sony’s Music Unlimited) made to implement it. In short, every major smartphone and tablet Match or Google and Amazon’s lockers, Google and Amazon’s unlicensed lockers look launched in 2012 came with digital music Meanwhile, YouTube continued to be the but it’s fair to say they haven’t set the world basic and unappealing. It also nudged those in some form; certainly not as the sole largest streaming music service in the alight. Consumer demand for cloud music companies towards striking deals to sharpen selling point, but as an essential component. world. Google’s sprawling business makes it collections still doesn’t match up to the up their acts. Meanwhile continued to build a simultaneously one of the music industry’s efforts made by these services to get the business from slotting that component in for Apple also made an impact behind the scenes, most powerful allies in the tech world, and necessary licensing deals done. running its trademark interference in the one of its keenest foes in the copyright- gadget-makers without in-house offerings businesses of potential rivals – with Spotify lobbying wars. There’s a word for that – too. We keep coming back to Apple and Google, though, and the importance of looking copping the brunt and some labels retreating ‘frenemy’ – and it’s unlikely to fall out of use There was evidence that these companies beyond their own music services, and from streaming promotions for fear of a in 2013. weren’t just looking for cookie-cutter focusing too on the impact of their mobile backlash from iTunes. download stores either, from Google Elsewhere, Samsung bought mSpot and platforms – iOS and Android. Meanwhile, Pandora’s share price dipped talked up its Music Hub, while selling more Play’s integration with Google+ to give whenever a new leak sprang about Apple’s smartphones than Apple and facing off friends free plays of songs to Xbox Music’s It’s these platforms that are providing the plans for a streaming radio service. Inevitably against that company in a series of high- experimentation with ad-supported music on base for huge innovation in mobile music, tablets. Digital music wasn’t commoditised, whether from big streaming services like in other words: the tech giants still have an Spotify, Deezer et al, or from small startups “Consumer demand for cloud music collections incentive to innovate. and developers working on big ideas. still doesn’t match up to the efforts made to get It has to be said, though, that 2012 didn’t quite iTunes versus is a fun rivalry, turn out to be The Year Of The Cloud that the but it’s iOS versus Android that will fuel the the necessary licensing deals done” music industry was hoping for. industry’s digital growth in 2013 and beyond. REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page B

New Services The fact that streaming still lingering sense that it is, for many consumers, access, caching, streaming, damaged goods. scan and match etc.) that it makes up a fraction of total hurts. It has all the elements Its challenge now is a PR one. But even those in place but, as everyone digital income has still not services that have, seemingly, had a free outside of the twin stopped new music services pass in terms of PR are still struggling to gravitational pull of iTunes convert public and industry good will into a coming to market – both from and Spotify are finding, just commercial success. The mounting capital because you have ticked all independent companies and that Spotify continues to burn through stands the boxes it doesn’t mean as a warning that this is only a game for the tech giants looking to use anyone will want to use you. their market size to break into extraordinarily brave (or foolish) and the last one standing will be the one with the deepest The year started with a new business areas. pockets. warning of what hype, bluster and a complicated Some in the UK, like Rdio and Kickstarter, It is perhaps fitting, then, that some of the user experience can do were merely part of the slow global roll out biggest services to come to market this to a service when it was of existing services; others, like , were year are from two enormously successful announced that Beyond applauded. But the onus is now on labels and new entrants; and yet more, like computer and web companies (Google Play Oblivion, thereafter rebranded as boinc, had other industry partners to get behind them Unlimited, Pure Music and Google Play, were and Microsoft’s Xbox Music) as well as a third crashed before it got out of the gates. Its and give them the biggest fighting chance rebooted and retooled versions of earlier from a company desperate to claw back owners are reworking and refocusing the they possibly can. attempts to get a foothold in music, revised in relevance in portable music (Sony Music service and claiming it will, at some point accordance with changes in the market. Unlimited) – a concept, lest we forget, it The digital music industry is still an incredibly return, but the fact that it had so much start- diverse one, but the majority of companies, The biggest surprise was perhaps the pioneered in the 1970s with the first cassette up capital and still fell over (suggestions excluding Apple, are either at the crawling reappearance of Myspace under its new Walkman. being it was unable to secure the handset stage or, if they’ve been around a few years, owners and the fact that its new look and For Google and Microsoft it is a case of using deals it so desperately needed to get in front the walking wounded. feel were not immediately laughed out of the music to boost their existing services and of a mass audience) hung like an omen over room. Myspace – which, let’s not forget, was a increase user loyalty, but for Sony it is a the year. As Apple once again, has another victory game-changing and hugely disruptive service serious roll of the dice to become a contender lap, the real feeling is that more athletes Indeed, in our VC special in August, the point when it was at its peak in 2005 – has become again. It tried it in 2004 with , must make it onto the track if anything is that came through again and again from both something of a whipping boy for services that back in the dark days of DRM and bespoke ever going to change. Apple needs someone companies and investors was that any music lose their way and become yesterday’s news. audio formats, but it failed and Apple ate to properly snap at its heels otherwise, service that required label and publishing If it can do a digital Lazarus and make its new its dinner with the still-killer combination of a decade on, iTunes is going to remain licensing was a money pit that was, for the presence felt remains to be seen – but it can’t iTunes and iPod. Sony has clearly learned synonymous with digital music for all but most part, doomed from the off. be accused of going into this half-heartedly. from the dramatic fall from grace of Nokia the most contrary of consumers. And that’s It has really thought about how things (currently trying to rebuild itself with The fact the licensed services are, despite not even considering its long-rumoured have moved since its glory days in both Windows Phone OS and the Lumia handset) the odds being so stacked against them, still streaming service that could sink its own true design and functionality – but there is still a and has made Music Unlimited so 2012 (cloud prepared to come to market has got to be challenger – Spotify. REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 7

Startups 2012 has been a pretty good 2012 with one of the biggest: Lady Gaga’s LittleMonsters.com site. year for innovative and/or disruptive new digital music Boxopus startups, services and apps. Boxopus put the wind up rightsholders Here are 40 that caught our this year with its combination of BitTorrent downloads and Dropbox cloud storage, eye over the year, from A to V. although the latter swiftly pulled its API access over infringement fears. Ad Hoc An umbrella music blog that rose from the Changba ashes of Pitchfork’s Altered Zones website, Launching in May, this Chinese karaoke raising $37k on Kickstarter and promising to app signed up millions of users quickly, and “value quality thought” as it looked for a new thoroughly below the radar of the Western spin on MP3 blogs. music industry. It was the work of Beijing- based startup Zuitao. Audiobus A genuinely big deal for music-making apps Chirpify on Apple’s iOS devices, connecting them Chirpify launched to help artists sell direct focused on online and digital media projects, together like “virtual cables” so people can Gabuduck to fans on Twitter: music, merchandise, complete with a full set of publishing deals. squirt sounds between different apps to work whatever. Helping Amanda Palmer sell a $20 Children’s apps are going to be big news in on. 2013 and Gabuduck looks well positioned T-shirt every 30 seconds one night showed its DJZ potential. to capitalise with a musical twist: it licenses Audiogalaxy This was Turntable.fm co-founder Seth songs for kids to remix in its playful iOS apps. Goldstein’s new thing: a portal focused on The former P2P villain returned this year as Chromatik electronic dance music (EDM) with a brash a scan-and-match cloud music service with gTar Chromatik was one of a clutch of iPad apps mixture of editorial, , DJ mixes and a radio-style mixes. Most intriguingly, though, Another Kickstarter fundee (to the tune of looking to disrupt the sheet music market novelty messaging app. it proceeded to get bought by cloud giant in 2012. It helps musicians upload, record, $353k), this is a fully digital guitar with a slot Dropbox. for an iPhone running a companion app that annotate and share music – and was even Drip.fm used by American Idol’s house band. teaches people to play in an inventive way. Backplane Originally launched by indie label Ghostly to run its own subscription service, 2012 saw Picking up community platform ’s ball CueSongs Gumroad Drip.fm used by Domino and Skrillex’s OWSLA and running with it, Backplane wants to run Like Chirpify, Gumroad wants to help artists The latest startup with Peter Gabriel’s backing label as a way to connect with keen super-fans. socially-infused sites for stars, starting in is CueSongs, a clever sync licensing platform sell stuff to their followings. REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 8 continued…

Armed with $7m of VC funding, it handled MusicQubed My Jam but mobile, in other hosting, payment and delivery for creatives. words. The company formerly known as ChartsNow. mobi bagged a significant deal in July to Mixta.pe Pipe preload the UK’s entire Top 40 singles chart This iPhone app helps people build and share on Samsung smartphones, then update it With a founding team playlists, the innovation being that it taps into every week. drawn from Gracenote either Spotify or Rdio’s catalogue to construct and Songbeat, Pipe was a them. One of the first apps built using both MyMusic Facebook-fuelled filesharing services’ APIs. startup with music in its MyMusic is a music search engine meets DNA. That said, making it interactive magazine providing a one stop MPme easy to send up-to 1GB shop for content about your favourite artists to friends spooked some from a number of web sources. One of the stars of January’s Midemlab rightsholders. startups contest, this iPad app wanted to reinvent traditional radio, suggesting stations (New) Myspace Ptch Songkick Detour based on a user’s habits and personal music With Justin Timberlake as a co-owner and collection. Watch out for the iPhone app soon Incubated by Hollywood studio DreamWorks, This skunkworks project from Songkick has a slinky new design, Myspace won over a to follow. this was a neat social video app, with licensed the makings of something bigger: a way for number of sceptics when it returned in invite- music providing soundtracks, and a post- fans to band together and crowd-fund gigs in only beta in November. Its full launch deal with EDM star Kaskade to upload their town by the bands they love. Watch for launch comes early in 2013. backstage footage. it in 2013.

Pheed Pulselocker SongPop The idea of paying for an artist’s Pulselocker was a very-innovative streaming Social music game SongPop launched in July, tweets sounds barmy, but music service for DJs, launching with 1m and had been played by 30m people by the was a separate social network tracks available to cache locally on Macs for end of September, with Carrie Underwood, with individual subscriptions for use when playing sets. It costs between $9.99 Alanis Morissette and Enrique Iglesias all live stream events as well as text and $69.99 a month. testing its promo potential. and pictures. Senzari Piki Personal radio service Senzari rolled out Former music search-engine Songza pivoted This was the other spin-off globally, aiming to prove Pandora wrong and this year to a music discovery app based on from Turntable.fm in 2012: a work within European licensing structures. mood and context, signing up millions of “hand-picked radio” app built Spanish deals with MTV and social network users in the process as well as capitalising on on friends’ individual song showed its local ambitions. Facebook’s Open Graph. recommendations. Like This Is REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 9

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Sonic Notify streaming service and most likely influenced the Swedish streaming company’s recent This startup had clever technology – the revamp. ability to deliver media to smartphones and tablets through sound – as well as $4.25m TastemakerX of VC funding and a deal with guinea pig Interscope to test its music marketing This is the latest service trying to turn music potential. discovery into a game – in this case, a fantasy stock exchange where you buy songs then SoPost see their value go up (or down) according to their popularity. SoPost was another social commerce startup working with music artists in 2012, The Promo Bay associating social handles with real-world addresses to send products from, initially, Controversial? Perhaps, but more than 10k Noel Gallagher and PIAS. artists and creators signed up to try to get their work promoted on The Pirate Bay’s legal Soundrop.fm giveaways section, which has now spun off as a separate site. Soundrop essentially built Turntable.fm on Spotify’s platform as both a mobile app and TheAudience Spotify app, enlisting several big artists to host rooms, then rolling out an API for labels Nothing to do with Sophie Ellis-Bextor’s old Toma.hk Vyclone to build apps, starting with David Guetta. band: this was one of Sean Parker’s stealthy Tomahawk has grand ambitions: creating a Video app Vyclone takes footage shot by startups working with celebrities to manage translation layer across all streaming services. different people in one location and stitches SpotOn Radio their social networking activity – sometimes Toma.hk was a good way in: a way to share them together into multi-angle clips. Ed sidelining labels or studios in the process. Another way to listen to Spotify music in a links to songs that would work in a variety of Sheeran was the first major artist to benefit non-Spotify app – this time it was Pandora services, not just one. from its marketing potential. This Is My Jam being disrupted, with a beautifully-designed personal radio iPhone app made in . The antidote to the idea of ‘frictionless’ music Tracks.by sharing, This Is My Jam asked people to One of many services helping artists offer Swarm.fm recommend one song they loved at a time, content to fans in return for email addresses making the social sharing process much And another innovative startup standing on and Likes, but this one attracted the likes of more meaningful. the shoulders of Spotify, this rocket-charged Lil Wayne, Drake, Pitbull and Diddy shortly the discovery and social features of the after its launch. REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 10

Digital Marketing 2012 will be remembered What these two acts have in common is scale. the label level (with Drip.fm), They Might Be It’s perhaps a sobering thought for cutting- Giants continued to test it on the niche artist for, if not quite the year it edge acts, labels and marketers that the wider level, and Milyoni, (with broke through, the year world remains totally oblivious to their latest Yahoo Music as a partner) and Florence + that augmented reality (AR) envelope-pushing use of technology and it The Machine took another swing at trying to became more meaningful. has to take acts from the last millennium to get fans to play for concert streams online. provide that tipping point moment. They all may have been small affairs, but And savour the irony that the act that helped collectively they helped move the needle. The other big theme this year in digital push AR that significant bit closer to the Just as Hotmail, iPlayer and YouTube have marketing was related to free and sharing. mainstream did so as they celebrated their helped consumers understand content in the Critics of labels have long accused them of 50th anniversary. That the Rolling Stones, cloud, these subscription models are, slowly misunderstanding piracy and futilely trying who formed when houses in the UK having but surely, helping consumers understand to crush opponents that they really should be their own phone was still a novelty, embraced and value both one-off and recurring working with. The deal between DJ Shadow not just apps but elements within them subscriptions. that other, younger bands, still won’t touch (and marketing company Fame House) and suggests what a giddily odd year it’s been. BitTorrent was not quite as original as initially As Facebook topped 1bn users globally trumpeted (Fame House had done something and Twitter grew to 500m, some artists And the most surprising bit of it all is that similar before with Pretty Lights), but, just decided to (partially) jump off the social it appears to have worked, with Aurasma like Blur and the Stones, DJ Shadow had a media bandwagons and setting up their own (the company behind the Rolling Stones certain scale which automatically ramped up services instead. Lady Gaga (Little Monsters) app) revealing to Music Ally that it saw a the significance of what he was doing. Debate and Insane Clown Posse (JuggaloBook) clickthrough rate of 24% – a staggeringly high has raged about how effective it was (the both opened the doors on their own social figure, no matter the band involved in it. rolling in of software sponsorship and forced platforms – what they both have in common Finally, an idea that seems to have reached saturation point is music and gaming. We It took another (relatively) old band marking downloads being a sticking point for many), is fans who willingly define themselves as have been through the rise and fall of Rock an anniversary to also show what Twitter and but the simple fact remains that at least they misfits, freaks and pariahs; so it makes sense Band and Guitar Hero already so it heavily music can do together. Blur, marking 21 years tried it. for them to swim against the tide. moved towards social and mobile. Among together, debuted two brand new tracks on While Spotify still has to convince the The number of acts having the kind of those doing games this year were Katy Perry Twitter and, as a symbolic changing of the accountants that subscription figures add up, relationship with fans that allows them to (on The Simms), Jay-Z (his Empire game on guard, traditional media had to follow its lead. lots of different acts, labels and companies do something similar is naturally going to Facebook), the first Tapulous game since its The days of radio and TV getting first play tried to bring their own twist on subscriptions be small – but this is not to diminish the acquisition by Disney (Tap Tap Tour), SongPop exclusives on tracks are now long gone. to the broader market. Domino tried it on importance and significance of what has (a guess-the-track game that really exploded) been happening here. The bigger social and Green Day (on a special edition of Angry “It’s a sobering thought for cutting-edge acts, labels and networks are under fire for onerous activities, Birds). Not so much a gimmick as increasingly over-sharing and privacy worries so it’s only over-egged, ideally 2013 will see fewer people marketers that the wider world remains totally oblivious natural acts, not all acts, will want to control going for the marketing “easy win” of games to their latest envelope-pushing use of technology” this relationship more directly. and do something to ensure that dreaded term “gamification” is finally put to rest. REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 11

Social music Almost every major digital Open Graph-fuelled user growth for Vevo, remains tight; but as its November music service was social in Saavn, Deezer, Songza and KKBOX and other press event showed, the service services. wants more social activity to happen 2012 – in terms of connecting within its own applications, with people with their friends. At the end of 2012, Facebook is the unquestioned social spine of nearly all digital the emphasis tipping back towards A flurry of new third-party music services, while its deep integration frictional sharing in the form of apps and sites also launched with Apple’s iOS software may hint at a role playlists and recommendations from with social recommendations in that company’s personal radio service in musically-likeminded users rather than Facebook friends en masse. as their not-so-Unique Selling 2013. Point. Yet there was also pushback this year Facebook as a platform for music against Mark Zuckerberg’s pet concept of marketing and artists connecting with Meanwhile, every social networking service merely the result of improved controls for “frictionless” sharing, where every song fans was also a big theme of 2012. The had musicians using them: snapping on users to hide posts they’re not interested in. people listen to (or video they watch, or company’s rollout in March of its Timeline , pinning on and all article they read etc.) is posted to Facebook’s profile design for branded Pages – including The wake-up call was this: Facebook owns manner of marketing experimentation on news ticker in real-time. those of artists – proved controversial. the platform, and anyone building apps or Twitter. Even Myspace made a comeback, communities on it must play by its rules – although the jury is still out on how many Turntable.fm turned its frictionless sharing It came down like a hammer-blow on startups like BandPage (née RootMusic) and rules that can change abruptly. Knuckling friends it will win in 2013. off in May as CEO Billy Chasen tore into down and adapting looks the best policy, Facebook’s “cognitive dissonance with BandRx who were running tabs for music But the key story of 2012 for social music although Lady Gaga’s strategy of using sharing” in a blog post. and artists to make their profiles more engaging, was the social network with a billion users: Facebook as a giant funnel for her own Little Washington Post ditched their frictionless with traffic to those tabs falling off a cliff as Facebook. Its long-awaited IPO may have Monsters community was intriguing too. apps late in the year. Facebook nudged fans back to the artists’ misfired, but Facebook’s music strategy had a main activity feeds. Facebook’s launch of features like the Listen wide impact on the music world – all starting Even Spotify – which said in January that button, Share Music button and newsfeed with its Open Graph, which had launched in Facebook-connected users with all the Yet those feeds were also provoking rows later in the year over their reach, notifications about recently released albums September 2011. sharing turned on were “three times more showed music remains on Facebook’s likely to become paid users” – later removed especially as a number of brands and artists There were plenty of stats floating around: engineering radar too. its requirement in for new users to complained that their posts were being 5bn songs shared to Facebook by partner sign up using their Facebook accounts. seen by less of the fans who’d Liked their But the company’s greatest contribution to services by late-January, rising to 22bn songs Facebook Pages for no apparent reason. digital music may still be to come – and with by early November. On top of this was strong Spotify’s friendship with Facebook, however, Taken together, these two controversies more of a business focus. When it extends look to some like an unsubtle attempt by beyond Facebook’s own site and apps, the “Facebook owns the platform, and anyone building Facebook to strong-arm Page owners into company’s platform may be one apps or communities on it must play by its rules – paying to promote their posts; although the of the keys to unlock a lucrative new pipe of counter-argument is that falling reach is revenues for music services, particularly on rules that can change abruptly” mobile. REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 12

Measurements Analytics are, we are told, the To date, ‘Gangnam Style’ has seen 660k new oil. But, like oil, they are downloads in the UK, making it the ninth biggest single of the year. The biggest UK useless if they just sit there. single of 2012 is ‘Somebody That I Used To Collecting numbers is one Know’ by Gotye with sales of 1.28m. It was thing (and pretty much every also the most streamed track on Spotify (but service out there does that), but tellingly Psy wasn’t in the top 10) and had making them power a business 352k streams on YouTube. engine is another thing entirely. So what was the biggest song of the year in the UK? ‘Gangnam Style’ or ‘Somebody In the past, the music industry ran partly on That I Used To Know’? This is where digital gut instinct and it was only when the ticket measurement starts to lose any sense of receipts and record sales came in (months consensus. There are now so many different later) that it could be seen if that gut instinct platforms out there that success on one is no was right or wrong. Now we have numbers, guarantee that it will be a success on another. reported in real time, for everything and They attract different audiences and must be plentitude is as much of a problem as scarcity. understood as doing so. Success used to be measured in unit sales Add into this charts based on tags, standalone streaming chart. For now, streams problem is that they are not always mutually and revenues, but 2012 blew that apart, radio plays and (turn away, nervous lawyers) from services like Spotify, Deezer and Rdio exclusive terms. Popularity no longer means primarily because of the phenomenal torrent site downloads and the notion of will be counted but they do not include how many radio plays and sales a song success of Psy’s ‘Gangnam Style’ video that, “success” is now under question like never YouTube or other sites. How they are added racks up – and this is going to be the biggest at the time of writing, is rocketing towards before. We have more data than at any point into the singles chart (where digital was challenge for the industry as a whole. 1bn views on YouTube to become the most in the past but this has served to obfuscate corralled initially into a standalone chart but watched music video on the service – all We can track all these plays, downloads and when it should focus. now accounts for 99% of sales) will be the achieved since July. It streaked past Justin shares, but pulling them into a single chart next big challenge for the OCC, although Bieber’s ‘Baby’ at the start of December This is all building up to a numeric and that weights things correctly is going to be the charts in both the US and Sweden are (808m views and counting) but that had been measurement headache for the UK’s Official a data high wire walk. While Psy has been trying this. Music Ally understands that trying online for close to three years. Charts Company which, coincidentally, rightly praised for bringing K-Pop to Western to figure out how many streams “equal” turned 60 this year and started its own markets and proving global hits don’t have a download/sale is where charts, retailers to come from the US and UK, perhaps his and labels have yet to find common ground biggest legacy (let’s not get caught up in what “Now we have numbers, reported in real time, with some figures of 150 or 200 streams his next single will do) will be blowing apart “equaling” a download being bandied about. for everything and plentitude is as much of a the relevance of the old charts and ushering The fundamental issue here is how popularity, in an age where all platforms feed into a problem as scarcity” success and income are measured – and the master chart that actually makes sense. REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 13

Piracy battles Music analytics firm bagged the notable scalp of Demonoid in Apple and Google’s app stores, Musicmetric’s first August. while its Facebook integration was ’s Hadopi scheme generated its first abruptly switched off – both due to ‘DigitalMusic Index’ report copyright infringement complaints. tracking music downloads €150 fine in September after 1.15m first- warning letters had been sent out – either a Native apps and Facebook were using BitTorrent claimed that big success in filesharer-dissuading or a big the two key drivers for streaming globally more than 3bn songs waste of money depending on your views. growth in 2012, but both were were downloaded illegally Meanwhile and Japan both introduced blocked off for . in the first half of 2012. This tougher punishments for copyright Meanwhile, Russian social network was based on 405m tracked infringement. vKontakte attracted the wrath of The piracy villains of 2012 were pretty clear. rightsholders for unlicensed music torrents, with 78% of them on its service – and a couple of being albums and 22% singles. founder Kim Dotcom played to his Bond-villain role with relish after he was successful lawsuits. But industry In 2012, the war against piracy was rarely arrested and his site shut down in January. bodies seemed equally angry with sublime but often ridiculous, with Kim A year of legal wrangling later and we’re no Google over its anti-piracy efforts Oh, and Google did co-sponsor a PRS for Dotcom’s unspeakable ‘Mr. President’ song closer to knowing whether he’ll ever stand (or lack of them) – a row dealt with Music study into The Six Business Models For probably the lowest point of all. trial. earlier in this report. Copyright Infringement this year, reminding There was plenty of serious news, though. Dotcom pressed on with two new services: Finally, 2012 brought several more filesharing the industry that cutting off advertising The US began the year enmeshed in vapourware candidate Megabox for “some studies for the industry to argue about. revenues for pirate sites may be the most the angry debate around the ultimately of the world’s top artists” to sell music direct The RIAA claimed 9m Americans had efficient way to take them down. unsuccessful SOPA and PIPA anti-piracy to fans; and Mega.co.nz, which is essentially stopped illegally filesharing since LimeWire’s That strategy – along with pressure on bills, but 12 months later American ISPs Megaupload with beefier encryption and a shutdown in 2010; yet the Cybernorms payment providers used by these sites for are preparing to introduce a warning social layer, slated for launch in January 2013. project in Sweden suggested that country’s subscriptions – is a big talking point at the notifications system for illegal filesharers. famous IPRED legislation had only a Fellow rightsholder boo-boy Grooveshark “moderate’ effect on filesharing. end of 2012, summarised neatly by musician The speed of that shift was enough to make looked embattled in 2012: sued by its only David Lowery in December as “low-hanging British rightsholders curse, given that the major-label licensor EMI for non-payment Meanwhile, seemingly-contradictory fruit” in the anti-piracy war. Digital Economy Act of 2010 won’t spawn as well as by UMG; forced to shut down in studies suggested P2P traffic was either Expect that fruit to be plucked eagerly in any warning letters to UK filesharers until Germany; and called “a fish rotting from rising or falling – in a nutshell, it’s rising, but 2013, although rightsholders must also early-2014 at best. the head down” by TuneCore’s Jeff Price – a as a percentage of overall web traffic it’s open their eyes to a new front in their piracy description that stuck. falling thanks to the explosion of streaming The BPI took some comfort in persuading video – while several studies noting that big battles: mobile. With 5m downloads of the the High Court to order British ISPs to block Grooveshark may yet have its day in court, filesharers are often big legal-music buyers uTorrent Android app alone in 2012, mobile Newzbin2 and The Pirate Bay, while the IFPI’s but its business is being squeezed. The reminded us of the OTHER meaning of filesharing is no longer something to be work with police on raiding individual sites company’s mobile apps were booted off “shades of grey” in 2012. complacent about. REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 14

Country profiles Every fortnight, the Music Its range of tiers is bound to be similar Ally Report runs an overview to those it offers in Mexico, where it is already available: unlimited streaming costs of different markets around USD $3/week or USD $5.70/month; MP3 the world. While we cover off download packs are available for USD $3/ the obvious ones (US, Japan, week (five downloads) or USD $6.85/month UK, Germany, France) we also (20 downloads); and bundles of unlimited streaming and downloads cost USD $6/week look at smaller and emerging (five MP3s) or USD $11.40 (25 MP3s). Crucially, markets to understand what IdeasMusik offers a wide variety of payment trends, particular the digital options, including operator billing, credit ones, are lighting up these cards with local currencies, and voucher cards available at retail stores. territories. Here we pick a selection of insights, Thailand companies and facts about some of the Thailand’s digital infrastructure remains markets we have covered this year that largely underdeveloped: 3G mobile networks should give some flavor of what is happening haven’t been implemented yet and, outside of the dominant markets and players. according to local trade body TECA, the ratio explained that new advertising income from of broadband households per inhabitants MusicJet has been one of the biggest drivers Argentina With a catalogue in the “millions” of stands at 1:20 – amongst the lowest in of digital revenues in 2011. Totalling 19.7m tracks featuring the four major labels and The downloads market has so far been Asia (Japan’s and South Korea’s are 1:4 and koruna ($1.1m), advertising revenues grew the biggest local indies, MusicJet much dominated by the online store of mobile 1:3 respectively). It comes as no surprise, 148% last year, accounting for 53% of all resembles the likes of Spotify. It has a free ad- operator Personal, and by the freemium then, that ringback tones and mastertones digital income. It is hoped that the presence funded tier for its desktop app, while the full streaming service Sonora (owned by a together account for more than 57% of all of MusicJet will play a role in curbing file- experience including smartphone apps and subsidiary of telco Telefónica), which bundles digital music revenues, according to IFPI. sharing, but with disposable incomes much no advertisements costs 149 koruna ($7.45) 10 monthly MP3s with its AR$16,90 (USD lower than those seen in Scandinavia, this Amidst expanding broadband penetration per month. At the moment MusicJet’s only $3.85) unlimited desktop streaming tier. The is bound to be more challenging that the and the impending adoption of 3G, some competitor is Deezer, but we understand that downloads are also bundled with the AR$35 Spotify case study in Sweden. might fear that infrastructure developments the latter’s marketing efforts in the Czech (USD $7.95) tier, which adds mobile apps could actually fuel digital piracy, particularly access. Republic have remained close to zero – and taking into account the aforementioned the fact that Orange is not present in the Chile conditions of the physical market. Yet, the One of the most ambitious music services country doesn’t help, as the telco has been In talks with Music Ally, IFPI Chile’s Managing fact remains that music sales in Thailand about to launch in the country is IdeasMusik, one of its main drivers in other EU markets. Director Francisco Nieto explained that the have seemed flattened and in slow decline developed by Brazilian company iMusica phasing out of pre-loaded content onto for a number of years anyway. In talks with Music Ally, Petra Žikovská, for Latin telco giant Claro/América Móvil. mobile handsets was the key area for the director of the local branch of IFPI, REWIND: 2012 IN REVIEW the REPORT | 19 December 2012 | Page 15 continued… decline in digital sales. Pre-loaded full-tracks, Brazil such as MelOn, Mnet, Bugs!, Olleh Music and for one, is currently trying to breach – does tabulated as downloads by IFPI, are clearly Soribada. For 9,000 Won (£5.19) a month not really exist in South Korea, with the Brazil’s digital market is seeing very healthy on the way out and for the most part of 2011 they offer 150 downloads plus unlimited situation made more complicated by the fact growth, poised to account for 31% of overall Chile saw no new formats or services to streaming, helping to bring the price of the that most music portals are owned by telco recorded music sales in 2012. The launch replace them. average download down to 60 Won. and media companies (Olleh, for example, of iTunes has been a key factor: downloads is owned by Korea Telecom), who also own Another noteworthy digital music service to now account for just over half of the digital The dominance of these multi-faceted music record companies and distributors. have recently launched in Chile is Deezer, as market, while only five years ago mobile portals means the traditional divide in the part of its rollout throughout Latin America, represented around 85% of digital sales. US and Europe between streaming and which happened in January this year. Deezer downloads – something that Xbox Music, There is still much untapped potential for does not have a local telco partner like it iTunes in Brazil, though: Apple’s music store does in various EU markets with Orange, and still charges for purchases in US dollars and the service has seen no promotion in Chile. requires international credit cards, which It is truly a shame, as we understand that only a tiny percentage of Brazilians have. the other legal streaming service available, Upon its launch in Latin America, iTunes Sonora – owned by Telefónica’s subsidiary gained massive press coverage throughout Terra – has not seen much success in the the region in typical Apple fashion. Yet 10 country. months later, and despite all of the growth it has fuelled, payment remains a huge Portugal obstacle impeding iTunes’ wider adoption. Totalling €0.8m, subscription revenues iTunes gift cards are not available at retailers, were one of the biggest areas of digital either. Local sources hope for the situation growth seen last year in Portugal. In talks with iTunes to change as soon as possible; with Music Ally, Eduardo Simões, MD of local the boom in downloads is unlikely to last trade body AFP, explained that the growth long otherwise and online piracy remains in said segment was driven by the launch of widespread. Portugal Telecom’s own streaming service Music Box, powered by Swedish firm Aspiro South Korea (of WiMP fame in Scandinavia). It was thus The below average prices for downloads very disappointing to hear last February and streaming are largely to do with the way that the telco had decided to cancel the digital music is consumed in South Korea: service – it is currently still available though, the 2011 Korean Government Audit on the with prices ranging from free to €4.99 to K-Pop music industry found that 91.3% of PT customers, and €9.99 for everyone else. consumers bought music Aspiro revealed in February that the service from heavily-discounted streaming plus only had 80,000 customers. download packages offered by music portals Music Ally Music Ally is a music business information and strategy company. We focus on the Our clients include: Music Ally is an example of change taking place in the industry and provide information and insight into every perceptive journalism at its aspect of the business, consumer research analysing the changing behaviour and “ best, with unrivalled coverage trends in the industry, consultancy services to companies ranging from blue chip of the digital music sector. retailers and telecoms companies to start-ups; and training around methods to digitally market your artists and maximise the effectiveness of digital campaigns. We also work Andrew Fisher, CEO, Shazam Entertainment with a number of high profile music events around the world, from Bogota to Berlin and Brighton, bringing the industry together to have a good commonsense debate and get some consensus on how to move forward. The Team

Anthony Churchman Eamonn Forde Contact Music Ally: Business development Reports editor 22 Peters Lane, [email protected] [email protected] , EC1M 6DS Tel: +44 (0)20 7253 7600 Karim Fanous Leo Toyama www.MusicAlly.com Head of research Country profiles & data [email protected] [email protected] [email protected] Registered company number: 04525243 VAT number: 858212321

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